Significant Case Examines Pollution Exclusions in Commercial General Liability Insurance

In a pivotal case that could have far-reaching effects on pollution exclusions in commercial general liability (CGL) insurance, the United States Court of Appeals for the Seventh Circuit has presented a crucial question to the Illinois Supreme Court. This question centers around whether emissions conducted under a regulatory permit should be exempt from the pollution exclusions typically found in standard-form CGL policies. The case stems from prolonged tort litigation in Illinois involving alleged injuries linked to ethylene oxide (EtO) emissions in Willowbrook, Illinois. Griffith Foods International Inc., and later Sterigenics US, operated a sterilizing facility in Willowbrook, emitting EtO over a span of 35 years. In 1984, the Illinois Environmental Protection Agency (IEPA) granted Griffith a construction and operating permit that acknowledged anticipated EtO emissions without specifying a limit. A federal public health report released in 2018 noted high cancer rates in Willowbrook, purportedly tied to these emissions. This led to over 800 individuals filing lawsuits in Illinois state courts, claiming bodily injury due to prolonged EtO exposure.

Central to this legal debate are the two CGL policies issued by National Union Fire Insurance Company of Pittsburgh, PA, to Griffith Foods for the periods between September 30, 1983, and September 30, 1985. Each policy included a standard pollution exclusion clause that explicitly denied coverage for 'bodily injury or property damage arising out of the discharge, dispersal, release or escape of toxic chemicals, liquids, or gases.' However, the clause also contained an exception for emissions that are 'sudden and accidental.' In 2021, Griffith and Sterigenics sought judicial declarations in federal court in Chicago, asserting that National Union had an obligation to defend them against the litigations. National Union rejected this claim, citing the pollution exclusions as the basis for denial. The U.S. District Court for the Northern District of Illinois ruled in favor of Griffith and Sterigenics, asserting that the emissions were legally permitted by the IEPA, and thus the pollution exclusion did not apply. The court's reasoning was informed by the 2011 Illinois appellate decision in Erie Insurance Exchange v. Imperial Marble Corp., which suggested that emissions authorized by a regulatory permit could create ambiguity regarding whether they are considered 'traditional environmental pollution.'

On appeal, the Seventh Circuit was tasked with determining whether the pollution exclusion was applicable to the bodily injury claims presented in the Master Complaint. The court noted the 1997 Illinois Supreme Court decision in American States Insurance Co. v. Koloms, which restricted the scope of pollution exclusions to cases of traditional environmental pollution, excluding normal commercial emissions like those of carbon monoxide from furnaces. In contrast, the emissions in question from the Willowbrook plant were industrial in nature, continuous, and allegedly harmful over a long term, potentially aligning them with the pollution exclusion. Nevertheless, the court recognized the potential for the Imperial Marble ruling to imply that emissions made under a permit could be exempt from exclusion, especially when regulatory compliance is considered.

To resolve this ambiguity, the Seventh Circuit decided not to make a definitive ruling but instead certified a question to the Illinois Supreme Court. This question essentially asks what impact, if any, a regulatory permit has in evaluating the application of a pollution exclusion within a standard-form CGL policy. The Seventh Circuit underscored the substantial financial implications involved, estimating potential defense costs up to $150 million, and stressed the broader consequences for Illinois insurance law and the national insurance market. Due to federal regulations requiring permits for significant emissions, answering this question could influence numerous future insurance coverage disputes involving industrial policyholders. Additionally, the court declined to consider National Union’s argument about limiting its duty to defend to only those claims involving injuries during the two-year policy window, citing procedural grounds for waiver. As the industry awaits the Illinois Supreme Court's guidance, both insurers and policyholders face ongoing uncertainty regarding the treatment of pollution exclusions in scenarios where emissions occur under an official permit. The resolution of this matter is expected to significantly impact the interpretation of one of the most contested provisions in general liability insurance policies.