By Andrew H. Perellis

An Illinois Appellate Court has weighed in on whether the “absolute pollution exclusion,” found in the typical commercial liability insurance policy, bars coverage for liabilities arising from emissions that complied with a permit limitation. In Erie Insurance Exchange v. Imperial Marble Corp., the Third District (No. 3-10-0380; September 15, 2011) concluded that the pollution exclusion was ambiguous as to whether it excluded coverage for personal injury and property damage purportedly due to emissions from Imperial’s manufacturing operations. In the underlying action, Imperial was sued in a putative class action by its neighbors based on negligence, trespass and nuisance, despite operating in compliance with its air emission permit. The complaint alleged personal injuries and property damage resulting from the invasion of the plaintiffs’ person and property “by noxious odors, volatile organic materials (VOMs) and hazardous air pollutants (HAPs), including, but not limited to STYRENE and Methyl Methacrylate (MMA), air contaminants and other hazardous material” in the emissions generated, “as part of Imperial’s normal business operations.”

The typical exclusion bars coverage for injury arising from “pollutants,” defined in the policy as  “[a]ny solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemical, and waste.” Although the language of the absolute pollution exclusion is broad and seemingly clear, Illinois, as well as other states, have concluded that a literal reading could lead to absurd results when applied to cases which have nothing to do with “pollution” in the conventional, or ordinary, sense of the word. Accordingly, when presented with a claim seeking coverage for bodily injury caused by carbon monoxide poisoning from an allegedly defective furnace, the Illinois Supreme Court concluded that the exclusion applies only to “those injuries caused by traditional environmental pollution.” American States Insurance Co. v. Koloms, 177 Ill. 2d 473, 489 (1997).

What makes the ruling in Imperial Marble notable is its apparent conclusion that emissions within the limits of a permit may not constitute “pollutants” within the meaning of the policy. “When the allegations in the underlying complaint are compared to the relevant provisions in the insurance policy, it is unclear whether permitted emissions constitute traditional environmental pollution that is excluded under the policy Erie issued to Imperial.” Given that ambiguity as to the existence of coverage, the insurer’s duty to defend was triggered.