USA – ILLINOIS Trends and Developments Contributed by: Everett J. Cygal, Daniel J. Schufreider, Jasmine K. Dela Luna, Sarah M. Oligmueller and Christopher L. Gerardi, ArentFox Schiff LLP
having issued two policies effective between Septem- ber 1983 and September 1985. The policies contained standard duty-to-defend and pollution-exclusion pro- visions. The duty-to-defend clause requires National Union to “defend any suit against the insured seeking damages on account of… bodily injury”. The pollution exclusion excludes coverage for bodily injuries caused by “the discharge, dispersal, release or escape of… toxic chemicals, liquids or gases… contaminants or pollutants into or upon land, the atmosphere or any water course or body of water”. Insurance coverage dispute In 2021, Griffith Foods and Sterigenics invoked the insurance policies and demanded that National Union defend them in the ongoing Illinois litigation. National Union denied coverage and refused to defend. Griffith Foods and Sterigenics sued National Union in the US District Court for the Northern District of Illinois, seek- ing judicial declarations that National Union had a duty to defend Griffith and Sterigenics in the underlying suits and to indemnify them for any liability resulting from those suits. At issue was whether National Union had a duty to defend Griffith Foods and Sterigenics based on the allegations of the Master Complaint. The District Court ruled in favour of Griffith Foods and Sterigenics, concluding that the pollution exclusion in National Union’s policies did not apply because the companies emitted EtO pursuant to a permit issued by the IEPA. National Union appealed, and the Seventh Circuit cer- tified the following question to the Illinois Supreme Court: “[W]hat relevance, if any, does a permit or regu- lation authorizing emissions (generally or at particular levels) play in assessing the application of a pollution exclusion within a standard-form CGL policy?” ( Grif - fith Foods Int’l Inc. , 134 F.4th at 493). The parties’ positions National Union argued three main points to the Illinois Supreme Court. 1) The text of the pollution exclusion unambiguously creates no exception for emissions pursuant to a per- mit or regulation.
2) The Illinois Supreme Court’s precedent in Am States Ins. Co. v Koloms , 177 Ill. 2d 473, 686 N.E.2d 73 (1997), precludes a government-authorised excep- tion, as the Court in Koloms held that the pollution exclusion applies to “traditional environmental pollu- tion”. The Court defined that term with reference to where the pollution occurs – “into the environment” – not why it occurs. 3) Creating an unwritten exception for government- authorised emissions would harm Illinois businesses and residents. Griffith Foods and Sterigenics countered with the fol- lowing arguments. 1) National Union cannot show that at the time it refused to defend, the pollution exclusion’s applica- tion to permitted emissions was clear and free from doubt. 2) National Union failed to prove that the pollution exclusion clearly and unambiguously applies to authorised emissions, given the exclusion’s text and drafting history. 3) Post- Koloms precedent in the Illinois intermediate appellate court found the applicability of a pollution exclusion to permitted emissions to be ambiguous, supporting policyholders, not National Union. The Supreme Court decision The Illinois Supreme Court began its analysis by reviewing the cases that prompted the certified ques- tion. In Koloms , the Illinois Supreme Court held that the standard CGL pollution exclusion applies only to traditional environmental contamination; carbon mon- oxide from a broken furnace did not qualify, so the insurer owed a defence ( Am. States Ins. Co. v Koloms , 177 Ill. 2d 473, 494, 687 N.E.2d 72, 82 (1997)). In Imperial Marble , the Illinois Appellate Court found ambiguity as to whether the exclusion bars cover- age for emissions authorised by permit; resolving the ambiguity in favour of the insured, it held that the insurer must provide a defence ( Erie Ins. Exch. v Impe - rial Marble Corp. , 2011 IL App (3d) 100380, ¶ 23, 957 N.E.2d 1214, 1221, overruled by Griffith Foods Int’l,
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