Government-Authorised Emissions Remain “Pollution” For Purposes Of CGL Policy Pollution Exclusions: The Illinois Supreme Court Confirms Regulatory Compliance Does Not Displace Exclusionary Language

In Griffith Foods v. National Union Fire Ins. Co. of Pittsburgh, PA, Case No. 131710, the Illinois Supreme Court held, on a certified question from the United States Court of Appeals for the Seventh Circuit, that a government permit or regulation authorising emissions – whether generally or at specified levels – has no relevance whatsoever to the application of a standard-form pollution exclusion in a commercial general liability (CGL) insurance policy.

Background

The policyholders operated a medical-equipment sterilisation facility. Residents living in proximity to the facility brought mass tort (delictual) claims alleging that the policyholders had emitted ethylene oxide (EtO) from the facility over a period exceeding thirty-five years, and that these emissions caused cancer and other serious illnesses among the surrounding community.

Critically, the Illinois Environmental Protection Agency (IEPA) had issued the policyholders a permit authorising the emission of EtO from the same facility. The policyholders tendered the mass tort claims to their liability insurer, which denied coverage on the basis of a standard pollution exclusion contained in the CGL policy.

The policyholders instituted a declaratory judgement action in the United States District Court, seeking an order that the insurer owed a duty to defend the underlying claims. The district court found in the policyholders’ favour, holding that the pollution exclusion did not apply because the EtO emissions had been made pursuant to a permit issued by the IEPA.

On appeal, the Seventh Circuit identified a tension in Illinois authority on the question of whether a government permit affects the applicability of a pollution exclusion. Faced with this uncertainty, the Seventh Circuit certified the question to the Illinois Supreme Court for resolution.

Policy Language and the Pollution Exclusion

The pollution exclusion at issue barred cover for:

“Bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any water course or body of water.”

This is standard exclusionary language found in CGL policies and is materially similar to the pollution and contamination exclusions commonly encountered in South African liability wordings.

The Court’s Analysis

The certified question arose because two lines of domestic authority had pulled in different directions. One line held that a pollution exclusion applies only to injuries caused by what might be called traditional environmental pollution, as opposed to isolated or incidental releases unconnected to environmental harm. A competing line of authority had gone further, holding that even a release properly regarded as environmental pollution fell outside the exclusion if a regulator had authorised it. That second approach effectively read a permit-based exception into the exclusion’s wording, even though the exclusion itself said nothing about permitted or authorised emissions.

The question for the Court, in essence, was whether a regulator’s authorisation to emit a substance changes how that substance is treated under a pollution exclusion that makes no reference to permits or lawful conduct.

The Court’s answer was unambiguous: a permit or regulation authorising emissions has no relevance to the application of a pollution exclusion. Its reasoning turned on a straightforward point of construction. The exclusion said nothing about permitted or authorised pollution, and a court interpreting a policy should not import a qualification the parties did not write into it. Regulatory approval to emit a substance does not change what that substance is: if the emissions were not pollution to begin with, there would have been no need to obtain permission to release them in the first place. The Court also observed that reading a permit-based exception into the exclusion would undermine its underlying purpose, which was to remove environmental pollution risk from standard liability cover altogether – a purpose that has nothing to do with whether a regulator happened to authorise the conduct in question. On this reasoning, the Court disapproved the competing line of authority that had allowed permitted emissions to escape the exclusion.

Takeaway

A court should not read words into an exclusion that the parties did not include, and an exclusion that says nothing about permitted or lawful emissions should not be treated as though it did.