Illinois Court Applies Both the "Total" and "Absolute" Pollution Exclusions to Bar Coverage for Toxic Smoke Permeating Neighborhood After Fire at Insured's Recycling Facility
January, 2005
In Connecticut Specialty Ins. Co. v. Loop Paper Recycling, Inc., 2005 Ill. App. LEXIS 137 (Ill. App.), the Illinois Appellate Court ruled that the “total” and “absolute” pollution exclusions bar coverage for a suit against a paper recycler brought by neighboring residents as a result of a fire set by vandals to cardboard scheduled to be recycled at the insured's facility.
Facts
The insured, Loop Paper Recycling, owned and operated a paper recycling facility in Riverdale, Illinois. In July 2000, vandals set fire to cardboard that was to be recycled at the insured's facility. The resulting fire burned for several days, sending clouds of toxic smoke into the surrounding neighborhood. As a result, neighboring residents (“underlying plaintiffs”) filed suit against Loop Paper Recycling, asserting claims for strict liability and negligence.
The insured tendered its defense to its CGL carrier, Connecticut Specialty (“Connecticut”). Connecticut agreed to defend under a reservation of rights and filed a declaratory judgment action, arguing that, under the terms of the policy, it owed no duty to defend or indemnify with respect to the underlying action.
Analysis
Connecticut's policy provided coverage for bodily injury and property damage under Coverage A and personal and advertising injury under Coverage B. The trial court granted Connecticut's motion for summary judgment, finding that while the underlying plaintiffs alleged that they suffered “bodily injury” as defined in the policy, there was no coverage by operation of the “total” pollution exclusion in Coverage A. Further, the trial court found that the underlying plaintiffs failed to allege “personal injury,” and that even if they did, the “absolute” pollution exclusion contained in Coverage B would exclude coverage for those claims.
In affirming the trial court findings, the Appellate Court stated that the coverage determination hinged upon the nature of the material that was consumed in the fire. The policy provided coverage for claims for “bodily injury.” Under the policy's “total” pollution exclusion, however, no coverage existed if the bodily injury would not have occurred in whole or part but for the “actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants at any time.” Further, the “total” pollution exclusion contained an exception, which reinstated coverage if the “bodily injury” arose “out of heat, smoke or fumes from a hostile fire.” The exception did not apply, however, if “that hostile fire occurred or originated” at a site or location where the insured “handled, stored, disposed, processed or treated waste.” The policy stated that “waste” included “material to be recycled, reconditioned, or reclaimed.”
The Appellate Court found that the policy set forth a clear and unambiguous definition of the term “waste.” Because that term included “materials to be recycled,” the underlying plaintiffs' complaint alleged that the insured was involved in the business of recycling cardboard, and the effects from the burning of that cardboard were the basis for the underlying plaintiffs' lawsuit, the Appellate Court held that the trial court properly applied the policy's total pollution exclusion to bar coverage for the underlying plaintiffs' bodily injuries. In its ruling, the Appellate Court opined that had the fire involved bundles of newly recycled cardboard, as opposed to cardboard that was to be used during, and specifically obtained for the purpose of, recycling, the exception to the total pollution exclusion may not have applied.
The Court then examined the claims under Coverage B for “personal injury.” Coverage B contained an “absolute” pollution exclusion. In reviewing the various Illinois cases interpreting the “absolute” pollution exclusion, the Court noted that in order for the exclusion to apply, there must be “traditional environmental pollution.” A primary factor to consider in determining if an occurrence constitutes “traditional environmental pollution” rests upon whether the injurious “hazardous material” is confined within the insured's premises or, instead, escaped into “the land, atmosphere, or any watercourse or body of water.” The Court noted that Illinois case law supports the proposition that, for there to be traditional environmental pollution triggering the absolute pollution exclusion, the pollutant must actually spill beyond the insured's premises and into the environment.
Here, the Appellate Court noted that the underlying complaint alleged that the hazardous material was not confined to the facility, but instead spread to the surrounding neighborhoods. As such, the Appellate Court found that traditional environmental pollution occurred, and that the policy's absolute pollution exclusion barred coverage.
Learning Point:
Both the total and absolute pollution exclusions continue to be upheld by the Illinois courts in traditional environmental pollution cases. Further, this case reaffirms that in assessing a claim for coverage, all of the policy language, exclusions and definitions must be considered. In this case the court demonstrated the proper sequence of analysis by first determining if the loss fell within the grant of coverage, second considering the application of the exclusions, and third considering the exception to the exclusions to determine if coverage was available.
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