American States Insurance Co. v. Koloms
Annotate this Case
American States Ins. Co. v. Koloms, No. 81289 (10/17/97)
NOTICE: Under Supreme Court Rule 367 a party has 21 days after the filing of the opinion
to request a rehearing. Also, opinions are subject to modification, correction or withdrawal at
anytime prior to issuance of the mandate by the Clerk of the Court. Therefore, because the
following slip opinion is being made available prior to the Court's final action in this matter,
it cannot be considered the final decision of the Court. The official copy of the following
opinion will be published by the Supreme Court's Reporter of Decisions in the Official
Reports advance sheets following final action by the Court.
Docket No. 81289--Agenda 15--March 1997.
AMERICAN STATES INSURANCE CO., Appellant, v.
HARVEY KOLOMS, et al., Appellees.
Opinion filed October 17, 1997.
JUSTICE McMORROW delivered the opinion of the court:
We granted leave to appeal in this case (155 Ill. 2d R. 315)
in order to examine the scope of the absolute pollution exclusion
provision contained in a commercial general liability (CGL)
policy. The dispositive issue for our review is whether that
exclusion bars coverage for claims of carbon monoxide
poisoning caused by an allegedly defective furnace. For the
reasons that follow, we hold it does not.
Background
The facts of this case, as taken from the pleadings, are
relatively straightforward. On September 17, 1990, a furnace in
a two-story commercial building located in Lincolnshire, Illinois,
began to emit carbon monoxide and other noxious fumes.
Several employees of one of the building's tenants, Sales
Consultants, Inc., inhaled the fumes and became ill. Six of those
employees eventually filed suit against the beneficial owners of
the property, Harvey and Nina Koloms (hereinafter referred to
as Koloms). In the complaints, the employees alleged that
Koloms had negligently maintained the furnace and had failed
to keep it in good working condition. They also claimed that
Koloms had not properly inspected some repair work which had
been performed on the furnace. Each employee sought damages
as compensation for his or her injuries.
Koloms, in turn, tendered the complaints to American States
Insurance Company (ASI), which had insured the building under
a standard-form CGL policy. After reviewing the complaints,
ASI agreed to defend Koloms subject to a reservation of rights.
Specifically, ASI reserved the right to contest coverage on the
basis of the absolute pollution exclusion contained in the policy.
That exclusion provided in pertinent part:
"This insurance does not apply to:
* * *
f.(1) `Bodily injury' or `property damage' arising out
of actual, alleged or threatened discharge, dispersal,
release or escape of pollutants:
(a) At or from premises you own, rent or occupy
***."
The exclusion further defined "pollutants" as "any solid, liquid,
gaseous or thermal irritant or contaminant, including smoke,
vapor, soot, fumes, acids, alkalis, chemicals and waste."
Shortly thereafter, ASI instituted the present action in the
circuit court of Cook County, seeking a declaration that it did
not have a duty to defend or indemnify Koloms. The gravamen
of ASI's complaint centered upon the meaning of the term
"pollutants." ASI alleged that the term was unambiguous and
that, in accordance with its plain meaning, the emission of
carbon monoxide fumes constituted the "release" of a gaseous
"irritant or contaminant." ASI insisted, therefore, that any bodily
injuries resulting from such emissions were excluded from
coverage.
In response, Koloms denied the material allegations of the
complaint and filed two separate affirmative defenses. In one of
the affirmative defenses, Koloms alleged that the pollution
exclusion did not apply to injuries caused by a leaking furnace,
but rather was limited to injuries resulting from industrial,
commercial or large scale pollution. They claimed that the CGL
policy exclusion was ambiguous to that extent, and that an
insured person in their position would not reasonably expect
carbon monoxide, a commonly occurring chemical compound,
to be considered a pollutant.
After taking discovery, both parties filed cross-motions for
summary judgment, reiterating the contentions raised in the
earlier pleadings. The circuit court, ruling in favor of Koloms,
found that the "malfunctioning heater clearly was not intended
by the Koloms as owners of commercial real estate, to be
excluded by the provision." The circuit court granted Koloms'
motion for summary judgment, finding both a duty to defend
and a duty to indemnify. The circuit court also denied ASI's
cross-motion for summary judgment, and ASI appealed.
The appellate court, like the circuit court, concluded that the
policy language should be construed in favor of coverage. 281
Ill. App. 3d 725 (1996). In reaching this conclusion, the court
noted that:
"[a]fter consideration of the language of the clause, the
wide scope of risks insured by [ASI] in the policy, the
nature of the building and the reasoning of other courts
that have interpreted this very clause, we too find that
the clause is ambiguous, as it can reasonably be
interpreted as applying only to environmental pollution."
281 Ill. App. 3d at 731.
Accordingly, the appellate court upheld the circuit court's
finding of a duty to defend. The court further noted, however,
that any determination of ASI's duty to indemnify should not be
made until there has been an actual finding of liability against
Koloms in the underlying actions. Because those actions
remained pending, the appellate court reversed, as premature,
the circuit court's finding of a duty to indemnify.
The matter is currently before this court on ASI's petition
for leave to appeal. 155 Ill. 2d R. 315. During the pendency of
this case, we granted the Insurance Environmental Litigation
Association leave to file an amicus curiae brief on behalf of
ASI. We also allowed the following parties leave to file amici
curiae briefs on behalf of Koloms: the Federal Home Loan
Mortgage Corporation; Hart & Cooley, Inc.; the Lead
Elimination Action Drive; the Institute of Real Estate
Management; and Katalina Stringfield. Having carefully
considered all of the briefs, we now affirm the judgment of the
appellate court.
Analysis
We begin our analysis in this case by discussing the
standards by which a court determines whether an insurer is
obligated to defend its insured. Ordinarily, a court looks to the
allegations in the underlying complaint and compares those
allegations to the relevant provisions of the insurance policy.
Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90, 107-08 (1992). If the facts alleged in the complaint
fall within, or potentially within, the language of the policy, the
insurer's duty to defend arises. Outboard Marine, 154 Ill. 2d at
108. A court's primary objective in construing the language of
the policy is to ascertain and give effect to the intentions of the
parties as expressed in their agreement. Crum & Forster
Managers Corp. v. Resolution Trust Corp., 156 Ill. 2d 384, 391
(1993). If the terms of the policy are clear and unambiguous,
they must be given their plain and ordinary meaning. Outboard
Marine, 154 Ill. 2d at 108. Conversely, if the terms of the policy
are susceptible to more than one meaning, they are considered
ambiguous and will be construed strictly against the insurer who
drafted the policy. Outboard Marine, 154 Ill. 2d at 108-09. In
addition, provisions that limit or exclude coverage will be
interpreted liberally in favor of the insured and against the
insurer. National Union Fire Insurance Co. v. Glenview Park
District, 158 Ill. 2d 116, 122 (1994). A court must construe the
policy as a whole and take into account the type of insurance
purchased, the nature of the risks involved, and the overall
purpose of the contract. Crum & Forster, 156 Ill. 2d at 391.
Finally, the construction of an insurance policy is a question of
law subject to de novo review. Oakley Transport, Inc. v. Zurich
Insurance Co., 271 Ill. App. 3d 716, 720 (1995); Shefner v.
Illinois Farmers Insurance Co., 243 Ill. App. 3d 683, 686
(1993).
As the foregoing principles demonstrate, our determination
of whether the pollution exclusion applies to the types of
injuries at issue in this case turns primarily upon the language
of the exclusion itself. ASI contends, as it did in the lower
courts, that the language is unambiguous and must be given its
plain and ordinary meaning. In support of this contention, ASI
points out that the exclusion specifically applies to injuries
arising out of the "release or escape of pollutants." ASI further
notes that the exclusion defines "pollutants" as any "gaseous ***
irritant or contaminant, including *** fumes." According to ASI,
all of these words have commonly understood meanings and
usages which render the provision free of doubt. ASI adds that,
given the absence of any ambiguity, it "strains all credibility" to
suggest that carbon monoxide fumes emitted from an allegedly
defective furnace fall outside the scope of the exclusion. This is
particularly true, ASI stresses, since carbon monoxide is not
only defined in common dictionaries as a "colorless odorless
very toxic gas" (Webster's Third New International Dictionary
336 (1981)), but it is also regulated by the federal government
as a "pollutant." See 40 C.F.R. Part 50 (1996) (establishing
carbon monoxide as a "criteria air pollutant" endangering public
health under the Clean Air Act (42 U.S.C. sec. 7408(a)(1)
(1994)).
In addition to the above arguments, ASI also relies upon
several cases from other jurisdictions which have, under similar
circumstances, enforced the policy exclusion as written. For
example, in Bernhardt v. Hartford Fire Insurance Co., 102 Md.
App. 45, 648 A.2d 1047 (1994), cert. allowed, 337 Md. 641,
655 A.2d 400 (1995), a chimney flue in a residential apartment
complex became obstructed with debris, which then resulted in
an excessive accumulation of carbon monoxide gas. As in the
instant case, several of the building's tenants became ill. One of
the tenants brought suit against the owner of the property,
claiming that the furnace had been improperly maintained. The
building's owner, like Koloms, tendered the complaint to his
insurer, but was denied coverage on the basis of the pollution
exclusion. A trial court in a subsequent declaratory action found
that the exclusion was clear and unambiguous, and held that the
exclusion applied. Bernhardt, 102 Md. App. at 48, 648 A.2d at
1048. The insured appealed.
In affirming the decision of the trial court, the Maryland
Court of Special Appeals observed that an insurance policy can
be viewed as ambiguous in one of two ways. First, the language
itself " `may be intrinsically unclear, in the sense that a person
reading it without the benefit of some extrinsic knowledge
simply [could] not determine what it means.' " Bernhardt, 102
Md. App. at 54, 648 A.2d at 1051, quoting Town & Country
Management Corp. v. Comcast Cablevision, 70 Md. App. 272,
280, 520 A.2d 1129, 1132 (1987). Second, the language,
although clear on its face, may become uncertain when applied
to a particular object or circumstance. Bernhardt, 102 Md. App.
at 55, 648 A.2d at 1051. As to this latter type of ambiguity, the
court noted that it is well settled " `[t]hat a term may be free
from ambiguity when used in one context but of doubtful
application in another context.' " Bernhardt, 102 Md. App. at
55, 648 A.2d at 1051, quoting Tucker v. Fireman's Fund
Insurance Co., 308 Md. 69, 74, 517 A.2d 730, 732 (1986). After
reviewing the language of the exclusion, the court of appeals
determined that neither type of ambiguity was present. The court
explained that, although the title "pollution exclusion" could,
standing alone, be viewed as ambiguous, the actual language
contained in the exclusion was "quite specific." Bernhardt, 102
Md. App. at 54, 648 A.2d at 1051. The court also found that "a
person of ordinary intelligence reading the language" would
conclude that the exclusion applied to carbon monoxide
poisoning. Bernhardt, 102 Md. App. at 54, 648 A.2d at 1051.
Equally important, the Bernhardt court also rejected the
insured's contention that, "notwithstanding the literal language
of the exclusion, the parties intended that [the exclusion] apply
only to persistent industrial pollution of the environment, and
not to an accident of the kind generally covered by a
comprehensive business liability policy." Bernhardt, 102 Md.
App. at 48-49, 648 A.2d at 1049. As ASI notes, this argument
is virtually identical to the argument relied upon by our
appellate court when it determined that the exclusion did not
apply. See 281 Ill. App. 3d at 731 ("we too find that the clause
is ambiguous, as it can reasonably be interpreted as applying
only to environmental pollution"). ASI argues that our appellate
court erred in this regard, and instead should have adopted the
reasoning of the Bernhardt court. The court there stated in
pertinent part:
"Quite apart from the problems inherent in determining
what may or may not be `industry-related,' we are
required to state the obvious--nowhere in this exclusion
does the word `industry' or `industrial' appear. There is
simply no such limitation. Moreover, we would be hard
pressed to conclude that the insurance industry intended
such a limitation in an exclusion it intentionally
included as an endorsement in policies covering non-
industrial business, and indeed, even in homeowner's
policies." Bernhardt, 102 Md. App. at 55, 648 A.2d at
1051.
The Bernhardt court then rejected the insured's related
argument that the pollution exclusion be limited only to active
polluters, i.e., those individuals who knowingly emit pollutants
over an extended period of time. The court explained that the
exclusion neither draws a distinction between an intentional and
nonintentional discharge of pollutants nor suggests that "only
chronic emission of the defined pollutants is excluded from
coverage." Bernhardt, 102 Md. App. at 55, 648 A.2d at 1052.
As such, the exclusion could be applied to the owner of a
residential apartment complex, notwithstanding the fact that the
owner may not have been an active polluter of the environment.
Bernhardt, 102 Md. App. at 56, 648 A.2d at 1052. For these
reasons, the Bernhardt court upheld the lower court's finding of
no coverage. Bernhardt, 102 Md. App. at 56, 648 A.2d at 1052.
See also Essex Insurance Co. v. Tri-Town Corp., 863 F. Supp. 38 (D. Mass. 1994) (finding that carbon monoxide emissions
from an ice resurfacing machine at a hockey game fell within
the scope of the exclusion); League of Minnesota Cities
Insurance Trust v. City of Coon Rapids, 446 N.W.2d 419 (Minn.
App. 1989) (same).
Based upon the above analysis, ASI urges this court to
follow Bernhardt and other similar cases and hold that the
pollution exclusion is neither ambiguous nor limited to incidents
of industrial pollution.
Koloms, on the other hand, do not dispute that the drafters
of the policy employed commonly understood words when they
sought to remove pollution related injuries from the scope of
coverage. Rather, they maintain that, regardless of its facial
clarity, the exclusion does not apply to "damages due to routine
commercial hazards such as a faulty heating and ventilation
system." Koloms base their conclusion, in part, upon their view
of the historical purpose of the exclusion, which they believe
supports limiting the clause to large scale, environmental
contamination. Specifically, Koloms assert that both the original
pollution exclusion, first instituted in the early part of the 1970s,
and the current pollution exclusion, drafted in 1985, were
intended solely to protect insurers from having to defend and
indemnify insureds in connection with governmental clean-up
costs. Koloms insist, therefore, that because this case involves
personal injuries caused by exposure to materials which do not
constitute "pollution" in the traditional sense of the word, the
exclusion does not apply.
Koloms further add that, if this court were to adopt ASI's
interpretation, we would not only be extending the exclusion far
beyond its historical purpose, but we would also be nullifying
most of the coverage currently afforded under the standard-form
CGL policy. Koloms direct our attention to several recent
opinions in which courts have criticized the insurance industry's
broad definition of the terms "irritant" and "contaminant." For
example, in Westchester Fire Insurance Co. v. City of
Pittsburgh, 768 F. Supp. 1463, 1470 (D. Kan. 1991), aff'd, 987 F.2d 1516 (10th Cir. 1993), a federal district court objected to
the exclusion's potentially limitless reach, noting that "there is
virtually no substance or chemical in existence that would not
irritate or damage some person or property." In a similar vein,
the Seventh Circuit Court of Appeals observed:
"Without some limiting principle, the pollution
exclusion clause would extend far beyond its intended
scope and lead to some absurd results. To take but two
simple examples, reading the clause broadly would bar
coverage for bodily injuries suffered by one who slips
and falls on the spilled contents of a bottle of Drano,
and for bodily injury caused by an allergic reaction to
chlorine in a public pool. Although Drano and chlorine
are both irritants or contaminants that cause, under
certain conditions, bodily injury or property damage,
one would not ordinarily characterize these events as
pollution." Pipefitters Welfare Education Fund v.
Westchester Fire Insurance Co., 976 F.2d 1037, 1043
(7th Cir. 1992).
Koloms submit that, in the absence of some judicially
imposed parameters, the terms "irritants" and "contaminants"
could even be applied to such everyday elements as water or air.
For this reason, they urge that the exclusion must be limited, in
accordance with its historical purpose, to incidents of
environmental pollution.
As is evident from the foregoing discussion, each party has
presented this court with compelling reasons which support their
respective positions. Indeed, the strength of their arguments is
perhaps best reflected in the vast divergence of the jurisprudence
from across the country which have already struggled with the
question now facing this court. Unfortunately, despite the
abundance of opinions construing the exclusion, courts have not
reached a clear consensus as to its proper interpretation. This is
true even within the fairly rare context of carbon monoxide
poisoning. Some courts have construed the provision in favor of
the insured, holding that the exclusion is vague and ambiguous.
See, e.g., Motorists Mutual Insurance Co. v. RSJ, Inc., 926 S.W.2d 679 (Ky. App. 1996); Gamble Farm Inn v. Selective
Insurance Co., 440 Pa. Super. 501, 656 A.2d 142 (1995);
Kenyon v. Security Insurance Co., 163 Misc. 2d 991, 626 N.Y.S.2d 347 (1993). Other courts, however, have denied
coverage on the grounds that the exclusion is plain and
unambiguous. See, e.g., Reliance Insurance Co. v. Moessner,
___ F.3d ___, No. 95--1899 (3d Cir. August 5, 1997); Bernhardt
v. Hartford Fire Insurance Co., 102 Md. App. 35, 648 A.2d 1047 (1994), cert. allowed, 337 Md. 641, 655 A.2d 400 (1995);
League of Minnesota Cities Insurance Trust v. City of Coon
Rapids, 446 N.W.2d 419 (Minn. App. 1989). Still other courts
have largely ignored the language of the exclusion and have
found coverage on the basis of the reasonable expectations of
the insured. See, e.g., Regional Bank v. St. Paul Fire & Marine
Insurance Co., 35 F.3d 494 (10th Cir. 1994). Meanwhile, courts
have also considered the exclusion in the context of other types
of "pollutants." They too, have failed to achieve a consistent
interpretation of the clause.
The source of the disagreement within the jurisprudence
seems to lie in the fact that the language of the clause is, as the
Bernhardt court observed, "quite specific" on its face, and yet
a literal interpretation of that language results in an application
of the clause which is "quite broad." We note that when the
definition of the term "pollutant" is inserted into the body of the
exclusion, the clause eliminates coverage for " `[b]odily injury'
or `property damage' arising out of actual, alleged or threatened
discharge, dispersal, release or escape of *** any solid, liquid,
gaseous or thermal irritant or contaminant, including smoke,
vapor, soot, fumes, acids, alkalis, chemicals and waste." A close
examination of this language reveals that the exclusion (i)
identifies the types of injury-producing materials which
constitute a pollutant, i.e., smoke, vapor, soot, etc., (ii) sets forth
the physical or elemental states in which the materials may be
said to exist, i.e., solid, liquid, gaseous or thermal, and (iii)
specifies the various means by which the materials can be
disseminated, i.e., discharge, dispersal, release or escape. To that
extent, therefore, the exclusion is indeed "quite specific," and
those courts wishing to focus exclusively on the bare language
of the exclusion will have no difficulty in concluding that it is
also unambiguous. See, e.g., Reliance Insurance Co. v.
Moessner, ___ F.3d ___, No. 95--1899 (3d Cir. August 5, 1997).
Not all courts, however, find the bare language of the
exclusion dispositive. A number of courts, while acknowledging
the lack of any facial ambiguity, have nevertheless questioned
whether the breadth of the language renders application of the
exclusion uncertain, if not absurd. For instance, in addition to
the cases discussed above, the Ohio Court of Appeals has
observed that "the extremely broad language of the 1987
exclusion, in conjunction with the definition of a pollutant,
raises an issue as to whether the exclusion is so general as to be
meaningless." Ekleberry, Inc. v. Motorists Mutual Insurance Co.,
No. 3--91--39, 1992 Ohio App. Lexis 3778 at 7 (July 17, 1992);
see also American States Insurance Co. v. Kiger, 662 N.E. 945,
948 (Ind. 1996) ("Clearly, this clause cannot be read literally as
is would negate virtually all coverage"); Sullins v. Allstate
Insurance Co., 340 Md. 503, 667 A.2d 617 (1995) (same);
Motorists Mutual Insurance Co. v. RSJ, Inc., 926 S.W.2d 679
(Ky. App. 1996) (same). These courts, troubled by the results
which obtain when the terms of the clause are applied in the
context of an actual claim, often decline to apply the pollution
exclusion to injuries other than those caused by traditional
environmental contamination. See, e.g., Weaver v. Royal
Insurance Co. of America, 104 N.H. 780, 783, 674 A.2d 975,
977 (1996) ("While courts freely apply the pollution exclusion
to environmental contamination, they are generally unwilling to
hold that its scope reaches other pollution-related injuries").
We have carefully reviewed all of the foregoing decisions
as well as each of the contentions raised by the parties.
Notwithstanding ASI's arguments to the contrary, we believe
that a purely literal interpretation of the disputed language,
without regard to the facts alleged in the underlying complaints,
fails to adequately resolve the issue presented to this court. Like
many courts, we are troubled by what we perceive to be an
overbreadth in the language of the exclusion as well as the
manifestation of an ambiguity which results when the exclusion
is applied to cases which have nothing to do with "pollution" in
the conventional, or ordinary, sense of the word. See, e.g.,
Minerva Enterprises, Inc. v. Bituminous Casualty Corp., 312
Ark. 128, 851 S.W.2d 403 (1993). Accordingly, we agree with
those courts which have restricted the exclusion's otherwise
potentially limitless application to only those hazards
traditionally associated with environmental pollution. We find
support for our decision in the drafting history of the exclusion,
which reveals an intent on the part of the insurance industry to
so limit the clause.
The events leading up to the insurance industry's adoption
of the pollution exclusion are "well-documented and relatively
uncontroverted." Morton International, Inc. v. General Accident
Insurance Co., 134 N.J. 1, 31, 629 A.2d 831, 848 (1993). Prior
to 1966, the standard-form CGL policy provided coverage for
bodily injury or property damage caused by an "accident."
Center for Creative Studies v. Aetna Life & Casualty Co., 871 F. Supp. 941, 943 n.3 (E.D. Mich. 1994), quoting J. Stempel,
Interpretation of Insurance Contracts: Law and Strategy for
Insurers and Policyholders 825 (1994). The term "accident,"
however, was not defined in the policy. As a result, courts
throughout the country were called upon to define the term,
which they often interpreted in a way as to encompass pollution-
related injuries. In response, the insurance industry revised the
CGL policy in 1966 and changed the former "accident"-based
policy to an "occurrence"-based policy. The new policy
specifically defined an "occurrence" as "an accident, including
injurious exposure to conditions, which results, during the policy
period, in bodily injury and property damage that was neither
expected nor intended from the standpoint of the insured."
Morton International, Inc., 134 N.J. at 32, 629 A.2d at 849 (and
cases cited therein). Despite these changes, courts continued to
construe the policy to cover damages resulting from long-term,
gradual exposure to environmental pollution. As one court
observed, "[s]o long as the ultimate loss was neither expected
nor intended, courts generally extended coverage to all
pollution-related damage, even if it arose from the intentional
discharge of pollutants." New Castle County v. Hartford
Accident & Indemnity Co., 933 F.2d 1162, 1196-97 (3d Cir.
1991).
Meanwhile, at about the same time, the United States
Congress substantially amended the Clean Air Act in an effort
to protect and enhance the quality of the nation's air resources.
Pub. L. No. 91--604, 84 Stat. 1676 (1970) (now codified at 42
U.S.C. secs. 7401 through 7642 (1983), as amended). The
passage of these amendments, which included provisions for
cleaning up the environment, imposed greater economic burdens
on insurance underwriters, particularly those drafting standard-
form CGL policies. Westchester Fire Insurance Co. v. City of
Pittsburgh, 768 F. Supp. 1463, 1469 n.8 (D. Kan. 1991), aff'd
987 F.2d 1516 (10th Cir. 1993). The insurer's burdens further
increased with the relatively recent, and now well-publicized,
environmental disasters of Times Beach, Love Canal and Torrey
Canyon. See Center for Creative Studies, 871 F. Supp. at 944;
see also Morton International, Inc., 134 N.J. at 33-34, 629 A.2d
at 850.
In the wake of these events, the insurance industry became
increasingly concerned that the 1966 occurrence-based policies
were "tailor-made" to cover most pollution-related injuries.
Morton International, Inc., 134 N.J. at 33, 629 A.2d at 850,
quoting Note, The Pollution Exclusion Clause Through the
Looking Glass, 74 Geo. L.J. 1237, 1251 (1986). To that end,
changes were suggested, and the industry proceeded to draft
what was to eventually become the pollution exclusion. The
Supreme Court of New Jersey explained, "[f]oreseeing an
impending increase in claims for environmentally-related losses,
and cognizant of the broadened coverage for pollution damage
provided by the occurrence-based, CGL policy, the insurance
industry drafting organizations began in 1970 the process of
drafting and securing regulatory approval for the standard
pollution-exclusion clause." Morton International, Inc., 134 N.J.
at 32, 629 A.2d at 849-50. Consequently, the General Liability
Governing Committee of the Insurance Rating Board instructed
its drafting committee "to consider the question and determine
the propriety of an exclusion, having in mind that pollutant-
caused injuries were envisioned to some extent in the adoption
of the current [policies]." Morton International, Inc., 134 N.J. at
34, 629 A.2d at 850, quoting T. Reiter, D. Strasser & W.
Pohlman, The Pollution Exclusion Under Ohio Law: Staying the
Course, 59 U. Cin. L. Rev. 1165, 1197 (1991).
The result of these efforts was the addition of an
endorsement to the standard-form CGL policy in 1970. The
endorsement provided in pertinent part:
"[This policy shall not apply to 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 watercourse or
body of water; but this exclusion does not apply if such
discharge, dispersal, release or escape is sudden and
accidental."
Three years later, in 1973, the insurance industry incorporated
the above endorsement directly into the body of the policy as
exclusion "f."
During the next 13 years, various courts labored over the
exact meaning of the words "sudden and accidental." Much of
the litigation focused on whether the word "sudden" was
intended to be given a strictly temporal meaning such that, in
order for the exception to apply, the discharge of pollution had
to have been "abrupt." See Outboard Marine Corp. v. Liberty
Mutual Insurance Co., 154 Ill. 2d 90 (1992). This controversy
generated an enormous amount of litigation, leading one
commentator to describe the dispute as one of "the most hotly
litigated insurance coverage questions of the late 1980's." J.
Stempel, Interpretation of Insurance Contracts: Law and
Strategy for Insurers and Policyholders 825 (1994), quoted in
Center for Creative Studies, 871 F. Supp. at 943. Not
surprisingly, insurance companies responded by drafting a new
version of the exclusion, which, first appearing in 1985, is now
commonly known as the "absolute pollution exclusion." We note
that it is this version, the pertinent terms of which have been set
forth at the outset of this opinion, that is subject of the dispute
between ASI and Koloms. The two most notable features of this
latest version are (i) the lack of any exception for the "sudden
and accidental" release of pollution, and (ii) the elimination of
the requirement that the pollution be discharged "into or upon
land, the atmosphere or any watercourse or body of water." See
Weaver v. Royal Insurance Co. of America, 140 N.H. 780, 674 A.2d 975 (1996). Significantly, the purpose of the current
exclusion, like its predecessor, is "to exclude governmental clean
up costs from [the scope of] coverage." West American
Insurance Co. v. Tufco Flooring East, Inc., 104 N.C. App. 312,
324, 409 S.E.2d 692, 699 (1991).
Our review of the history of the pollution exclusion amply
demonstrates that the predominate motivation in drafting an
exclusion for pollution-related injuries was the avoidance of the
"enormous expense and exposure resulting from the `explosion'
of environmental litigation." (Emphasis added.) Weaver, 140
N.H. at 783, 674 A.2d at 977, quoting Vantage Development
Corp. v. American Environmental Technologies Corp., 251 N.J.
Super. 516, 525, 598 A.2d 948, 953 (1991). Similarly, the 1986
amendment to the exclusion was wrought, not to broaden the
provision's scope beyond its original purpose of excluding
coverage for environmental pollution, but rather to remove the
"sudden and accidental" exception to coverage which, as noted
above, resulted in a costly onslaught of litigation. We would be
remiss, therefore, if we were to simply look to the bare words
of the exclusion, ignore its raison d' tre, and apply it to
situations which do not remotely resemble traditional
environmental contamination. The pollution exclusion has been,
and should continue to be, the appropriate means of avoiding
" `the yawning extent of potential liability arising from the
gradual or repeated discharge of hazardous substances into the
environment.' " (Emphasis in original.) Tufco, 104 N.C. App. at
323, 409 S.E.2d at 699, quoting Waste Management of
Carolinas, Inc. v. Peerless Insurance Co., 315 N.C. 688, 698,
340 S.E.2d 374, 381 (1986). We think it improper to extend the
exclusion beyond that arena.
Notwithstanding the above, ASI submits that the deletion of
the requirement that the pollution be "[discharged] into or upon
land, the atmosphere, or any watercourse or body of water"
should be viewed by this court as a clear signal of the industry's
intent to broaden the exclusion beyond traditional environmental
contamination. We disagree. This same argument was rejected
in West American Insurance Co. v. Tufco Flooring East, Inc.,
104 N.C. App. 312, 409 S.E.2d 692 (1991), a case which
involved the application of the pollution exclusion to damages
caused by the release of fumes from a flooring sealant. In Tufco,
the court noted that, even after its amendment in 1986, the
absolute pollution exclusion continued to employ terms of art
which bespeak of environmental contamination. The court
reasoned:
"Because the operative policy terms `discharge,'
`dispersal,' `release,' and `escape' are environmental
terms of art, the omission of the language `into or upon
land, the atmosphere or any watercourse or body of
water' in the new pollution exclusion is insignificant.
The omission of the phrase only removes a redundancy
in the language of the exclusion that was present in the
earlier pollution exclusion clause. Consequently, we find
that any `discharge, dispersal, release, or escape' of a
pollutant must be into the environment in order to
trigger the pollution exclusion clause and deny coverage
to the insured." Tufco, 104 N.C. App. at 325, 409 S.E.2d at 700.
See also Center for Creative Studies, 871 F. Supp. at 946 ("the
fact that the [former version] contained language relating to
discharge `into or upon land, the atmosphere ...' is not
significant"). We agree with this analysis. In our view, the
deletion of the aforementioned language does not portend an
expansion of the pollution exclusion beyond the context of
traditional environmental contamination.
Conclusion
Given the historical background of the absolute pollution
exclusion and the drafters' continued use of environmental terms
of art, we hold that the exclusion applies only to those injuries
caused by traditional environmental pollution. The accidental
release of carbon monoxide in this case, due to a broken
furnace, does not constitute the type of environmental pollution
contemplated by the clause. Accordingly, the judgment of the
appellate court is affirmed.
Appellate court judgment affirmed.
JUSTICE HEIPLE, dissenting:
This case turns on the interpretation of an exclusion clause
in a policy of insurance. The facts are simple. Plaintiffs alleged
injury from carbon monoxide fumes escaping from a
malfunctioning furnace. The insurance company denied coverage
on the basis of policy language which excluded coverage for
injury from the escape of pollutants. The language further
defined pollutants as any gaseous irritant or contaminant
including fumes.
Choosing to override the clear language of the insurance
contract, however, the majority purports to divine the unstated
intent of the parties. With this analysis, coverage is found to be
provided. What we have here is not a case of contract
construction. It is, rather, a case of contract reconstruction. As
such, it is thimblerigging pure and simple. It also indicates the
depths to which a court will go to achieve a desired result. If
any principle can be derived from this ruling, it is that words
have no meaning.
Accordingly, I respectfully dissent.
NOTICE: Under Supreme Court Rule 367 a party has 21 days after the filing of the opinion
to request a rehearing. Also, opinions are subject to modification, correction or withdrawal at
anytime prior to issuance of the mandate by the Clerk of the Court. Therefore, because the
following slip opinion is being made available prior to the Court's final action in this matter,
it cannot be considered the final decision of the Court. The official copy of the following
opinion will be published by the Supreme Court's Reporter of Decisions in the Official
Reports advance sheets following final action by the Court.
Docket No. 81289--Agenda 15--March 1997.
AMERICAN STATES INSURANCE CO., Appellant, v.
HARVEY KOLOMS, et al., Appellees.
Opinion filed October 17, 1997.
JUSTICE McMORROW delivered the opinion of the court:
We granted leave to appeal in this case (155 Ill. 2d R. 315)
in order to examine the scope of the absolute pollution exclusion
provision contained in a commercial general liability (CGL)
policy. The dispositive issue for our review is whether that
exclusion bars coverage for claims of carbon monoxide
poisoning caused by an allegedly defective furnace. For the
reasons that follow, we hold it does not.
Background
The facts of this case, as taken from the pleadings, are
relatively straightforward. On September 17, 1990, a furnace in
a two-story commercial building located in Lincolnshire, Illinois,
began to emit carbon monoxide and other noxious fumes.
Several employees of one of the building's tenants, Sales
Consultants, Inc., inhaled the fumes and became ill. Six of those
employees eventually filed suit against the beneficial owners of
the property, Harvey and Nina Koloms (hereinafter referred to
as Koloms). In the complaints, the employees alleged that
Koloms had negligently maintained the furnace and had failed
to keep it in good working condition. They also claimed that
Koloms had not properly inspected some repair work which had
been performed on the furnace. Each employee sought damages
as compensation for his or her injuries.
Koloms, in turn, tendered the complaints to American States
Insurance Company (ASI), which had insured the building under
a standard-form CGL policy. After reviewing the complaints,
ASI agreed to defend Koloms subject to a reservation of rights.
Specifically, ASI reserved the right to contest coverage on the
basis of the absolute pollution exclusion contained in the policy.
That exclusion provided in pertinent part:
"This insurance does not apply to:
* * *
f.(1) `Bodily injury' or `property damage' arising out
of actual, alleged or threatened discharge, dispersal,
release or escape of pollutants:
(a) At or from premises you own, rent or occupy
***."
The exclusion further defined "pollutants" as "any solid, liquid,
gaseous or thermal irritant or contaminant, including smoke,
vapor, soot, fumes, acids, alkalis, chemicals and waste."
Shortly thereafter, ASI instituted the present action in the
circuit court of Cook County, seeking a declaration that it did
not have a duty to defend or indemnify Koloms. The gravamen
of ASI's complaint centered upon the meaning of the term
"pollutants." ASI alleged that the term was unambiguous and
that, in accordance with its plain meaning, the emission of
carbon monoxide fumes constituted the "release" of a gaseous
"irritant or contaminant." ASI insisted, therefore, that any bodily
injuries resulting from such emissions were excluded from
coverage.
In response, Koloms denied the material allegations of the
complaint and filed two separate affirmative defenses. In one of
the affirmative defenses, Koloms alleged that the pollution
exclusion did not apply to injuries caused by a leaking furnace,
but rather was limited to injuries resulting from industrial,
commercial or large scale pollution. They claimed that the CGL
policy exclusion was ambiguous to that extent, and that an
insured person in their position would not reasonably expect
carbon monoxide, a commonly occurring chemical compound,
to be considered a pollutant.
After taking discovery, both parties filed cross-motions for
summary judgment, reiterating the contentions raised in the
earlier pleadings. The circuit court, ruling in favor of Koloms,
found that the "malfunctioning heater clearly was not intended
by the Koloms as owners of commercial real estate, to be
excluded by the provision." The circuit court granted Koloms'
motion for summary judgment, finding both a duty to defend
and a duty to indemnify. The circuit court also denied ASI's
cross-motion for summary judgment, and ASI appealed.
The appellate court, like the circuit court, concluded that the
policy language should be construed in favor of coverage. 281
Ill. App. 3d 725 (1996). In reaching this conclusion, the court
noted that:
"[a]fter consideration of the language of the clause, the
wide scope of risks insured by [ASI] in the policy, the
nature of the building and the reasoning of other courts
that have interpreted this very clause, we too find that
the clause is ambiguous, as it can reasonably be
interpreted as applying only to environmental pollution."
281 Ill. App. 3d at 731.
Accordingly, the appellate court upheld the circuit court's
finding of a duty to defend. The court further noted, however,
that any determination of ASI's duty to indemnify should not be
made until there has been an actual finding of liability against
Koloms in the underlying actions. Because those actions
remained pending, the appellate court reversed, as premature,
the circuit court's finding of a duty to indemnify.
The matter is currently before this court on ASI's petition
for leave to appeal. 155 Ill. 2d R. 315. During the pendency of
this case, we granted the Insurance Environmental Litigation
Association leave to file an amicus curiae brief on behalf of
ASI. We also allowed the following parties leave to file amici
curiae briefs on behalf of Koloms: the Federal Home Loan
Mortgage Corporation; Hart & Cooley, Inc.; the Lead
Elimination Action Drive; the Institute of Real Estate
Management; and Katalina Stringfield. Having carefully
considered all of the briefs, we now affirm the judgment of the
appellate court.
Analysis
We begin our analysis in this case by discussing the
standards by which a court determines whether an insurer is
obligated to defend its insured. Ordinarily, a court looks to the
allegations in the underlying complaint and compares those
allegations to the relevant provisions of the insurance policy.
Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90, 107-08 (1992). If the facts alleged in the complaint
fall within, or potentially within, the language of the policy, the
insurer's duty to defend arises. Outboard Marine, 154 Ill. 2d at
108. A court's primary objective in construing the language of
the policy is to ascertain and give effect to the intentions of the
parties as expressed in their agreement. Crum & Forster
Managers Corp. v. Resolution Trust Corp., 156 Ill. 2d 384, 391
(1993). If the terms of the policy are clear and unambiguous,
they must be given their plain and ordinary meaning. Outboard
Marine, 154 Ill. 2d at 108. Conversely, if the terms of the policy
are susceptible to more than one meaning, they are considered
ambiguous and will be construed strictly against the insurer who
drafted the policy. Outboard Marine, 154 Ill. 2d at 108-09. In
addition, provisions that limit or exclude coverage will be
interpreted liberally in favor of the insured and against the
insurer. National Union Fire Insurance Co. v. Glenview Park
District, 158 Ill. 2d 116, 122 (1994). A court must construe the
policy as a whole and take into account the type of insurance
purchased, the nature of the risks involved, and the overall
purpose of the contract. Crum & Forster, 156 Ill. 2d at 391.
Finally, the construction of an insurance policy is a question of
law subject to de novo review. Oakley Transport, Inc. v. Zurich
Insurance Co., 271 Ill. App. 3d 716, 720 (1995); Shefner v.
Illinois Farmers Insurance Co., 243 Ill. App. 3d 683, 686
(1993).
As the foregoing principles demonstrate, our determination
of whether the pollution exclusion applies to the types of
injuries at issue in this case turns primarily upon the language
of the exclusion itself. ASI contends, as it did in the lower
courts, that the language is unambiguous and must be given its
plain and ordinary meaning. In support of this contention, ASI
points out that the exclusion specifically applies to injuries
arising out of the "release or escape of pollutants." ASI further
notes that the exclusion defines "pollutants" as any "gaseous ***
irritant or contaminant, including *** fumes." According to ASI,
all of these words have commonly understood meanings and
usages which render the provision free of doubt. ASI adds that,
given the absence of any ambiguity, it "strains all credibility" to
suggest that carbon monoxide fumes emitted from an allegedly
defective furnace fall outside the scope of the exclusion. This is
particularly true, ASI stresses, since carbon monoxide is not
only defined in common dictionaries as a "colorless odorless
very toxic gas" (Webster's Third New International Dictionary
336 (1981)), but it is also regulated by the federal government
as a "pollutant." See 40 C.F.R. Part 50 (1996) (establishing
carbon monoxide as a "criteria air pollutant" endangering public
health under the Clean Air Act (42 U.S.C. sec. 7408(a)(1)
(1994)).
In addition to the above arguments, ASI also relies upon
several cases from other jurisdictions which have, under similar
circumstances, enforced the policy exclusion as written. For
example, in Bernhardt v. Hartford Fire Insurance Co., 102 Md.
App. 45, 648 A.2d 1047 (1994), cert. allowed, 337 Md. 641,
655 A.2d 400 (1995), a chimney flue in a residential apartment
complex became obstructed with debris, which then resulted in
an excessive accumulation of carbon monoxide gas. As in the
instant case, several of the building's tenants became ill. One of
the tenants brought suit against the owner of the property,
claiming that the furnace had been improperly maintained. The
building's owner, like Koloms, tendered the complaint to his
insurer, but was denied coverage on the basis of the pollution
exclusion. A trial court in a subsequent declaratory action found
that the exclusion was clear and unambiguous, and held that the
exclusion applied. Bernhardt, 102 Md. App. at 48, 648 A.2d at
1048. The insured appealed.
In affirming the decision of the trial court, the Maryland
Court of Special Appeals observed that an insurance policy can
be viewed as ambiguous in one of two ways. First, the language
itself " `may be intrinsically unclear, in the sense that a person
reading it without the benefit of some extrinsic knowledge
simply [could] not determine what it means.' " Bernhardt, 102
Md. App. at 54, 648 A.2d at 1051, quoting Town & Country
Management Corp. v. Comcast Cablevision, 70 Md. App. 272,
280, 520 A.2d 1129, 1132 (1987). Second, the language,
although clear on its face, may become uncertain when applied
to a particular object or circumstance. Bernhardt, 102 Md. App.
at 55, 648 A.2d at 1051. As to this latter type of ambiguity, the
court noted that it is well settled " `[t]hat a term may be free
from ambiguity when used in one context but of doubtful
application in another context.' " Bernhardt, 102 Md. App. at
55, 648 A.2d at 1051, quoting Tucker v. Fireman's Fund
Insurance Co., 308 Md. 69, 74, 517 A.2d 730, 732 (1986). After
reviewing the language of the exclusion, the court of appeals
determined that neither type of ambiguity was present. The court
explained that, although the title "pollution exclusion" could,
standing alone, be viewed as ambiguous, the actual language
contained in the exclusion was "quite specific." Bernhardt, 102
Md. App. at 54, 648 A.2d at 1051. The court also found that "a
person of ordinary intelligence reading the language" would
conclude that the exclusion applied to carbon monoxide
poisoning. Bernhardt, 102 Md. App. at 54, 648 A.2d at 1051.
Equally important, the Bernhardt court also rejected the
insured's contention that, "notwithstanding the literal language
of the exclusion, the parties intended that [the exclusion] apply
only to persistent industrial pollution of the environment, and
not to an accident of the kind generally covered by a
comprehensive business liability policy." Bernhardt, 102 Md.
App. at 48-49, 648 A.2d at 1049. As ASI notes, this argument
is virtually identical to the argument relied upon by our
appellate court when it determined that the exclusion did not
apply. See 281 Ill. App. 3d at 731 ("we too find that the clause
is ambiguous, as it can reasonably be interpreted as applying
only to environmental pollution"). ASI argues that our appellate
court erred in this regard, and instead should have adopted the
reasoning of the Bernhardt court. The court there stated in
pertinent part:
"Quite apart from the problems inherent in determining
what may or may not be `industry-related,' we are
required to state the obvious--nowhere in this exclusion
does the word `industry' or `industrial' appear. There is
simply no such limitation. Moreover, we would be hard
pressed to conclude that the insurance industry intended
such a limitation in an exclusion it intentionally
included as an endorsement in policies covering non-
industrial business, and indeed, even in homeowner's
policies." Bernhardt, 102 Md. App. at 55, 648 A.2d at
1051.
The Bernhardt court then rejected the insured's related
argument that the pollution exclusion be limited only to active
polluters, i.e., those individuals who knowingly emit pollutants
over an extended period of time. The court explained that the
exclusion neither draws a distinction between an intentional and
nonintentional discharge of pollutants nor suggests that "only
chronic emission of the defined pollutants is excluded from
coverage." Bernhardt, 102 Md. App. at 55, 648 A.2d at 1052.
As such, the exclusion could be applied to the owner of a
residential apartment complex, notwithstanding the fact that the
owner may not have been an active polluter of the environment.
Bernhardt, 102 Md. App. at 56, 648 A.2d at 1052. For these
reasons, the Bernhardt court upheld the lower court's finding of
no coverage. Bernhardt, 102 Md. App. at 56, 648 A.2d at 1052.
See also Essex Insurance Co. v. Tri-Town Corp., 863 F. Supp. 38 (D. Mass. 1994) (finding that carbon monoxide emissions
from an ice resurfacing machine at a hockey game fell within
the scope of the exclusion); League of Minnesota Cities
Insurance Trust v. City of Coon Rapids, 446 N.W.2d 419 (Minn.
App. 1989) (same).
Based upon the above analysis, ASI urges this court to
follow Bernhardt and other similar cases and hold that the
pollution exclusion is neither ambiguous nor limited to incidents
of industrial pollution.
Koloms, on the other hand, do not dispute that the drafters
of the policy employed commonly understood words when they
sought to remove pollution related injuries from the scope of
coverage. Rather, they maintain that, regardless of its facial
clarity, the exclusion does not apply to "damages due to routine
commercial hazards such as a faulty heating and ventilation
system." Koloms base their conclusion, in part, upon their view
of the historical purpose of the exclusion, which they believe
supports limiting the clause to large scale, environmental
contamination. Specifically, Koloms assert that both the original
pollution exclusion, first instituted in the early part of the 1970s,
and the current pollution exclusion, drafted in 1985, were
intended solely to protect insurers from having to defend and
indemnify insureds in connection with governmental clean-up
costs. Koloms insist, therefore, that because this case involves
personal injuries caused by exposure to materials which do not
constitute "pollution" in the traditional sense of the word, the
exclusion does not apply.
Koloms further add that, if this court were to adopt ASI's
interpretation, we would not only be extending the exclusion far
beyond its historical purpose, but we would also be nullifying
most of the coverage currently afforded under the standard-form
CGL policy. Koloms direct our attention to several recent
opinions in which courts have criticized the insurance industry's
broad definition of the terms "irritant" and "contaminant." For
example, in Westchester Fire Insurance Co. v. City of
Pittsburgh, 768 F. Supp. 1463, 1470 (D. Kan. 1991), aff'd, 987 F.2d 1516 (10th Cir. 1993), a federal district court objected to
the exclusion's potentially limitless reach, noting that "there is
virtually no substance or chemical in existence that would not
irritate or damage some person or property." In a similar vein,
the Seventh Circuit Court of Appeals observed:
"Without some limiting principle, the pollution
exclusion clause would extend far beyond its intended
scope and lead to some absurd results. To take but two
simple examples, reading the clause broadly would bar
coverage for bodily injuries suffered by one who slips
and falls on the spilled contents of a bottle of Drano,
and for bodily injury caused by an allergic reaction to
chlorine in a public pool. Although Drano and chlorine
are both irritants or contaminants that cause, under
certain conditions, bodily injury or property damage,
one would not ordinarily characterize these events as
pollution." Pipefitters Welfare Education Fund v.
Westchester Fire Insurance Co., 976 F.2d 1037, 1043
(7th Cir. 1992).
Koloms submit that, in the absence of some judicially
imposed parameters, the terms "irritants" and "contaminants"
could even be applied to such everyday elements as water or air.
For this reason, they urge that the exclusion must be limited, in
accordance with its historical purpose, to incidents of
environmental pollution.
As is evident from the foregoing discussion, each party has
presented this court with compelling reasons which support their
respective positions. Indeed, the strength of their arguments is
perhaps best reflected in the vast divergence of the jurisprudence
from across the country which have already struggled with the
question now facing this court. Unfortunately, despite the
abundance of opinions construing the exclusion, courts have not
reached a clear consensus as to its proper interpretation. This is
true even within the fairly rare context of carbon monoxide
poisoning. Some courts have construed the provision in favor of
the insured, holding that the exclusion is vague and ambiguous.
See, e.g., Motorists Mutual Insurance Co. v. RSJ, Inc., 926 S.W.2d 679 (Ky. App. 1996); Gamble Farm Inn v. Selective
Insurance Co., 440 Pa. Super. 501, 656 A.2d 142 (1995);
Kenyon v. Security Insurance Co., 163 Misc. 2d 991, 626 N.Y.S.2d 347 (1993). Other courts, however, have denied
coverage on the grounds that the exclusion is plain and
unambiguous. See, e.g., Reliance Insurance Co. v. Moessner,
___ F.3d ___, No. 95--1899 (3d Cir. August 5, 1997); Bernhardt
v. Hartford Fire Insurance Co., 102 Md. App. 35, 648 A.2d 1047 (1994), cert. allowed, 337 Md. 641, 655 A.2d 400 (1995);
League of Minnesota Cities Insurance Trust v. City of Coon
Rapids, 446 N.W.2d 419 (Minn. App. 1989). Still other courts
have largely ignored the language of the exclusion and have
found coverage on the basis of the reasonable expectations of
the insured. See, e.g., Regional Bank v. St. Paul Fire & Marine
Insurance Co., 35 F.3d 494 (10th Cir. 1994). Meanwhile, courts
have also considered the exclusion in the context of other types
of "pollutants." They too, have failed to achieve a consistent
interpretation of the clause.
The source of the disagreement within the jurisprudence
seems to lie in the fact that the language of the clause is, as the
Bernhardt court observed, "quite specific" on its face, and yet
a literal interpretation of that language results in an application
of the clause which is "quite broad." We note that when the
definition of the term "pollutant" is inserted into the body of the
exclusion, the clause eliminates coverage for " `[b]odily injury'
or `property damage' arising out of actual, alleged or threatened
discharge, dispersal, release or escape of *** any solid, liquid,
gaseous or thermal irritant or contaminant, including smoke,
vapor, soot, fumes, acids, alkalis, chemicals and waste." A close
examination of this language reveals that the exclusion (i)
identifies the types of injury-producing materials which
constitute a pollutant, i.e., smoke, vapor, soot, etc., (ii) sets forth
the physical or elemental states in which the materials may be
said to exist, i.e., solid, liquid, gaseous or thermal, and (iii)
specifies the various means by which the materials can be
disseminated, i.e., discharge, dispersal, release or escape. To that
extent, therefore, the exclusion is indeed "quite specific," and
those courts wishing to focus exclusively on the bare language
of the exclusion will have no difficulty in concluding that it is
also unambiguous. See, e.g., Reliance Insurance Co. v.
Moessner, ___ F.3d ___, No. 95--1899 (3d Cir. August 5, 1997).
Not all courts, however, find the bare language of the
exclusion dispositive. A number of courts, while acknowledging
the lack of any facial ambiguity, have nevertheless questioned
whether the breadth of the language renders application of the
exclusion uncertain, if not absurd. For instance, in addition to
the cases discussed above, the Ohio Court of Appeals has
observed that "the extremely broad language of the 1987
exclusion, in conjunction with the definition of a pollutant,
raises an issue as to whether the exclusion is so general as to be
meaningless." Ekleberry, Inc. v. Motorists Mutual Insurance Co.,
No. 3--91--39, 1992 Ohio App. Lexis 3778 at 7 (July 17, 1992);
see also American States Insurance Co. v. Kiger, 662 N.E. 945,
948 (Ind. 1996) ("Clearly, this clause cannot be read literally as
is would negate virtually all coverage"); Sullins v. Allstate
Insurance Co., 340 Md. 503, 667 A.2d 617 (1995) (same);
Motorists Mutual Insurance Co. v. RSJ, Inc., 926 S.W.2d 679
(Ky. App. 1996) (same). These courts, troubled by the results
which obtain when the terms of the clause are applied in the
context of an actual claim, often decline to apply the pollution
exclusion to injuries other than those caused by traditional
environmental contamination. See, e.g., Weaver v. Royal
Insurance Co. of America, 104 N.H. 780, 783, 674 A.2d 975,
977 (1996) ("While courts freely apply the pollution exclusion
to environmental contamination, they are generally unwilling to
hold that its scope reaches other pollution-related injuries").
We have carefully reviewed all of the foregoing decisions
as well as each of the contentions raised by the parties.
Notwithstanding ASI's arguments to the contrary, we believe
that a purely literal interpretation of the disputed language,
without regard to the facts alleged in the underlying complaints,
fails to adequately resolve the issue presented to this court. Like
many courts, we are troubled by what we perceive to be an
overbreadth in the language of the exclusion as well as the
manifestation of an ambiguity which results when the exclusion
is applied to cases which have nothing to do with "pollution" in
the conventional, or ordinary, sense of the word. See, e.g.,
Minerva Enterprises, Inc. v. Bituminous Casualty Corp., 312
Ark. 128, 851 S.W.2d 403 (1993). Accordingly, we agree with
those courts which have restricted the exclusion's otherwise
potentially limitless application to only those hazards
traditionally associated with environmental pollution. We find
support for our decision in the drafting history of the exclusion,
which reveals an intent on the part of the insurance industry to
so limit the clause.
The events leading up to the insurance industry's adoption
of the pollution exclusion are "well-documented and relatively
uncontroverted." Morton International, Inc. v. General Accident
Insurance Co., 134 N.J. 1, 31, 629 A.2d 831, 848 (1993). Prior
to 1966, the standard-form CGL policy provided coverage for
bodily injury or property damage caused by an "accident."
Center for Creative Studies v. Aetna Life & Casualty Co., 871 F. Supp. 941, 943 n.3 (E.D. Mich. 1994), quoting J. Stempel,
Interpretation of Insurance Contracts: Law and Strategy for
Insurers and Policyholders 825 (1994). The term "accident,"
however, was not defined in the policy. As a result, courts
throughout the country were called upon to define the term,
which they often interpreted in a way as to encompass pollution-
related injuries. In response, the insurance industry revised the
CGL policy in 1966 and changed the former "accident"-based
policy to an "occurrence"-based policy. The new policy
specifically defined an "occurrence" as "an accident, including
injurious exposure to conditions, which results, during the policy
period, in bodily injury and property damage that was neither
expected nor intended from the standpoint of the insured."
Morton International, Inc., 134 N.J. at 32, 629 A.2d at 849 (and
cases cited therein). Despite these changes, courts continued to
construe the policy to cover damages resulting from long-term,
gradual exposure to environmental pollution. As one court
observed, "[s]o long as the ultimate loss was neither expected
nor intended, courts generally extended coverage to all
pollution-related damage, even if it arose from the intentional
discharge of pollutants." New Castle County v. Hartford
Accident & Indemnity Co., 933 F.2d 1162, 1196-97 (3d Cir.
1991).
Meanwhile, at about the same time, the United States
Congress substantially amended the Clean Air Act in an effort
to protect and enhance the quality of the nation's air resources.
Pub. L. No. 91--604, 84 Stat. 1676 (1970) (now codified at 42
U.S.C. secs. 7401 through 7642 (1983), as amended). The
passage of these amendments, which included provisions for
cleaning up the environment, imposed greater economic burdens
on insurance underwriters, particularly those drafting standard-
form CGL policies. Westchester Fire Insurance Co. v. City of
Pittsburgh, 768 F. Supp. 1463, 1469 n.8 (D. Kan. 1991), aff'd
987 F.2d 1516 (10th Cir. 1993). The insurer's burdens further
increased with the relatively recent, and now well-publicized,
environmental disasters of Times Beach, Love Canal and Torrey
Canyon. See Center for Creative Studies, 871 F. Supp. at 944;
see also Morton International, Inc., 134 N.J. at 33-34, 629 A.2d
at 850.
In the wake of these events, the insurance industry became
increasingly concerned that the 1966 occurrence-based policies
were "tailor-made" to cover most pollution-related injuries.
Morton International, Inc., 134 N.J. at 33, 629 A.2d at 850,
quoting Note, The Pollution Exclusion Clause Through the
Looking Glass, 74 Geo. L.J. 1237, 1251 (1986). To that end,
changes were suggested, and the industry proceeded to draft
what was to eventually become the pollution exclusion. The
Supreme Court of New Jersey explained, "[f]oreseeing an
impending increase in claims for environmentally-related losses,
and cognizant of the broadened coverage for pollution damage
provided by the occurrence-based, CGL policy, the insurance
industry drafting organizations began in 1970 the process of
drafting and securing regulatory approval for the standard
pollution-exclusion clause." Morton International, Inc., 134 N.J.
at 32, 629 A.2d at 849-50. Consequently, the General Liability
Governing Committee of the Insurance Rating Board instructed
its drafting committee "to consider the question and determine
the propriety of an exclusion, having in mind that pollutant-
caused injuries were envisioned to some extent in the adoption
of the current [policies]." Morton International, Inc., 134 N.J. at
34, 629 A.2d at 850, quoting T. Reiter, D. Strasser & W.
Pohlman, The Pollution Exclusion Under Ohio Law: Staying the
Course, 59 U. Cin. L. Rev. 1165, 1197 (1991).
The result of these efforts was the addition of an
endorsement to the standard-form CGL policy in 1970. The
endorsement provided in pertinent part:
"[This policy shall not apply to 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 watercourse or
body of water; but this exclusion does not apply if such
discharge, dispersal, release or escape is sudden and
accidental."
Three years later, in 1973, the insurance industry incorporated
the above endorsement directly into the body of the policy as
exclusion "f."
During the next 13 years, various courts labored over the
exact meaning of the words "sudden and accidental." Much of
the litigation focused on whether the word "sudden" was
intended to be given a strictly temporal meaning such that, in
order for the exception to apply, the discharge of pollution had
to have been "abrupt." See Outboard Marine Corp. v. Liberty
Mutual Insurance Co., 154 Ill. 2d 90 (1992). This controversy
generated an enormous amount of litigation, leading one
commentator to describe the dispute as one of "the most hotly
litigated insurance coverage questions of the late 1980's." J.
Stempel, Interpretation of Insurance Contracts: Law and
Strategy for Insurers and Policyholders 825 (1994), quoted in
Center for Creative Studies, 871 F. Supp. at 943. Not
surprisingly, insurance companies responded by drafting a new
version of the exclusion, which, first appearing in 1985, is now
commonly known as the "absolute pollution exclusion." We note
that it is this version, the pertinent terms of which have been set
forth at the outset of this opinion, that is subject of the dispute
between ASI and Koloms. The two most notable features of this
latest version are (i) the lack of any exception for the "sudden
and accidental" release of pollution, and (ii) the elimination of
the requirement that the pollution be discharged "into or upon
land, the atmosphere or any watercourse or body of water." See
Weaver v. Royal Insurance Co. of America, 140 N.H. 780, 674 A.2d 975 (1996). Significantly, the purpose of the current
exclusion, like its predecessor, is "to exclude governmental clean
up costs from [the scope of] coverage." West American
Insurance Co. v. Tufco Flooring East, Inc., 104 N.C. App. 312,
324, 409 S.E.2d 692, 699 (1991).
Our review of the history of the pollution exclusion amply
demonstrates that the predominate motivation in drafting an
exclusion for pollution-related injuries was the avoidance of the
"enormous expense and exposure resulting from the `explosion'
of environmental litigation." (Emphasis added.) Weaver, 140
N.H. at 783, 674 A.2d at 977, quoting Vantage Development
Corp. v. American Environmental Technologies Corp., 251 N.J.
Super. 516, 525, 598 A.2d 948, 953 (1991). Similarly, the 1986
amendment to the exclusion was wrought, not to broaden the
provision's scope beyond its original purpose of excluding
coverage for environmental pollution, but rather to remove the
"sudden and accidental" exception to coverage which, as noted
above, resulted in a costly onslaught of litigation. We would be
remiss, therefore, if we were to simply look to the bare words
of the exclusion, ignore its raison d' tre, and apply it to
situations which do not remotely resemble traditional
environmental contamination. The pollution exclusion has been,
and should continue to be, the appropriate means of avoiding
" `the yawning extent of potential liability arising from the
gradual or repeated discharge of hazardous substances into the
environment.' " (Emphasis in original.) Tufco, 104 N.C. App. at
323, 409 S.E.2d at 699, quoting Waste Management of
Carolinas, Inc. v. Peerless Insurance Co., 315 N.C. 688, 698,
340 S.E.2d 374, 381 (1986). We think it improper to extend the
exclusion beyond that arena.
Notwithstanding the above, ASI submits that the deletion of
the requirement that the pollution be "[discharged] into or upon
land, the atmosphere, or any watercourse or body of water"
should be viewed by this court as a clear signal of the industry's
intent to broaden the exclusion beyond traditional environmental
contamination. We disagree. This same argument was rejected
in West American Insurance Co. v. Tufco Flooring East, Inc.,
104 N.C. App. 312, 409 S.E.2d 692 (1991), a case which
involved the application of the pollution exclusion to damages
caused by the release of fumes from a flooring sealant. In Tufco,
the court noted that, even after its amendment in 1986, the
absolute pollution exclusion continued to employ terms of art
which bespeak of environmental contamination. The court
reasoned:
"Because the operative policy terms `discharge,'
`dispersal,' `release,' and `escape' are environmental
terms of art, the omission of the language `into or upon
land, the atmosphere or any watercourse or body of
water' in the new pollution exclusion is insignificant.
The omission of the phrase only removes a redundancy
in the language of the exclusion that was present in the
earlier pollution exclusion clause. Consequently, we find
that any `discharge, dispersal, release, or escape' of a
pollutant must be into the environment in order to
trigger the pollution exclusion clause and deny coverage
to the insured." Tufco, 104 N.C. App. at 325, 409 S.E.2d at 700.
See also Center for Creative Studies, 871 F. Supp. at 946 ("the
fact that the [former version] contained language relating to
discharge `into or upon land, the atmosphere ...' is not
significant"). We agree with this analysis. In our view, the
deletion of the aforementioned language does not portend an
expansion of the pollution exclusion beyond the context of
traditional environmental contamination.
Conclusion
Given the historical background of the absolute pollution
exclusion and the drafters' continued use of environmental terms
of art, we hold that the exclusion applies only to those injuries
caused by traditional environmental pollution. The accidental
release of carbon monoxide in this case, due to a broken
furnace, does not constitute the type of environmental pollution
contemplated by the clause. Accordingly, the judgment of the
appellate court is affirmed.
Appellate court judgment affirmed.
JUSTICE HEIPLE, dissenting:
This case turns on the interpretation of an exclusion clause
in a policy of insurance. The facts are simple. Plaintiffs alleged
injury from carbon monoxide fumes escaping from a
malfunctioning furnace. The insurance company denied coverage
on the basis of policy language which excluded coverage for
injury from the escape of pollutants. The language further
defined pollutants as any gaseous irritant or contaminant
including fumes.
Choosing to override the clear language of the insurance
contract, however, the majority purports to divine the unstated
intent of the parties. With this analysis, coverage is found to be
provided. What we have here is not a case of contract
construction. It is, rather, a case of contract reconstruction. As
such, it is thimblerigging pure and simple. It also indicates the
depths to which a court will go to achieve a desired result. If
any principle can be derived from this ruling, it is that words
have no meaning.
Accordingly, I respectfully dissent.
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