Seventh Circuit Seeks Guidance for Interpreting “Pollution” Exclusion

By David A. Gauntlett*

Introduction

In previous blogs, we have written about the unfortunate trend of federal judges ruling against policyholders based on rationale that conflicts with state court decisions.[1] Ideally, federal courts should adopt the policyholder-friendly stance of the state courts, but a recent decision by the Seventh Circuit highlights an acceptable alternative: certification to the state’s highest court.

Griffith Foods Int'l Inc. v. Nat'l Union Fire Ins. Co. of Pittsburgh, PA

 In Griffith Foods,[2] the Seventh Circuit panel[3] was asked to determine whether a standard Commercial General Liability (“CGL”) policy’s “Pollution” exclusion[4] precluded coverage for a lawsuit against two companies that, at different times, operated a factory that released ethylene oxide into the air of a nearby town, thereby causing cancer and other injuries among the inhabitants. It was conceded that the damages fell within the policy’s coverage for “bodily injury,” so the exclusion was the only potential bar to coverage.

Illinois Supreme Court Case Offered Guidance

Both the parties and the court acknowledged that the primary source of authority for guiding the court’s decision was Am. States Ins. Co. v. Koloms.[5] In Koloms, the Illinois Supreme Court extensively analyzed the “Pollution” exclusion,[6] considering both the final language and the historical context surrounding its creation. It concluded that the text could not be taken at face value as that would extend its scope as far as “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.”[7]

Turning to the history of the exclusion, Koloms observed 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.’”[8] Accordingly, the court determined the exclusion should only apply to “traditional environmental contamination.”[9] The exclusion did not, therefore, apply to the release of carbon monoxide from a broken furnace as was at issue in Koloms.[10]

Seventh Circuit’s Interpretation Conflicted with Illinois Appellate Decision

The Seventh Circuit had previously decided a similar case in Scottsdale Indem. Co. v. Vill. of Crestwood.[11] There, bodily injuries arose from a municipality mixing water contaminated with perc into the municipal drinking water. The policyholder argued the “Pollution” exclusion should not apply because “the amount of perc in the Village's water supply was below the maximum level permitted by environmental regulations,” but the court rejected that argument, stating “[a]ll that counts is that the suits are premised on a claim that the perc caused injuries for which the plaintiffs are seeking damages.”[12]

Following that same reasoning, the Seventh Circuit decision openly admitted that “[o]ur own reading of Koloms suggests that the pollution exclusion applies,” but the court hesitated in relying on its own view because “a post-Koloms [and post-Crestwood] decision by an intermediate Illinois appellate court suggests that industrial emissions of a contaminant like ethylene oxide pursuant to a regulatory permit changes the analysis and renders the pollution exclusion not applicable.”[13]

The appellate case noted was Erie Ins. Exch. v. Imperial Marble Corp.[14] There, the underlying plaintiffs were injured by emissions from the insured’s marble factory. The key fact distinction between it and Koloms was that the emissions were “authorized under a permit issued by the Illinois Environmental Protection Agency (IEPA) in compliance with the federal Clean Air Act (CAA).”[15] This also distinguishes it from the facts of Crestwood in that the permission was active (granted a permit) as opposed to passive (within regulatory standards). The court focused its analysis on the directive from Koloms that the “Pollution” exclusion could only apply to “traditional environmental contaminants.” The insured argued the emissions could not meet that definition as no emission qualifying as a “traditional environmental contaminant” would be expressly permitted by government permits.[16]

The court stopped short of entirely agreeing with the insured’s interpretation, but it did acknowledge an ambiguity laid bare by the case’s facts. And in the case of an insurance dispute, any ambiguity is sufficient “[b]ecause we must resolve ambiguities in the complaint and policy in favor of [the insured].”[17]

Seventh Circuit Opts for Certification

Despite acknowledging its own precedent establishing that “[w]here the Illinois Supreme Court has not ruled on an issue, decisions of the Illinois Appellate Courts control, unless there are persuasive indications that the Illinois Supreme Court would decide the issue differently,”[18] the Seventh Circuit nevertheless chose to certify the question to the Illinois Supreme Court. It reasoned that “the situation before us is likely to recur and our decision would have substantial ramifications for insurers and insureds alike.”[19]

Arguably, the very need to seek clarification is evidence of the ambiguity noted by the Imperial Marble court. That uncertainty is in turn enough to decide in favor of a policyholder, particularly on a question of the insurer’s duty to defend that is governed by the standard of “potential coverage.”[20] This is doubly true given that the determinative issue was interpretation of an exclusion.[21]

Conclusion

The best course would have been for the Seventh Circuit to properly apply the rules of construction applicable to insurance policies and rule in favor of the policyholders. That said, the decision to certify the question to the Illinois Supreme Court at least avoids the increasingly common error of other federal courts looking to their own precedent rather than more recent state court decisions favoring policyholders. While not an ideal outcome, certification may be the best available option in some cases. Even the most experienced coverage counsel cannot always sway a stubborn judge entirely, but sowing seeds of doubt may be enough to earn certification rather than a judgment for the insurer.

*David A. Gauntlett is a principal of Gauntlett Law and represents policyholders in insurance coverage disputes regarding intellectual property, antitrust, and business tort claims, as well as in the underlying actions. Mr. Gauntlett can be reached at (949) 553-1010 by voicemail or dag@gauntlettlaw.com. For more information, visit Gauntlett Law at www.gauntlettlaw.com.

[1] See, e.g., David A. Gauntlett, Second Circuit Takes Limited View of Implicit Disparagement under New York Law, https://www.gauntlettlaw.com/blogs/second-circuit-takes-limited-view-of-implicit-disparagement-under-new-york-law (Apr. 4, 2024).

[2] Griffith Foods Int'l Inc. v. Nat'l Union Fire Ins. Co. of Pittsburgh, PA, No. 24-1217, 2025 WL 1085216 (7th Cir. (Ill.) Apr. 11, 2025).

[3] The Griffith Foods panel consisted of Judges Amy St. Eve, Michael Scudder, and Thomas Kirsch. Notably absent was Chief Judge Diane Sykes, who has generally not advocated for certification despite her prior tenure as a Wisconsin Supreme Court Justice.

[4] The standard exclusion precludes coverage for all damages “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; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental[.]”

[5] Am. States Ins. Co. v. Koloms, 177 Ill. 2d 473 (1997).

[6] In Koloms, the exclusion did not contain the “sudden and accidental” exception present in the National Union policy, but the Griffith Foods court determined that the exception had no relevance to the present facts. Griffith Foods, 2025 WL 1085216 at *5.

[7] Koloms, 177 Ill. 2d at 484.

[8] Id. at 493 (emphasis in original).

[9] Id.

[10] Id. at 494.

[11] Scottsdale Indem. Co. v. Vill. of Crestwood, 673 F.3d 715 (7th Cir. (Ill.) 2012).

[12] Id. at 721.

[13] Griffith Foods, 2025 WL 1085216 at *1.

[14] Erie Ins. Exch. v. Imperial Marble Corp., 957 N.E.2d 1214 (Ill. App. 2011).

[15] Id. at 1216.

[16] Id. at 1220.

[17] Id. at 1221.

[18] Griffith Foods, 2025 WL 1085216 at *7.

[19] Id. at *8.

[20] City of Collinsville v. Illinois Mun. League Risk Mgmt. Ass'n, 385 Ill. App. 3d 224, 230 (2008) (“The threshold a complaint must meet to present a claim for potential coverage, and thereby raise a duty to defend, is minimal.”) (emphasis added).

[21] Cent. Illinois Pub. Serv. Co. v. Allianz Underwriters Ins. Co., 240 Ill. App. 3d 598, 602 (1992) (“Where an exclusionary clause is ambiguous any reasonable interpretation by the policyholder must be adopted.”) (emphasis added).