Client Alert by sanmelody


									                                                         Client Alert
April 2010                                               Pacific Employers Ins. Co. v. Clean Harbors Env. Services, Inc.
                                                                                         2010 WL 438372 (Feb. 4, 2010)

The District Court for the Northern District of Illinois Defines
the Contours of “Traditional Environmental Pollution” in
Construing the Absolute Pollution Exclusion.
By Gary Lockwood and Doug Walker

In American States Ins. Co. v. Koloms, 687 N.E.2d 72 (Ill. 1997), the Illinois Supreme Court
construed the absolute pollution exclusion (“APE”) included by many insurers in CGL policies
issued after 1985 and concluded that the exclusion applied only to “hazards traditionally associated
with environmental pollution.” Unfortunately, the Koloms Court did not provide any guidance as to
what it meant by traditional environmental pollution.
This issue was considered by the U.S. District Court for the Northern District of Illinois in Pacific
Employers Ins. Co. v. Clean Harbors Environmental Services, Inc., 2010 WL 438372 (N.D. Ill. Feb.
4, 2010). The case involved a claim by Clean Harbors for coverage for a lawsuit filed by Eddie
Lopez, a garbage truck driver whose route included a Clean Harbors’ facility in Chicago. The
facility was engaged in the treatment, storage and disposal of hazardous wastes, including paint
solvents, emergency-response spill clean-ups, spent pesticides, poisons, refinery wastes and
household hazardous waste. Lopez allegedly suffered injuries as a result of exposure to fumes at the
Clean Harbors’ facility.
National Union Fire Insurance Company issued an umbrella policy to Clean Harbors which
contained an APE.1 In the coverage litigation, the parties agreed that the applicability of the APE
was controlled by Koloms; predictably, the parties disagreed as to whether the injuries alleged in the
Lopez lawsuit resulted from traditional environmental pollution. Clean Harbors argued that Lopez’s
injuries had nothing to do with pollution in the conventional sense of the word and occurred during
the course of ordinary business operations. In Clean Harbors’ view, the Supreme Court in Koloms
meant the APE to apply in cases of a discharge or spread of pollutants, not a “geographically and
temporally isolated event.” National Union responded that Lopez’s injury was based on exposure to

    The exclusion provided “this insurance does not apply to any liability arising out of the actual or threatened
  discharge, dispersal, seepage, migration, release or escape of Pollutants anywhere in the world.” The term
  “Pollutant” was defined as “any solid, liquid, gaseous or thermal irritant or contaminant including smoke, vapor,
  soot, fumes, acids, alkalis, chemicals and waste. Wastes include materials to be recycled, reconditioned or

{File: 00150581.DOC \ }
toxic fumes which was precisely the sort of injury intended to fall within the APE.
In deciding the case, the Northern District looked to an article which considered the history of the
pollution exclusion.2 In that article, the author concluded that the background of the exclusion and
the representations to regulators make clear that insurers were seeking to exclude “widely dispersed,
long-tail, hard-to-detect” injuries associated with pollution. Claims arising out of the insured’s day
to day operations, by contrast, were not intended to be excluded.
The Northern District found this analysis consistent with Koloms:
           A principal object of a CGL policy is to insure against liability for personal injury.
           That a personal injury was caused by chemicals does not remove it from the intended
           scope of the policy based on the pollution exclusion language before this Court. This
           is so even if the chemicals are classified as contaminant or irritants and the accident
           was caused by their escape or release …
Thus, when faced with a claim in Illinois which arguably falls within the pollution exclusion, an
insurer would do well to consider the factual basis for the chemical exposure which resulted in injury
or damage. If that exposure resulted from an insured’s ordinary business operations, an insurer
should think twice before denying based on the pollution exclusion.

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    Jeffrey Stempel, The Insurance Policy as Thing, 44 Tort Trial & Ins. Prac. L.J., 2009.

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