American States Ins. Co. v. Koloms

Citation177 Ill.2d 473,227 Ill. Dec. 149,687 N.E.2d 72
Decision Date17 October 1997
Docket NumberNo. 81289,81289
Parties, 227 Ill.Dec. 149 AMERICAN STATES INSURANCE CO., Appellant, v. Harvey KOLOMS, et al., Appellees.
CourtIllinois Supreme Court

James P. DeNardo, McKenna, Storer, Rowe, White and Farrug, Chicago, Dennis F. Cantrell, Bingham, Summers, Welsh & Spilman, Indianapolis, for American States Insurance Company.

William P. Caputo, Nilson, Stookal, Gleason & Caputo, Chicago, for Harvey Koloms.

Steven M. Levy, Sonnenschein, Nath & Rosenthal, Chicago, for Insurance Environmental Litigation Association.

James D. Fiffer, Wilkman, Harrold, Allen & Dixon, Chicago, for Hart & Cooley, Inc.

Celiza P. Braganca, Jenner & Block, Chicago, Anthony C. Valiulis, Much, Shelist, Freed, Denenberg, Ament & Eiger, Chicago, for Institute of Real Estate Management, Lead Elimination Action Drive, Katalina Stringfield.

Tara Griffin, Anderson Kill & Olick, P.C., New York City, for Federal Home Loan Mortgage Corporation.

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. 1

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, 217 Ill.Dec. 30, 666 N.E.2d 699 (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, 217 Ill.Dec. 30, 666 N.E.2d 699.

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, 180 Ill.Dec. 691, 607 N.E.2d 1204 (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, 180 Ill.Dec. 691, 607 N.E.2d 1204. 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, 189 Ill.Dec. 756, 620 N.E.2d 1073 (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, 180 Ill.Dec. 691, 607 N.E.2d 1204. 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, 180 Ill.Dec. 691, 607 N.E.2d 1204. 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, 198 Ill.Dec. 428, 632 N.E.2d 1039 (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, 189 Ill.Dec. 756, 620 N.E.2d 1073. 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, 208 Ill.Dec. 177, 648 N.E.2d 1099 (1995); Shefner v. Illinois Farmers Insurance Co., 243 Ill.App.3d 683, 686, 183 Ill.Dec. 363, 611 N.E.2d 626 (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...

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