## I L L I N O I S 

## O F F I C I A L 

## R E P O R T S Appellate Court

Erie Insu rance Exchange v. Im perial Marble Corp. , 2011 IL App (3d) 100380

Appellate Court Caption ERI E I NSURAN C E EXCHANGE
, Plaintiff-Appellee
, v. I MPERI AL MARBL E CORPOR ATI ON, Def endant- Appellant and Third-Party Plaintiff (Somonauk I nsuranc e Ag ency , I nc., Third- Party Def endant)

.

District & N o. Third District Docke t No. 3-10-0380

Filed September 15, 2011

Held (Note : T

his syl lab us

con st it ute s n o par t of the opi nio n of the cour t but has bee n pre

par ed by the Rep o rt er of D e c i s i o n s f

o r t h e

c o n v e n i e n c e o

f t h e

rea der

. ) Plaintiff insurer had a duty to defe nd its insured on the claims asser ted in

an u n derlying class action for persona l injury and proper ty damage purportedly cause d by t h e em i ssions from the insured’s manufa cturing
operations involving the use of s ty r ene and methyl methacr

y late, since the emissions wer e authorized und er a p ermit issued by the I llinois Environmental Protection Ag ency and it was unclea r whether the permitted emissions constituted traditional environmenta l pollution that

was e x cluded unde r the policy plaintiff issued.

Dec ision Under
Review Appea l from the Circuit Court of L a S alle C ounty , No. 07-CH-796; the Hon. J ames A. L anuti, J udg e, pre siding.

J udg ment Reverse d and re manded.Counsel on

Appea l Br ent W. Vincent (ar g ued) and Donald A. Cole, both of Br y an Cave L L P, of Chicag o, for a

ppellant.

Br uce M. L ichtcsien (ar g ued), of Hinkhouse, W i l l iams & Walsh, of Chicag o, for a

ppellee.

Panel J USTI CE O’B RI EN deliver ed the judg ment of the c ourt, with opinion.
J ustices Schmidt and Holdridg e concur red in the judgme nt and opinion.

OP INION

¶ 1 Plaintiff E ri e I n s u ra n ce E x ch an ge fi l ed a d ec lara tory judgme nt action seekinga decla ration that it did not have a duty to defe nd or indemnify under a compre hensive g ener al liability (CGL ) policy

it issued to de fenda

nt I mperial Marble Corpor ation in an under ly ing class action lawsuit for personal inj ury and property damag e purportedly due to emissions from I mperial’s manufa cturing o p erations. I mperial asser ted estoppel as an aff

irmative defe nse and filed a counter claim seeking a decla ration that Erie owed it a defe nse and indemnification, and for brea ch of contra ct based on Erie’ s denial of cover ag e. Both parties moved for summary judgme nt and the trial court g rante d Erie’ s motion on I m p eria l’s
counter claim and its aff

irmative defe nse, and denied I mperial’s motion. I mperial appea led. We reve rse a

nd rema nd.

¶ 2 FACTS ¶ 3 Plaintiff Erie I nsuranc e Ex chang e soug ht a decla ration from the trial court that it had no duty to defe nd defe ndant I mperial Marble Corporation in the underly ing action filed ag ainst it by homeowner s residing within one mile of I mper i al ’s m anufa cturing plant. I mperial Marble ma

nufac tures cultured marble vanities, counter tops and other sy

nthetic produc ts at its fac ility in Somonauk. Along with other chemica ls
, I m p eria l uses sty rene and methy l methacr y late (MMA) in its manufa cturing proce sses which cre ate odorous emissions that are dispersed into the atmosphere

. The emissions are authorized under a permit issued by the I llinois Environmental Protection Ag ency (I EPA) in compliance with the fede ral Clean Air Act (CAA) (42 U.S.C. § 7401 et seq. (2006)) ; 415 I L CS 5/ 39.5(3), ( 9) (West 2006). ¶ 4 I mperial’s pe rmit w as issued on November 21, 2002, and modified on May 8, 2006. I n Fe bruar y 2007, I mperial submitt ed a permit rene wal applicatio n that was still under evaluation at the time the briefs wer e fil ed

. I m peria l’s permit prohibits emissions of particula te mat t er that block more than 30% of the available sunlight (35 I ll. Adm. Code 212.123 (2011)) ; prec ludes discharg e of more than eig ht pounds of org anic materia l into the

-2-atmosphere from any one emission unit (35 I ll. Adm. Code 215.301 (2011)) ; require s

compliance with all ot h er ap plicable state and fede ral regulations; and includes a permit shield which “provide s that compliance with the conditions of this permit sha ll be deeme d compliance with applicable require ments which wer e applicable as of the date the proposed permit for this source was issued.” See 415 I L CS 5/ 3 9

. 5 (7 )( j ) (West 2006); 42 U.S.C. § 7661c(f ) (2006)

. ¶ 5 Erie issued a CGL policy to I mperial in 2002 with eff ective dates of Dec ember 31, 2002, to D ece mber 31, 2003. The policy was rene wed for sever al terms, including D ece mber 31, 2006, to Dec ember 31
, 2 0 0 7
, the policy term that cover s the May 2007 filing of the underlying action. I mperial procur ed the policy throug h Dennis Wil ey of the Somonauk I nsuranc e Ag enc y , an independe nt insurance broker ag e that repr esents Erie per a written
ag ency ag ree ment. The written ag ency ag ree ment provided that Somonauk
, o n b e h alf of Erie, quote and b i nd cover ag e; bill and acc ept premium pay ments; acc ept and deliver policy applications, rene wals and notices; issue insurance car ds and additional insured cer tificates;

acc ept notices of claims; and assist Erie in claim i n v es tigation and handling

. Somonauk perf ormed these functions for I mperial and serve d as the primary vehicle for communication betwee n I mperial a

nd Erie. ¶ 6 The policy issued to I mperial included the following pertinent provisions. The policy ’s insuring a g ree ment provided, in par t: “We will pay those sums that the insured become s leg ally obligated to pay as damag es beca

use of ‘bodily injury ’ or ‘prope rty damag e’ to which this insurance applies. We will have the rig ht and duty to defe nd the insured ag ainst any ‘suit’ seeking t hose damag es. Howeve r, we will have no duty to defe nd the insured ag ainst any ‘suit’ seeking d am ag es for ‘bodily injury ’ or ‘prope rty damag e’ to which this insurance d o es n o t apply .” The policy states that the insurance applies to bodily injury and proper ty damag e “ca

used by

an ‘occ urre nce’ that takes p l ac e in the ‘cove red territory ’ ” and “occ urs during the policy period.” The policy define s “occ urre nce” as “an acc ident, including continuous or repe ated exposure to substantially

the same g ener al har

mful conditions.” ¶ 7 The policy

includes the following

exclusions:
“This insuranc e does not a pply to: a. Expected or I

ntended Injury
‘B odily injury ’ or ‘prope rty damag e’ expected or intended from the standpoint of the insured. ***
* * *
f. Polluti on (1) ‘B odily injury ’ or ‘propert y d amage ’ arising out of the actua l, alleg ed or threa tened discha

rg e, dispersa l, seepa g e, mig ration, re lease or esc ape of ‘pollutants’: (a) At or from any premises, site or location which is or was at any time owned or occupie d by , or re nted or loane d to, any insured.” ¶ 8 To secur e adequate insurance for I mperial, Wil ey procur ed the assistance of J eff Porter,

-3-Erie’ s dist ri ct sales manag er. Both Wil ey and Porter had extensive contac t with I mperial

when deter

mining I mperial’s coverag e, including interviewing I mperial manag ement and touring the fac ility

. Neither Porter nor Wil ey informed I mperial of the pol lution exclusion in the policy or identified I mperial’s emissions as subject t o a gap in cover ag e. I mperial believed it had purcha sed “all risk insuranc e” and was fully cover ed. I n 2003, 2005, and 2007, Erie employ ees Br andon C o o per and Robert Simm ons conducte d loss control inspections at I mperial’s fac ility

. Following eac h inspection, they prepa red detailed repor

ts and sent a letter to I mperial offe ring rec ommendations t o limit liability

. Coverag e g aps or other issues re g arding I mperial’s e missions wer e not mentioned. ¶ 9 I n Aug ust 2007, the underlying plaintiffs, individually and as putative repr esenta tives of all other s who resided within one mile of I mperial’s plant, filed a class action complaint

asser ting negl ige nce, trespass and nuisance

. The complaint alleg es, inter alia
, persona l injuries and proper

ty dam age resulti ng from the invasion of the plaintiffs’ person and
proper ty “by nox ious odors, volatile org anic materia ls (VOMs) and hazardous air pollutants (HAPs), including, but not limit ed to STYRENE and Methy l Methac ry late (M M A), air contaminants and other hazardous materia l” in the emissions g ener ated, inter alia
, “as part of I mperial’s normal business operations.” The complaint also alleg es that I mperial emitted VOMs and HAP s i n v i o l ation of I EPA regulations and release d more than the amounts of VOMs and HA Ps allowed under its per mit. The complaint also alleg es t hat I mperial kne w or should have know n, and wa s awa re of , expected, and intende d the emissions to occur. ¶ 10 Erie denied cove rag e of the underly ing a ction in October

2007 and thereaf

ter filed this decla ratory action seeking a deter minati o n t h at i t had no duty to defe nd or indemnify I mperial based on the policy ’s expected or intended injury and p o l l u t i o n exclusions. I n respons e, I mperial asser

ted an aff

irmative defe nse of estoppel and filed a counter claim seeking a decla

ration that Erie owed it a defe nse and indemnification in the underly ing action (co u nt I ) and brea ch of contra ct for improperly denying cover ag e (count I I ). I mperial does
not seek a defe nse for count I I and it is not at issue in this appea l. I mperial also filed a thirdparty complaint ag ainst Somonauk and amen d ed its counter claim ag ainst Erie adding an alleg ation that Erie a

nd its ag ents, Wil ey

and Porter, w ere neg lige nt in failing to procur e it adequate cove rag e. ¶ 11 I m p er ial filed a motion for partial summary judgme nt on Erie’ s decla ratory action and

on counts I and I I of its amende d counter claim, seeking a finding that Erie owed it a defe nse in the underlying action. Erie filed a cross-motion for summary judgme nt, seeking a decla ration that it did not owe I mperial a duty to defe nd or indemnify

. The primary issue in the summary judgme nt motions was whether I mperial’ s em issions constitute traditional environmenta l pollution that are pre cl u d ed under the policy ’s pollution exclusion. After a h ea ri n g on the parties’ motions, the trial court held that I mperial’s emissions constitut ed traditional environmenta l pollution and that cover ag e was prec luded under the policy ’s pollution exclusion. The trial court looked to the alleg ations in the underly ing complaint which char acte rized I mperial’s emissions as hazardous and migrat i n g off of I mperial’s premises. The trial court reje cted I mperial’s argument that under the CAA and I EPA the emissi o n s we re neither pollution nor hazardous. The trial court further found that it was inappropriate to repla ce the lang uag e in the policy ’s pollution exclusion with the definition

-4-o f p ollution under the United States Environmental Protection Ag ency (USEPA) and th e

I EPA. The trial c ourt stated:
“I think the Complaint itself, which is the underly ing issue here
, filed by the citizens, is alleg ing contamination, nox ious odors, etce t era , and that’s enoug h to constitute traditional environmenta l polluti on.” The trial court denied I mperial’s estopp el defe nse, finding that Erie had not made any aff irmativ e m i s re p rese ntations to I mperial reg arding cover ag e for its emissions. The trial
court awa rded summary judgme nt to Erie on its decla ratory act i o n and denied I mperial’s
summary judgme nt motion seeking a duty to defe nd and asser ting an estoppel defe nse. I mperial a

ppeale d.

¶ 12 ANAL YSI S ¶ 13 I mperial ra ises two issues on appea l: whether the trial court err ed in g ranting summary judgme nt for Erie on the cover ag e issue and whether it err ed in denying I mperial’s estoppel defe nse. ¶ 14 The first issue raised by I mperial is wh et h er t h e t ri al court err ed in g ranting summary judgme nt to Erie o n the issue of cover ag e. I mperial argues that the underly ing complaint alleg es an “occ urre nce” under the policy
, and that the expected or intended injury and pollution exclusions do not apply to bar cover ag e. I mperial challeng es the t ri al co urt’s finding that the p o l i cy ’s pollution exclusion prec luded cover ag e, arguing that beca use its emissions we re allowed under its I EPA permit, they are neither pollution nor hazardous. It argues that cover ag e for the underly ing action is not prec luded under the policy ’s pollution exclusion and Erie owe s it a duty to defe nd the under ly ing a ction. ¶ 15 Summary judgme nt should be g rante d only wher e th e p le a d in g s , d e p o s itions, admiss ions, and aff idavits on file, when viewed in a light most favor able to the nonmoving party , show that there is no g enuine issue of materia l fac t and the movant is ent itled to judgme nt as a matter of law. 735 I L CS 5/2-1005(c) (West 2006); DeSaga v. W est Bend Mutual Insurance Co.
, 391 I ll. App. 3d 1062, 1066 (2009). The interpre tation of an insuranc e p o l i cy is a question of l aw that may be decided on a mot ion for summ ary judgme nt. DeSaga
, 391 I ll. App. 3d at 1066. This court revie ws a trial court’s deter mination on a motion for summary judgme nt and the interpre tation of an insurance policy de novo

. DeSaga
, 391 I ll. App. 3d at 1066; W hiting v. Prestige Casualty Co. , 238 I ll. App. 3d 376, 377 (1992). ¶ 16 To deter

mine an insurer’ s duty to defe nd, the court must look to t h e al l egations of the underlying complaint and if it alleg es fac ts within or potentially within policy cover ag e, the i n s u re r is obligated to defe nd the insured, even if the alleg ations are g roundless, false o r fra udulent. United States Fidelity & Guaranty Co. v. W ilkin Insulation Co. , 144 I ll. 2d 64, 73 (1991). I f the underlying complaint alleg es multipl e theories of re co v er y , the duty to defe nd arises even if only one theory is within the policy ’s p o t ential cover ag e. W ilkin Insulation Co.
, 144 I ll. 2d at 73. A trial court may consider evidenc e bey ond the underlying complaint if in doing so the trial court does not deter mine an issue critica l to the underlying action. American Economy Insurance Co. v. Holabird & Root
, 382 I ll. App. 3d 1017, 1031 (2008). The threshold for pleading a duty to de fend is low so any doubt should be resolved

-5-in favor of the insured. Holabird
, 382 I ll. App. 3d at 1023 (citing United Servic es Automobile

Ass’n v. Dare , 357 I ll. App. 3d 955, 963 (2005)). I n deter mining whe ther there is a duty to defe nd, courts will liberally construe the underly ing complaint and insurance policy in favor of the insured, and all doubts and ambig uities will be resolved in favor of extending cover ag e to the insured. Clarendon America Insurance Co. v

. B.G.K. Security Servic es, Inc.
, 387 I ll. App. 3d 697, 703 (2008). ¶ 17 We beg in our analy sis with the determination th at t he underlying complaint alleg es an

o c c u r r e n c e th a t potentially falls under the policy ’s cover ag e. The policy ’s insuring ag ree ment provides that it applies to bodily injury and proper ty damag e “ca

used by an ‘occ urre nce’ that takes place in the ‘cove red territory ’ ” and “occ urs during the policy period.” The underlying action is a civil proce eding
, alleg ing neg lige nce, trespass and nuisance for bodily injury and
proper ty damag e within the policy period of Dec ember 31, 2006, to Dec ember 31, 2007. An “occ urre nce” as define d by the policy as “an acc ident, including continuous o r re peate d
exposure to substantially the same g ener al harmful conditions.” The compl ai nt alleg es an “ong oing, conti nuous, repe ated, regular and uninterrupted” invasion of the complainants’
persons and proper

ty by “odors and air contaminants.” The complaint’s alleg ations thus

asser t I mperial’s emissions wer e “continuous or repe ated exposure to substantially the same harmful c onditions,” as define d in the policy , and constitute an oc curr ence

. ¶ 18 Erie submits that beca use the emissions wer e intentionally dis ch ar ged
, t h ey d o not constitute an acc ident and are not an occur renc e under the policy

. Erie is incorre ct. Be cause the alleg ed bodily injury and proper ty damag e w e r e u

n e xp e cted results of I mperial’s intended emissions, they constitute an acc ident under the policy

. Lyons v. State Farm Fire & Casualty Co.
, 349 I ll. App. 3d 404, 409 (2004) (“The focus of the inquiry in deter mining whether an

occur renc e is an acc ident is whether the injury is expected or intended by the i nsured, not whether the acts wer e perf ormed intentionally .” (Emphase s in orig inal.)). I mperial maintains that it had no intent to pollute as evidenc ed by its opera tion under an emissions permit. The underlying complaint does not alleg e under ever y count that I

mp e r ia l in te n ti o n a ll y d is c h a

r g ed pollutants. B ased on the lang uag e of the policy
, we conclude that the underly ing complaint alleg es an occurrence that took place during the policy period and within the cover ed territory

. Thus, under the policy ’s insuring ag ree ment, cover ag e is available unless one of the policy ’s exclusions applies. I mperial argues that beca use its emissions are authorized by its permit, cover ag e is not prec luded under either the expected or intended injury exclusion or the pollution ex clusion. ¶ 19 The policy ’s expected or intended injury exclusion prec ludes cover ag e for bodily injury and proper

ty damag e “expected or intended from the standpoint of the insured.” We employ the same analy sis in deter mining wh ether this exclusion applies as we used in deciding whether the underlying complaint alleg ed an occur renc e under the policy languag e. As noted above, the focus is on whether the injury was expected or intended, not whether the act that

cause d the injury was expected or intended. Lyons
, 349 I ll. App. 3d at 408. The alleg ations in the complaint asser

t that the und er ly ing plaintiffs wer e injured as a result of I mperial’s emissions and that I mperial knew or should have known such injuries wer e likely to oc cur. The underlying complaint does not alleg e solely that I mperial expected or intended to harm the underlying plaintiffs; rathe r, the alleg ations asser t, in part, that I mperial emitted nox ious

-6-odors as par t o f i t s normal business operations. The complaint can rea sonably be rea d as

alleg ing harm cause d, at least in part, by permitted emissions. The complaint additionally allege s I mperial’s emissions violated the applicable I EPA regulations. Be cause I mperial
operated pursuant to an emissions permit, it cannot be considere d to have expect ed or intended to injure the underlying plaintiffs’ persons or proper ties. We find that the expected or intended injury

exclusion does not apply to prec lude cove rag e. ¶ 20 Our next deter mination is whether cover ag e is prec luded under the pollution ex clusion. I mperial submits that its emissions are not pollution as established b y i t s I EPA permit. I mperial admits that it disperses emissions but claims that they do not qua lify as hazardous

or pollutants when dispersed in amounts in compliance with its permit. I mperial argues that beca use t he underlying complaint alleg es, i n part, inj ury as t he result of I mperial’s normal business operations, which are pursua n t t o its permit, cover ag e is not prec luded under the pollution ex clusion, and Erie owes it a duty to defe nd the under ly ing a ction. ¶ 21 The u n d er l y i n g co m p l ai n t al l eges that the plaintiffs’ persons and proper ties were “phy sically invaded by nox ious odors, volatile org anic materia ls (VOMs) and hazardous air pollutants (HAPs), including, but not limit ed to STY R ENE and Methy l Methac rylate (MMA), air contaminants and other hazardous materia l” in the emissions g ener ated “as part of I mperial’s normal business operations.” The pollution exclusion bars cover age for: “ ‘[b] odily injury ’ or ‘prope rt y d amag e’ arising out of the actua l, alleg ed or threatened discharg e, dispersal, seepa g e, migr ation, rele ase or escap e o f ‘pollutants.’ ” The policy d ef i n es “pollutants” as “[a]ny solid, liquid, g aseous or thermal irritant or contaminan t , including smoke , vapor, soot, fume s, acids, alka lis, chemical, a nd waste.” ¶ 22 The policy ’s pollution exclusion is arg uably ambigu o u s as to whether the emission of hazardous materia ls in levels permitted by an I EPA permit co n stitut e traditional environmenta l pollution ex cl u d ed under the policy

. I n American States Insurance Co. v. Koloms
, 177 I ll. 2d 473, 489 (1997), the court reje cted a literal interpre tation of a pollution

ex clusion that was identical to the provisions in the instant policy
, finding the exclusion ambig uous. I n concluding that Erie did not owe I m p er ial a duty to defe nd, the trial court relied on Connecticut Speciality Insurance Co. v. Loop Paper Rec ycling, Inc.
, 356 I ll. App. 3d 67 (2005), and considere d that since I mperial’s emissions migr ated bey ond its premises, they constituted traditional environmenta l pollution and wer e excluded under the policy

. At this stag e in the proce eding s, it is not nece ssary to de termine whether I mperial’s emissions constitute traditional environmenta l pollution. R at her, we mere ly need to find that the policy ’s pollution exclusion is ambig uous as to this issue. As noted in Koloms
, the pollution exclusion has a “potentially limit less application.” Koloms
, 177 I ll. 2d at 489. When the alleg ations in the underlying comp l ai n t are compar ed to the rele vant provisions in the insurance policy
, it is unclea r whether permitted emissions constitute traditional environmenta l polluti on that is ex cluded unde r the policy Erie issued to I mperial. ¶ 23 Be cause we must resolve a mbiguities in the complaint and policy in favor of I mperial,

we find that Erie’ s duty to defe nd is implicated and hold that Erie owes a duty to defe nd I mperial on c laims asserted in the unde rly ing a ction. Our disposition of the cover ag e is sue nega t es t he need to addre ss I mperial’s estoppel argument. The trial court err ed when it
g rante d summary judgme nt in favor of Erie and aga i nst I mperial on Erie’ s duty to defe nd.

-7-We reve rse its dec ision and remand.

¶ 24 For the fore g oing rea son s , t h e j u d gm en t o f t h e ci rcuit court of L a Salle County is

reve rsed a

nd the ca use re manded.

¶ 25 Reverse d and re manded.

-8-