ILLINOIS OFFICIAL REPORTS

Appellate Court

Erie Insurance Exchange v. Imperial Marble Corp., 2011 IL App (3d) 100380

Appellate Court

Caption

ERIE INSURANCE EXCHANGE, Plaintiff-Appellee, v. IMPERIAL

MARBLE CORPORATION, Defendant-Appellant and Third-Party

Plaintiff (Somonauk Insurance Agency, Inc., Third-Party Defendant).

 District & No. Third District

Docket No. 3-10-0380

Filed September 15, 2011

Held

(Note: This syllabus

constitutes no part of

the opinion of the court

but has been prepared

by the Reporter of

Decisions for the

convenience of the

reader.)

Plaintiff insurer had a duty to defend its insured on the claims asserted in

an underlying class action for personal injury and property damage

purportedly caused by the emissions from the insured’s manufacturing

operations involving the use ofstyrene and methyl methacrylate, since the

emissions were authorized under a permit issued by the Illinois

Environmental Protection Agency and it was unclear whether the

permitted emissions constituted traditional environmental pollution that

was excluded under the policy plaintiff issued.

Decision Under 

Review

Appeal from the Circuit Court of La Salle County, No. 07-CH-796; the

Hon. James A. Lanuti, Judge, presiding.

Judgment Reversed and remanded.
Counsel on

Appeal

Brent W. Vincent (argued) and Donald A. Cole, both of Bryan Cave LLP,

of Chicago, for appellant.

Bruce M. Lichtcsien (argued), of Hinkhouse, Williams & Walsh, of

Chicago, for appellee.

Panel JUSTICE O’BRIEN delivered the judgment of the court, with opinion.

Justices Schmidt and Holdridge concurred in the judgment and opinion.

OPINION

¶ 1 Plaintiff Erie Insurance Exchange filed a declaratory judgment action seeking a

declaration that it did not have a duty to defend or indemnify under a comprehensive general

liability (CGL) policy it issued to defendant Imperial Marble Corporation in an underlying

class action lawsuit for personal injury and property damage purportedly due to emissions

from Imperial’s manufacturing operations. Imperial asserted estoppel as an affirmative

defense and filed a counterclaim seeking a declaration that Erie owed it a defense and

indemnification, and for breach of contract based on Erie’s denial of coverage. Both parties

moved for summary judgment and the trial court granted Erie’s motion on Imperial’s

counterclaim and its affirmative defense, and denied Imperial’s motion. Imperial appealed.

We reverse and remand.

¶ 2 FACTS

¶ 3 Plaintiff Erie Insurance Exchange sought a declaration from the trial court that it had no

duty to defend defendant Imperial Marble Corporation in the underlying action filed against

it by homeowners residing within one mile of Imperial’s manufacturing plant. Imperial

Marble manufactures cultured marble vanities, countertops and other synthetic products at

its facility in Somonauk. Along with other chemicals, Imperial uses styrene and methyl

methacrylate (MMA) in its manufacturing processes which create odorous emissions that are

dispersed into the atmosphere. The emissions are authorized under a permit issued by the

Illinois Environmental Protection Agency (IEPA) in compliance with the federal Clean Air

Act (CAA) (42 U.S.C. § 7401 et seq. (2006)); 415 ILCS 5/39.5(3), (9) (West 2006).

¶ 4 Imperial’s permit was issued on November 21, 2002, and modified on May 8, 2006. In

February 2007, Imperial submitted a permit renewal application that was still under

evaluation at the time the briefs were filed. Imperial’s permit prohibits emissions of

particulate matter that block more than 30% of the available sunlight (35 Ill. Adm. Code

212.123 (2011)); precludes discharge of more than eight pounds of organic material into the

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atmosphere from any one emission unit (35 Ill. Adm. Code 215.301 (2011)); requires

compliance with all other applicable state and federal regulations; and includes a permit

shield which “provides that compliance with the conditions of this permit shall be deemed

compliance with applicable requirements which were applicable as of the date the proposed

permit for this source was issued.” See 415 ILCS 5/39.5(7)(j) (West 2006); 42 U.S.C.

§ 7661c(f) (2006).

¶ 5 Erie issued a CGL policy to Imperial in 2002 with effective dates of December 31, 2002,

to December 31, 2003. The policy was renewed for several terms, including December 31,

2006, to December 31, 2007, the policy term that covers the May 2007 filing of the

underlying action. Imperial procured the policy through Dennis Wiley of the Somonauk

Insurance Agency, an independent insurance brokerage that represents Erie per a written

agencyagreement. The written agencyagreement provided that Somonauk, on behalf of Erie,

quote and bind coverage; bill and accept premium payments; accept and deliver policy

applications, renewals and notices; issue insurance cards and additional insured certificates;

accept notices of claims; and assist Erie in claim investigation and handling. Somonauk

performed these functions for Imperial and served as the primary vehicle for communication

between Imperial and Erie.

¶ 6 The policy issued to Imperial included the following pertinent provisions. The policy’s

insuring agreement provided, in part:

“We will pay those sums that the insured becomes legally obligated to pay as

damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.

We will have the right and duty to defend the insured against any ‘suit’ seeking those

damages. However, we will have no duty to defend the insured against any ‘suit’ seeking

damages for ‘bodily injury’ or ‘property damage’ to which this insurance does not

apply.”

The policy states that the insurance applies to bodily injury and property damage “caused by

an ‘occurrence’ that takes place in the ‘covered territory’ ” and “occurs during the policy

period.” The policy defines “occurrence” as “an accident, including continuous or repeated

exposure to substantially the same general harmful conditions.”

¶ 7 The policy includes the following exclusions:

“This insurance does not apply to:

a. Expected or Intended Injury

‘Bodily injury’ or ‘property damage’ expected or intended from the standpoint of the

insured. ***

* * *

f. Pollution

(1) ‘Bodily injury’ or ‘property damage’ arising out of the actual, alleged or

threatened discharge, dispersal, seepage, migration, release or escape of ‘pollutants’:

(a) At or from any premises, site or location which is or was at any time owned or

occupied by, or rented or loaned to, any insured.”

¶ 8 To secure adequate insurance for Imperial, Wiley procured the assistance of Jeff Porter,

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Erie’s district sales manager. Both Wiley and Porter had extensive contact with Imperial

when determining Imperial’s coverage, including interviewing Imperial management and

touring the facility. Neither Porter nor Wiley informed Imperial of the pollution exclusion

in the policy or identified Imperial’s emissions as subject to a gap in coverage. Imperial

believed it had purchased “all risk insurance” and was fully covered. In 2003, 2005, and

2007, Erie employees Brandon Cooper and Robert Simmons conducted loss control

inspections at Imperial’s facility. Following each inspection, they prepared detailed reports

and sent a letter to Imperial offering recommendations to limit liability. Coverage gaps or

other issues regarding Imperial’s emissions were not mentioned.

¶ 9 In August 2007, the underlying plaintiffs, individually and as putative representatives of

all others who resided within one mile of Imperial’s plant, filed a class action complaint

asserting negligence, trespass and nuisance. The complaint alleges, inter alia, personal

injuries and property damage resulting from the invasion of the plaintiffs’ person and

property “by noxious odors, volatile organic materials (VOMs) and hazardous air pollutants

(HAPs), including, but not limited to STYRENE and Methyl Methacrylate (MMA), air

contaminants and other hazardous material” in the emissions generated, inter alia, “as part

of Imperial’s normal business operations.” The complaint also alleges that Imperial emitted

VOMs and HAPs in violation of IEPA regulations and released more than the amounts of

VOMs and HAPs allowed under its permit. The complaint also alleges that Imperial knew

or should have known, and was aware of, expected, and intended the emissions to occur.

¶ 10 Erie denied coverage of the underlying action in October 2007 and thereafter filed this

declaratory action seeking a determination that it had no duty to defend or indemnify

Imperial based on the policy’s expected or intended injury and pollution exclusions. In

response, Imperial asserted an affirmative defense of estoppel and filed a counterclaim

seeking a declaration that Erie owed it a defense and indemnification in the underlying action

(count I) and breach of contract for improperly denying coverage (count II). Imperial does

not seek a defense for count II and it is not at issue in this appeal. Imperial also filed a thirdparty complaint against Somonauk and amended its counterclaim against Erie adding an

allegation that Erie and its agents, Wiley and Porter, were negligent in failing to procure it

adequate coverage.

¶ 11 Imperial filed a motion for partial summary judgment on Erie’s declaratory action and

on counts I and II of its amended counterclaim, seeking a finding that Erie owed it a defense

in the underlying action. Erie filed a cross-motion for summary judgment, seeking a

declaration that it did not owe Imperial a duty to defend or indemnify. The primary issue in

the summary judgment motions was whether Imperial’s emissions constitute traditional

environmental pollution that are precluded under the policy’s pollution exclusion. After a

hearing on the parties’ motions, the trial court held that Imperial’s emissions constituted

traditional environmental pollution and that coverage was precluded under the policy’s

pollution exclusion. The trial court looked to the allegations in the underlying complaint

which characterized Imperial’s emissions as hazardous and migrating off of Imperial’s

premises. The trial court rejected Imperial’s argument that under the CAA and IEPA the

emissions were neither pollution nor hazardous. The trial court further found that it was

inappropriate to replace the language in the policy’s pollution exclusion with the definition

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of pollution under the United States Environmental Protection Agency (USEPA) and the

IEPA. The trial court stated:

“Ithink the Complaint itself, which is the underlying issue here, filed by the citizens,

is alleging contamination, noxious odors, etcetera, and that’s enough to constitute

traditional environmental pollution.” 

The trial court denied Imperial’s estoppel defense, finding that Erie had not made any

affirmative misrepresentations to Imperial regarding coverage for its emissions. The trial

court awarded summary judgment to Erie on its declaratory action and denied Imperial’s

summary judgment motion seeking a duty to defend and asserting an estoppel defense.

Imperial appealed.

¶ 12 ANALYSIS

¶ 13 Imperial raises two issues on appeal: whether the trial court erred in granting summary

judgment for Erie on the coverage issue and whether it erred in denying Imperial’s estoppel

defense.

¶ 14 The first issue raised by Imperial is whether the trial court erred in granting summary

judgment to Erie on the issue of coverage. Imperial argues that the underlying complaint

alleges an “occurrence” under the policy, and that the expected or intended injury and

pollution exclusions do not apply to bar coverage. Imperial challenges the trial court’s

finding that the policy’s pollution exclusion precluded coverage, arguing that because its

emissions were allowed under its IEPA permit, they are neither pollution nor hazardous. It

argues that coverage for the underlying action is not precluded under the policy’s pollution

exclusion and Erie owes it a duty to defend the underlying action.

¶ 15 Summaryjudgment should be granted onlywhere the pleadings, depositions, admissions,

and affidavits on file, when viewed in a light most favorable to the nonmoving party, show

that there is no genuine issue of material fact and the movant is entitled to judgment as a

matter of law. 735 ILCS 5/2-1005(c) (West 2006); DeSaga v. West Bend Mutual Insurance

Co., 391 Ill. App. 3d 1062, 1066 (2009). The interpretation of an insurance policy is a

question of law that may be decided on a motion for summary judgment. DeSaga, 391 Ill.

App. 3d at 1066. This court reviews a trial court’s determination on a motion for summary

judgment and the interpretation of an insurance policy de novo. DeSaga, 391 Ill. App. 3d at

1066; Whiting v. Prestige Casualty Co., 238 Ill. App. 3d 376, 377 (1992).

¶ 16 To determine an insurer’s duty to defend, the court must look to the allegations of the

underlying complaint and if it alleges facts within or potentially within policy coverage, the

insurer is obligated to defend the insured, even if the allegations are groundless, false or

fraudulent. United States Fidelity & Guaranty Co. v. Wilkin Insulation Co., 144 Ill. 2d 64,

73 (1991). If the underlying complaint alleges multiple theories of recovery, the duty to

defend arises even if only one theory is within the policy’s potential coverage. Wilkin

Insulation Co., 144 Ill. 2d at 73. A trial court may consider evidence beyond the underlying

complaint if in doing so the trial court does not determine an issue critical to the underlying

action. American Economy Insurance Co. v. Holabird & Root, 382 Ill. App. 3d 1017, 1031

(2008). The threshold for pleading a duty to defend is low so any doubt should be resolved

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in favor of the insured. Holabird, 382 Ill. App. 3d at 1023 (citing United Services Automobile

Ass’n v. Dare, 357 Ill. App. 3d 955, 963 (2005)). In determining whether there is a duty to

defend, courts will liberally construe the underlying complaint and insurance policy in favor

of the insured, and all doubts and ambiguities will be resolved in favor of extending coverage

to the insured. Clarendon America Insurance Co. v. B.G.K. Security Services, Inc., 387 Ill.

App. 3d 697, 703 (2008).

¶ 17 We begin our analysis with the determination that the underlying complaint alleges an

occurrence that potentiallyfalls under the policy’s coverage. The policy’s insuring agreement

provides that it applies to bodily injury and property damage “caused by an ‘occurrence’ that

takes place in the ‘covered territory’ ” and “occurs during the policy period.” The underlying

action is a civil proceeding, alleging negligence, trespass and nuisance for bodily injury and

property damage within the policy period of December 31, 2006, to December 31, 2007. An

“occurrence” as defined by the policy as “an accident, including continuous or repeated

exposure to substantially the same general harmful conditions.” The complaint alleges an

“ongoing, continuous, repeated, regular and uninterrupted” invasion of the complainants’

persons and property by “odors and air contaminants.” The complaint’s allegations thus

assert Imperial’s emissions were “continuous or repeated exposure to substantially the same

harmful conditions,” as defined in the policy, and constitute an occurrence.

¶ 18 Erie submits that because the emissions were intentionally discharged, they do not

constitute an accident and are not an occurrence under the policy. Erie is incorrect. Because

the alleged bodilyinjuryand propertydamage were unexpected results of Imperial’s intended

emissions, they constitute an accident under the policy. Lyons v. State Farm Fire &Casualty

Co., 349 Ill. App. 3d 404, 409 (2004) (“The focus of the inquiry in determining whether an

occurrence is an accident is whether the injury is expected or intended by the insured, not

whetherthe acts were performed intentionally.” (Emphases in original.)). Imperial maintains

that it had no intent to pollute as evidenced by its operation under an emissions permit. The

underlying complaint does not allege under everycount that Imperial intentionallydischarged

pollutants. Based on the language of the policy, we conclude that the underlying complaint

alleges an occurrence that took place during the policy period and within the covered

territory. Thus, under the policy’s insuring agreement, coverage is available unless one of the

policy’s exclusions applies. Imperial argues that because its emissions are authorized by its

permit, coverage is not precluded under either the expected or intended injury exclusion or

the pollution exclusion.

¶ 19 The policy’s expected or intended injury exclusion precludes coverage for bodily injury

and property damage “expected or intended from the standpoint of the insured.” We employ

the same analysis in determining whether this exclusion applies as we used in deciding

whetherthe underlying complaint alleged an occurrence under the policylanguage. As noted

above, the focus is on whether the injury was expected or intended, not whether the act that

caused the injury was expected or intended. Lyons, 349 Ill. App. 3d at 408. The allegations

in the complaint assert that the underlying plaintiffs were injured as a result of Imperial’s

emissions and that Imperial knew or should have known such injuries were likely to occur.

The underlying complaint does not allege solely that Imperial expected or intended to harm

the underlying plaintiffs; rather, the allegations assert, in part, that Imperial emitted noxious

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odors as part of its normal business operations. The complaint can reasonably be read as

alleging harm caused, at least in part, by permitted emissions. The complaint additionally

alleges Imperial’s emissions violated the applicable IEPA regulations. Because Imperial

operated pursuant to an emissions permit, it cannot be considered to have expected or

intended to injure the underlying plaintiffs’ persons or properties. We find that the expected

or intended injury exclusion does not apply to preclude coverage.

¶ 20 Our next determination is whether coverage is precluded under the pollution exclusion.

Imperial submits that its emissions are not pollution as established by its IEPA permit.

Imperial admits that it disperses emissions but claims that they do not qualify as hazardous

or pollutants when dispersed in amounts in compliance with its permit. Imperial argues that

because the underlying complaint alleges, in part, injury as the result of Imperial’s normal

business operations, which are pursuant to its permit, coverage is not precluded under the

pollution exclusion, and Erie owes it a duty to defend the underlying action.

¶ 21 The underlying complaint alleges that the plaintiffs’ persons and properties were

“physically invaded by noxious odors, volatile organic materials (VOMs) and hazardous air

pollutants (HAPs), including, but not limited to STYRENE and Methyl Methacrylate

(MMA), air contaminants and other hazardous material” in the emissions generated “as part

of Imperial’s normal business operations.” The pollution exclusion bars coverage for:

“ ‘[b]odily injury’ or ‘property damage’ arising out of the actual, alleged or threatened

discharge, dispersal, seepage, migration, release or escape of ‘pollutants.’ ” The policy

defines “pollutants” as “[a]ny solid, liquid, gaseous or thermal irritant or contaminant,

including smoke, vapor, soot, fumes, acids, alkalis, chemical, and waste.”

¶ 22 The policy’s pollution exclusion is arguably ambiguous as to whether the emission of

hazardous materials in levels permitted by an IEPA permit constitute traditional

environmental pollution excluded under the policy. In American States Insurance Co. v.

Koloms, 177 Ill. 2d 473, 489 (1997), the court rejected a literal interpretation of a pollution

exclusion that was identical to the provisions in the instant policy, finding the exclusion

ambiguous. In concluding that Erie did not owe Imperial a duty to defend, the trial court

relied on Connecticut Speciality Insurance Co. v. Loop Paper Recycling, Inc., 356 Ill. App.

3d 67 (2005), and considered that since Imperial’s emissions migrated beyond its premises,

they constituted traditional environmental pollution and were excluded under the policy. At

this stage in the proceedings, it is not necessary to determine whether Imperial’s emissions

constitute traditional environmental pollution. Rather, we merely need to find that the

policy’s pollution exclusion is ambiguous as to this issue. As noted in Koloms, the pollution

exclusion has a “potentially limitless application.” Koloms, 177 Ill. 2d at 489. When the

allegations in the underlying complaint are compared to the relevant provisions in the

insurance policy, it is unclear whether permitted emissions constitute traditional

environmental pollution that is excluded under the policy Erie issued to Imperial.

¶ 23 Because we must resolve ambiguities in the complaint and policy in favor of Imperial,

we find that Erie’s duty to defend is implicated and hold that Erie owes a duty to defend

Imperial on claims asserted in the underlying action. Our disposition of the coverage issue

negates the need to address Imperial’s estoppel argument. The trial court erred when it

granted summary judgment in favor of Erie and against Imperial on Erie’s duty to defend.

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We reverse its decision and remand.

¶ 24 For the foregoing reasons, the judgment of the circuit court of La Salle County is

reversed and the cause remanded.

¶ 25 Reversed and remanded.

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