A US federal appeals court has ruled that regulatory permits allowing emissions do not override pollution exclusions in insurance policies, concluding that an insurer had no duty to defend claims tied to long-term hazardous emissions.
In a decision issued by the United States Court of Appeals for the Seventh Circuit, the court found that pollution exclusions remain enforceable even when a company operates under valid environmental permits. The ruling stems from litigation involving Griffith Foods International Inc. and its subsidiaries, which faced multiple lawsuits over the release of ethylene oxide in a Chicago suburb.
The chemical, commonly used to sterilize medical equipment, had reportedly been emitted over a period of more than three decades. Plaintiffs in the underlying lawsuits alleged that the emissions caused serious health impacts, including cancer, prompting mass tort claims against the companies.
A lower court had previously ruled in favor of the policyholders, determining that the pollution exclusion did not apply because the emissions were authorized by the Illinois Environmental Protection Agency through issued permits. Based on that interpretation, the United States District Court for the Northern District of Illinois ordered National Union Fire Insurance Co. of Pittsburgh, Pa. to pay substantial defense costs - approximately $16 million to Griffith Foods and $75.5 million to its subsidiary, Sterigenics.
However, the legal interpretation shifted following a decision by the Illinois Supreme Court, which held that regulatory authorization does not negate the applicability of pollution exclusions. The Seventh Circuit affirmed this position, emphasizing that the emissions in question fell squarely within the plain meaning of “traditional environmental pollution.”
The appellate court also rejected arguments that the policy language was ambiguous, particularly regarding the definition of pollution. Instead, it reinforced that long-term industrial emissions of hazardous substances such as ethylene oxide clearly meet the threshold for exclusion under standard pollution clauses.
As a result, the Seventh Circuit reversed the earlier ruling and remanded the case, directing the lower court to enter judgment in favor of the insurer.
The decision aligns with a broader trend in US courts interpreting pollution exclusions more strictly. In a separate 2024 ruling, the Hawaii Supreme Court similarly found that greenhouse gas emissions fall within the scope of pollution exclusions, relieving insurers of defense obligations in related claims.
The Seventh Circuit’s ruling is expected to have implications for coverage disputes involving environmental and mass tort claims, particularly where insured parties rely on regulatory compliance as a basis for coverage.
