INSURED CHALLENGES POLLUTION EXCLUSIONS

Commercial General Liability	Pollution Exclusions
Hostile Fire Exception	Definition Of Waste

Loop Paper Recycling (Loop) operated a paper recycling facility in Riverdale, Illinois. Vandals set fire to an unknown amount of cardboard at the facility in July 2000. Residents of the surrounding neighborhood were concerned about the possible effects of smoke and toxic substances that permeated their neighborhood as a result of the fire. They filed suit against Loop, seeking damages for medical diagnosis, testing and monitoring of their health.

Connecticut Specialty Insurance Company (Connecticut) was Loop Paper's commercial general liability insurer. Connecticut agreed to defend in the case but reserved its right to deny coverage. The policy covered bodily injury and personal injury liability. However, based on the terms of the policy, these coverages were subject to a "total pollution exclusion" and an "absolute pollution exclusion" respectively.

Connecticut filed a declaratory judgment action in September 2001. It argued that, under the terms of the policy, it did not owe a duty to defend or provide coverage. The circuit court found in Connecticut's favor. It specifically determined that, while the underlying plaintiffs sufficiently alleged that they suffered "bodily injury," there was no coverage because of the policy's "total pollution exclusion." The court also found that the plaintiffs failed to allege "personal injury" and, even if they did, the "absolute pollution exclusion" barred coverage. Loop appealed.

On appeal, Loop argued that the language of the Connecticut policy did not support a finding that coverage for bodily injury was barred by its total pollution exclusion. The relevant policy provision excluded coverage in circumstances that would not have occurred but for "the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants at any time." An exception to the exclusion provided coverage if the injury resulted from "heat, smoke or fumes from a hostile fire" (such as vandalism). But this "hostile fire exception" did not apply if the premises were used for "handling, storage, disposal, processing or treatment of waste."

Loop argued that the total pollution exclusion exception applied because there no indication in the complaint that the cardboard met the definition of waste. The appellate court disagreed. It stated that because the cardboard was "waste" within the policy's meaning, and because the burning cardboard was the basis for the plaintiffs' lawsuit, the total pollution exclusion barred coverage for bodily injury.

Loop also attempted to gain coverage through the personal injury coverage part but the court found that the release of toxins by the burning cardboard constituted traditional environmental pollution and that the absolute pollution exclusion barred coverage for personal injury.

The trial court's decision was affirmed.

Connecticut Specialty Insurance Company vs. Loop Paper Recycling-No. 1-03-2988-Appellate Court of Illinois, First District, Fourth Division-February 17, 2005-824 North Eastern Reporter 2d 1125