One of my favorite annual events is the ABA’s Insurance Coverage Litigation Committee seminar held in early March in the mountains of Tucson, Ariz.  I always look forward to seeing many of the great insurance coverage lawyers I have worked with in the past, plus the opportunity to meet many new industry specialists. In addition, the conference offers many informative panels.

This year, I particularly enjoyed , “Clearing the Air: Navigating Insurance Coverage for Ethylene Oxide Litigation,” a panel that tackled the topic of insurance coverage for Ethylene Oxide (“EtO”), a chemical compound that is used in a wide range of industries and has played an important role in sterilizing medical devices and equipment. As always at this event, the discussion featured lawyers who represent both policyholders and insurers. 

EtO is an emerging mass tort that has found its way into our practice at KCIC.  We take great interest in related insurance coverage cases and rulings as they impact the work that we do. We are very familiar with the many types of pollution exclusions and discussions like that of this panel are both informative and educational. This article is a synopsis of the presentation from my point of view — as an interested party but someone without a law degree.

An Emerging Tort

In recent years, companies involved in using EtO have faced mounting personal injury lawsuits by individuals seeking damages for illnesses allegedly caused by EtO exposure. As these lawsuits continue to increase, policyholders are looking to their insurers for coverage for defense of the claims as well as for indemnity payments.

Companies with EtO claims might have several insurance options from which coverage could be obtained — pollution liability policies or pollution coverage as part of their commercial general liability (CGL) policies. Often, a CGL policy will contain a “pollution exclusion” that could limit or even erase coverage. During the ABA conference panel, the policyholder attorneys shared their thoughts on the potential ways to overcome these common exclusions. 

Permitted Emissions Exceptions

One policyholder argument for EtO coverage is the “permitted emissions” exception that stems from the 1997 Illinois Supreme Court decision in American States Insurance Co. v. Koloms. In the case, the court opined that if the pollution exclusion was too literally interpreted, it could have such limitless applications that it could essentially negate all coverage. Therefore, Koloms concluded that pollution exclusions be limited to traditional environmental contamination — which includes industrial emissions of pollutants into the environment. In 2011, in Erie Ins. Exch. v. Imperial Marble Corp, the Illinois appellate court cited the Koloms case and found that when the industrial emissions were at levels that were within regulatory permissions, the pollution exclusions are arguably ambiguous and should not negate the duty to defend. The theory was that emissions authorized by law may not constitute traditional environmental pollution, and therefore the court found that the insurer had a duty to defend against claims that arose from permitted emissions.   

In cases involving EtO, many of the defendants discharged EtO within the guidelines of the EPA. These policyholders have argued that, under the permitted emissions doctrine, it is ambiguous whether their activities constitute traditional environmental contamination as the court in Koloms envisioned. 

This month, a Seventh Circuit panel requested the Illinois Supreme Court weigh in on how to apply these two decisions from separate Illinois courts. 

Nuisance Claims and “Personal Injury” CGL Coverage

Some policyholders may argue that nuisance claims may actually trigger the personal injury coverage under a CGL policy — nuisance claims being complaints by plaintiffs living near an EtO facility who say they have suffered a loss of use and enjoyment of their property. The pollution exclusions issued as part of some policies, especially older ones, may only be applicable to bodily injury and property damage — not personal injury. This argument will certainly be opposed by insurers who will continue to argue that nuisance claims are not personal injury based on the policy definitions and prevalent nuisance law.

What Happens Next?

Illinois has raised some new issues about coverage for EtO and the pending decision from the Illinois Supreme Court may help shed some light on what happens next. Will other courts follow the current Illinois decisions?  A recent Pennsylvania court did not. In Noetic Specialty Insurance Co. v. B. Braun Medical, Inc., the federal district court judge held that a pollution exclusion in a CGL policy barred coverage for EtO liabilities under Pennsylvania law. The finding said that EtO fell within the policies’ definition of “pollutant” — thereby rejecting the policyholder’s argument that a unique exception applied to the exclusion in the policy. The exception to the exclusion that was argued by the policyholder provided that the pollution exclusion would not apply where “Your Product or Your Work was cleared by any government health authority or regulatory body for marketing with a specific indication for medical, diagnostic or therapeutic use.” The court reasoned that government approvals did not constitute “marketing of EtO” as required by the exception. This case is currently on appeal.

The ABA panel discussion reinforced the view that the landscape surrounding insurance coverage for EtO is evolving, which presents uncertainty for both policyholders and insurers. Decisions to date remain jurisdictionally specific and are still subject to appeals. These cases are a good reminder for practitioners that policy language is still of paramount importance in securing coverage, especially for emerging risks.