AIG Set for Illinois Fight Over Authorized Emissions Coverage

Liability insurers are keeping a close eye on the Illinois Supreme Court as the justices consider whether an American International Group Inc. unit must defend medical supply sterilization companies hit with hundreds of claims stemming from emissions permitted by a state regulator.

The case, set for oral arguments Tuesday, tests the question: Who’s on the hook for pollution claims when the company accused of polluting says they were acting with the government’s blessing?

Griffith Foods International Inc. and Sterigenics US LLC are seeking insurance coverage under 1980s policies for approximately $124 million in costs incurred defending underlying mass tort claims over exposure to ethylene oxide, a human carcinogen, emitted from a medical instrument sterilization facility in Willowbrook, Ill.

Illinois’ Environmental Protection Agency had issued a permit explicitly authorizing the emissions, the companies said, meaning the AIG unit can’t rely on a pollution exclusion in its policy.

The case drew amicus briefs from a Zurich Insurance Group AG unit and several powerhouse industry groups that say a ruling in favor of the sterilization companies would overturn decades of case law and effectively nullify the pollution exclusion found in commercial general liability policies across the country.

Although the case is limited to the insurer’s duty to defend, the court’s ruling could also determine who pays for settlements with the underlying plaintiffs in other cases.

“The real stakes here aren’t whether these insurers have to cover their policyholders’ defense costs,” said Edelson PC’s Alex Tievsky, who filed an amicus brief on behalf of settlement participants in separate underlying litigation against Vantage Specialty Chemicals Inc. “This is about whether insurers will have to compensate their policyholders’ neighbors, who unknowingly inhaled carcinogenic ethylene oxide gas for decades.”

A company’s acts can be legal while still failing to qualify for insurance coverage, said Jeffrey Stempel, an insurance law professor at the University of Nevada, Las Vegas.

“You can have a driver’s license and still drive negligently and be sued, or you can have a permit to build and still be sued in a construction defect case,” Stempel said.

‘Traditional’ Pollution

Courts outside of Illinois haven’t grappled with the question about government-permitted emissions, insurance professionals said.

The state’s top court in 1997 in American States Insurance Co. v. Koloms said the pollution exclusion applies only to “traditional environmental pollution"—which the justices defined as “gradual or repeated discharge of hazardous substances into the environment"—and not, for example, to an accidental leak.

But a 2011 ruling by an intermediate appellate court added another wrinkle. In Erie Insurance Exchange v. Imperial Marble Corp.—a decision written by current Justice Mary K. O’Brien before she joined the top court—the Illinois Appellate Court, Third District, held that government-authorized emissions were excepted from the pollution exclusion.

That prompted the US Court of Appeals for the Seventh Circuit in April to refer the case at hand to the Illinois justices.

Future fights over government-permitted emissions are likely to occur in states such as California, where courts have also adopted a “traditional environmental pollution” interpretation. States such as Texas that interpret the exclusion more literally to encompass any act of pollution are less likely to be affected.

‘Get It Right’

Carriers generally must defend their policyholders in underlying litigation if there is any potential for coverage. To avoid their duty to defend, the insurers must show an exclusion applies unambiguously.

“Their job is to write policies, so get it right,” said Robert Horkovich, managing shareholder at policyholder-side firm Anderson Kill PC. “And if you don’t get it right, you’re going to be penalized and you’re going to have to pay.”

Griffith and Sterigenics argue AIG has failed to prove the pollution exclusion unambiguously applies to emissions authorized by a permit.

At minimum, they say, it wasn’t clear the exclusion applied when AIG refused to defend them in the underlying litigation.

That’s the stronger policyholder argument, Stempel said—that AIG should have been defending Griffith and Sterigenics for now because there was potential coverage based on Imperial Marble.

Permitted or Not

AIG in its briefs argues that reading an exception for government-authorized emissions into the pollution exclusion is inconsistent with the policy language and the Illinois high court’s decision in Koloms.

Zurich American Insurance Co. in an amicus brief likewise argued that “the meaning of pollution exclusions should not vary with the ebbs and flows of the regulatory environment.”

“The words comprising National Union’s pollution exclusion should be accorded the same meanings now as they had in 1983 and 1984, when National Union issued its policies to Griffith,” Zurich said. “Without such certainty, contracting parties could never be sure of what they are bargaining for.”

Commercial policyholders seeking to offset their risk can and should purchase stand-alone claims-made pollution liability coverage rather than seeking coverage where there isn’t any, Zurich added.

Insurance industry groups—including the American Property Casualty Insurance Association and the Complex Insurance Claims Litigation Association—in a separate amicus brief argued that the pollution exclusion precluded coverage for the underlying claims regardless of whether the emissions were permitted, because coverage doesn’t depend on whether a regulator deems certain conduct permissible, unless that’s explicitly stated in the policy.

“While maintaining permissible emission levels may establish that an insured was not negligent or liable in the underlying case, that is a different question from what risks were transferred (and paid for with premium) under a private insurance contract,” the insurance industry groups’ brief said. “CGL insurers may choose to exclude a host of risks, regardless of the legality of the insured’s conduct.”

Donohue Brown Smyth LLC and Perkins Coie LLP represent Griffith. Latham & Watkins LLP; Calfee, Halter & Griswold LLP; and Neal, Gerber & Eisenberg LLP represent Sterigenics. Gibson, Dunn & Crutcher LLP and Illinois attorney Michael T. Reagan represent AIG. Skarzynski Marick & Black LLP represents Zurich. Amundsen Davis LLC represents the insurance industry groups.

The case is Griffith Foods Int’l Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., Ill., No. 131710, oral arguments scheduled 11/18/25.