## Facts

- Harvey and Nina Koloms owned a two-story commercial building in Illinois that was leased in part to Sales Consultants, Inc.
- A furnace malfunctioned and emitted carbon monoxide and other fumes inside the building, and several tenant employees became ill.
- Six employees sued the Koloms, alleging negligent maintenance and inspection of the furnace and related repair work.
- American States Insurance Company (ASI) issued a commercial general liability (CGL) policy covering the premises and undertook the defense under a reservation of rights based on the policy’s absolute pollution exclusion.
- The exclusion barred coverage for bodily injury or property damage arising out of the discharge, dispersal, release, or escape of “pollutants,” defined broadly to include gaseous irritants or contaminants such as fumes and vapor.
- ASI filed a declaratory judgment action seeking a ruling that it owed no duty to defend or indemnify because carbon monoxide qualified as a “pollutant” and the injuries arose from its “release.”

## Issues

1. Whether the CGL policy’s absolute pollution exclusion barred coverage for bodily injury claims arising from indoor carbon monoxide emitted by a defective furnace.
2. Whether, for duty-to-defend purposes, the underlying negligence allegations potentially fell within coverage despite the exclusion’s broad text.

## Decision

- The Illinois Supreme Court affirmed the judgment for the insureds.
- The court held the absolute pollution exclusion did not bar coverage for the indoor carbon monoxide incident alleged.
- ASI therefore owed a duty to defend the Koloms in the underlying lawsuits (and coverage was not negated at the pleading stage by the exclusion).

## Legal Principles

- The duty to defend is determined by comparing the underlying complaint’s allegations to the policy terms; if allegations fall within or potentially within coverage, the insurer must defend.
- Insurance provisions are read in context and in light of the policy’s purpose and the circumstances of their drafting, not solely by literal dictionary breadth.
- The absolute pollution exclusion in Illinois is construed as directed at traditional environmental pollution (including industrial/environmental contamination and related regulatory liabilities), not ordinary, localized indoor accidents.
- Exclusionary language that is reasonably susceptible to more than one interpretation is construed strictly against the insurer and in favor of coverage, consistent with a reasonable insured’s expectations.

## Conclusion

The court concluded that carbon monoxide released indoors from a malfunctioning furnace did not constitute the type of traditional environmental pollution targeted by the absolute pollution exclusion, so the insurer could not avoid its defense obligation on that basis.


American States Insurance Co. v. Koloms, 687 N.E.2d 72 (Ill. 1997)