For decades, business owners have relied on a comforting, if misplaced, assumption: "If I’m following the law and my permits, my insurance will protect me."
Recent landmark decisions from the Supreme Courts of Illinois and California have officially dismantled that safety net. As of February 2026, the legal definition of "pollution" is shifting, and the gap between standard Commercial General Liability (CGL) coverage and reality has become a canyon.
The Illinois "Permit" Trap: Compliance is Not Coverage
On January 23, 2026, the Illinois Supreme Court issued a decision in Griffith Foods International, Inc. v. National Union Fire Insurance Co. that sent shockwaves through the manufacturing sector.
The case involved decades of Ethylene Oxide (EtO) emissions from a medical sterilization facility. The business owner argued that because their emissions were fully authorized by Illinois EPA permits, they couldn't be classified as "pollution" under the policy's exclusion.
The Court’s Ruling: A permit is irrelevant. Justice Joy V. Cunningham wrote that a government permit "did not transform the emissions into something other than pollution—if it had, no permit would have been needed in the first place."
The Takeaway for You: You can be 100% compliant with every state and federal regulation and still find yourself 100% uninsured when a neighbor files a toxic tort lawsuit. If your business emits anything into the air or water, your CGL policy's "Total Pollution Exclusion" is now a titanium shield for your insurer, not for you.
California Reopens the "Sudden vs. Accidental" Wound
While Illinois was tightening the noose on permitted emissions, the California Supreme Court took a different, but equally volatile, path. On January 30, 2026, the Court agreed to hear Montrose Chemical Corp. v. Superior Court, a case that could redefine "sudden and accidental" pollution.
For years, insurers have successfully argued that "sudden" means "abrupt"—like a tank exploding. They used this to deny coverage for gradual leaks (like a corroding underground pipe). However, the Court is now considering whether "sudden" should instead mean "unexpected."
If California rules in favor of the policyholder, it could trigger a "sea change," potentially reviving coverage for long-term environmental exposures. But there is a catch: while this sounds like a win for businesses, it will almost certainly lead to insurers further broadening their exclusions and raising premiums for any policy that isn't a dedicated Environmental Impairment Liability (EIL) form.
The "Silent Pollution" Crisis in Indoor Air Quality
We are also seeing these exclusions applied to "everyday" business issues. Courts in both Illinois and California are increasingly siding with insurers who use pollution exclusions to deny claims related to:
- Ethylene Oxide (EtO): Used in sterilization.
- Mold and Legionella: Common in construction and property management.
- Fumes from Roofing Materials: Impacting construction contractors.
If a worker or a resident claims bodily injury from "fumes," your carrier is likely to point to the pollution exclusion and hand you the legal bill.
Strategy for the Proactive Business Owner
The "total" pollution exclusion in your CGL policy is exactly what it sounds like: total. To protect your balance sheet, you must move beyond the standard GL tower.
- Audit Your "Permitted" Risks: Identify every substance your facility is permitted to discharge. Under the new Illinois precedent, these are officially "pollutants" in the eyes of your insurance company.
- Challenge the "Silent" Exclusions: Ask your broker specifically about mold, Legionella, and indoor air quality. If these are not explicitly covered, you are exposed.
- Invest in Specialized Environmental Coverage: Dedicated Environmental Insurance (often called EIL or Site Pollution) is designed to pick up where the CGL leaves off. It covers the "permitted" releases and the "gradual" leaks that the courts are currently fighting over.
The Bottom Line: In 2026, "I have a permit" is a regulatory defense, not an insurance strategy. The courts have made their move; now you must make yours.
The Environmental Observer provides risk management insights for the modern industrial and construction professional. For more information on environmental liability, visit our archives.