A Furnace Is Not a Smokestack

A property manager in Skokie gets a call on a January morning. A cracked heat exchanger in a basement furnace leaked carbon monoxide overnight, and three tenants spent the morning in an emergency room. When their lawyer sends a $750,000 demand, the manager tenders the claim to the building’s commercial general liability insurer, which answers within two weeks: no coverage, because carbon monoxide is a pollutant and the policy contains an absolute pollution exclusion.

Read literally, the insurer has a point. The standard exclusion defines pollutants broadly enough to cover nearly any irritant or contaminant, including smoke, vapor, fumes, and chemicals. Under that reading, a leaking furnace, a spilled floor cleaner, and a refinery explosion all land in the same category. Illinois courts, however, do not read the exclusion literally.

What the Illinois Supreme Court Decided in Koloms

In American States Insurance Co. v. Koloms, 177 Ill. 2d 473 (1997), the Illinois Supreme Court considered nearly this exact scenario. After examining the exclusion’s history, which the insurance industry developed in response to environmental cleanup liability, the court held that the exclusion applies only to injuries caused by traditional environmental pollution. Carbon monoxide escaping from a malfunctioning heater inside a building did not qualify, and the insurer owed coverage.

The decision remains good law. In Griffith Foods International, Inc. v. National Union Fire Insurance Co. of Pittsburgh, PA, 2026 IL 131710, the Illinois Supreme Court reaffirmed that the exclusion reaches traditional environmental pollution, while holding that a government permit does not take industrial emissions outside it. The reasoning of these decisions extends well beyond furnaces to fumes from floor finishes, refrigerant leaks, a chemical spill in a restaurant kitchen, or a contractor’s paint overspray. In each case, the denial letter may present the exclusion as though its application were obvious, but in Illinois it often is not.

Why Insurers Keep Citing It Anyway

Part of the explanation is that the exclusion still works in some cases. Industrial discharges into soil, groundwater, or open air look like traditional environmental pollution, and the Illinois Supreme Court’s decision does little for the policyholder there. Courts also examine the facts of each release, so the line between an indoor accident and environmental contamination is not always clean.

The rest of the explanation is less flattering. A denial costs the insurer only a letter, while contesting it costs the policyholder time, legal fees, and the patience to tell injured claimants that coverage is still being sorted out. As a result, a meaningful share of policyholders accept the denial, especially when the policy wording seems to support it.

Read the Policy You Actually Have

The Illinois Supreme Court interpreted a standard form in 1997, and policies have changed since then. Many now include narrower exclusions written for specific hazards, such as mold, lead, silica, or communicable disease, and because those exclusions are drafted to avoid the ambiguity that defeated the insurer in that case, courts are more inclined to apply them as written. Before contesting a denial, the policyholder therefore needs the complete policy, every endorsement, and the exact exclusion the insurer quoted.

Even where an exclusion is in play, Illinois law gives the policyholder two advantages. Courts place the burden on the insurer to prove that an exclusion applies, and they construe exclusions narrowly. In addition, because the duty to defend turns on the allegations in the complaint, an insurer may owe a defense even while it disputes any obligation to pay. A complaint describing a furnace malfunction is a poor fit for an environmental exclusion from the start.

The Practical Response

When a denial arrives, the policyholder should ask the insurer to identify the precise policy language and explain how the facts amount to traditional environmental pollution. It should also preserve the equipment, maintenance records, and inspection reports that show what actually happened, and it should notify any umbrella or excess carrier, whose wording may differ. If the insurer still refuses a defense, Illinois law leaves it only two safe options. Under Employers Insurance of Wausau v. Ehlco Liquidating Trust, 186 Ill. 2d 127 (1999), the insurer must either defend under a reservation of rights or ask a court to decide coverage, and an insurer that does neither and turns out to be wrong risks losing its coverage defenses entirely.

The pollution exclusion was built for factories and waste sites. When an insurer reaches for it to avoid a claim about a basement furnace, the policyholder is entitled to ask why the insurer thinks the Illinois Supreme Court got it wrong.

We help policyholders challenge pollution exclusion denials and pursue defense and indemnity coverage for indoor exposure claims. If your insurer has denied a claim based on a pollution exclusion, we can review the policy and the denial before you respond. Contact us to discuss your matter.

This article provides general information and does not constitute legal advice. For guidance concerning a specific matter, see our insurance recovery services. The available remedies depend on the policy language, the facts of the release, and the allegations against the policyholder. To discuss potential representation, request a consultation. Submitting an inquiry does not establish an attorney-client relationship.