Sources of Insurance Recovery for Emerging PFAS Claims

This year, the Environmental Protection Agency (“EPA”) issued its first-ever national, legally enforceable drinking water standard to protect communities from exposure to harmful per-and polyfluoroalkyl substances (“PFAS”), also known as “forever chemicals.”[1] In addition, the Food and Drug Administration announced that grease-proofing materials containing PFAS are no longer being sold for use in food packaging in the United States.[2] These are likely the first in a line of many PFAS regulations that will emerge as the harmful effects of PFAS are further understood. With this increasing regulatory focus on PFAS and their harmful effects, companies whose operations might involve these substances should be aware of what they are and potential sources of recovery for claims that arise from their omnipresence.

PFAS Background

According to the EPA, PFAS are widely used, long-lasting chemicals which break down slowly over time.[3] PFAS can be found in thousands of items, including, but not limited to: pots and pans, cleaning products, fabric and leather coatings, firefighting foam, carpeting, roofing materials, paints, sealants, caulks, and adhesives.[4] Additionally, manufacturing processes, waste storage, and treatment sites commonly release PFAS into the air, soil, and water.[5]

Given the widespread use of PFAS and their continuing breakdown in the environment, scientists commonly find PFAS in food products and in the blood of people and animals all around the world. Studies have shown that exposure to PFAS may be linked to harmful health effects such as cancer, liver and thyroid problems, reproductive problems, and increased risk of birth defects.[6]

With increased awareness of and regulatory focus on the effects of PFAS, companies are quickly gearing up to face the potential exposures of working with and/or manufacturing products containing PFAS. PFAS litigation began with the DuPont lawsuits originating in Parkersburg, West Virginia in the late 90s, triggering a long line of cases against DuPont and its affiliated companies up to the present day. In the Parkersburg litigation, a company managed by DuPont emitted high levels of PFAS into the Ohio River, a drinking water source, for decades. The suit ultimately led to a $343 million payout to town residents.[7] The Parkersburg litigation opened the door for similar lawsuits alleging environmental harm from PFAS manufacturing and other PFAS-related matters.

Earlier this year, a class action lawsuit was filed to protect residents from PFAS chemicals being emitted by a Kimberly-Clark plant in New Milford, Connecticut.[8] The suit alleges that Kimberly-Clark discharged and distributed PFAS substances from emissions stacks and a landfill at its New Milford plant, contaminating nearby drinking water. It further alleges that the plaintiffs:

[H]ave suffered injury to their bodies and property, including subclinical cellular injuries that have substantially increased Plaintiffs’ and members of the Class’s risk of developing cancers and other diseases and conditions linked to PFAS Chemical exposure, as well as a loss of enjoyment of their real property because of the contamination of their soil and drinking water wells.[9]

As with any major exposure, class actions like the one against Kimberly-Clark should have companies asking: Is there insurance coverage for claims arising out of PFAS and/or the mandated remediations of PFAS? This article will discuss potential sources of insurance coverage for PFAS-related claims under various lines of coverage.

Commercial General Liability Coverage

Most PFAS-related claims will seek damages for injuries stemming from pollution or will be brought as product-liability claims. As such, commercial general liability (“CGL”) policies are a potential avenue for coverage. To trigger defense and indemnity under a standard CGL, insureds must demonstrate that subject PFAS lawsuits seek “damages because of ‘bodily injury’ or ‘property damage’” caused by an “occurrence.” Under a standard CGL policy, coverage is based on when the injury or damage first occurred rather than when the lawsuit was filed.

While there is no distinct disease directly linked to PFAS exposure yet, arguably, broad allegations of “bodily injury” or “property damage” like those in the Kimberly-Clark class action are initially enough to trigger an insurer’s duty to defend. As Nick Sochurek of KCIC Consulting, a consulting firm that helps companies manage their products’ liability and litigation risks, notes, “Everything that is old is new again.” Much like asbestos claims, many PFAS claims allege progressive exposure to PFAS that occurs over multiple years. This means that PFAS claims could trigger coverage under numerous policies depending on whether the jurisdiction follows an “all-sums” or “pro-rata” allocation for long-tail claims.

In long-tail claims, insurers often argue that insureds cannot pinpoint the date of first exposure to PFAS-containing products or when claimants’ injuries first manifested. Luckily, this may not be an insurmountable hurdle to coverage. There is at least one court that has enforced an insurer’s duty to defend in PFAS-related litigation, despite underlying complaints failing to include dates of first exposure.[10] In that case, the court held that if the date of injury “could” be determined in the underlying litigation and fall within the policy period, the insurer had to defend.[11] This was so, as the court noted, because the insurer had the burden to demonstrate that the dates of injury could not be determined and/or were outside the scope of coverage.[12]

Even where an insured can satisfy the CGL coverage grant, insurers will undoubtedly deny coverage pursuant to various CGL policy exclusions. Pollution exclusions are the most commonly raised exclusions for PFAS claims. For example, in Colony Insurance Company v. Buckeye Fire Equipment Company, the United States District Court for the Western District of North Carolina was asked to determine if a CGL insurer had a duty to defend an insurer who was being sued in hundreds of underlying cases relating to the manufacturing of fire equipment containing toxic aqueous film-forming foams (“AFFF”).[13] The underlying lawsuits sought damages for bodily injury and property damage due to exposure to AFFF, which allegedly, in part, contains PFAS.[14] The insurer denied the manufacturer a defense pursuant to a hazardous materials exclusion, which excluded coverage for bodily injury that “would not have occurred in whole or in part but for the actual, alleged, or threatened discharge, dispersal, seepage, migration, release or escape of” hazardous materials, including pollutants.[15] In denying the insurer’s motion for summary judgment, the court in Buckeye held that the hazardous materials exclusion did not bar coverage, and the insurer was required to defend the manufacturer.[16] The court’s holding relied on the fact that the hazardous materials exclusion applies only to traditional environmental pollution, which does not include bodily injury from direct contact with a pollutant.[17] Specifically, the relevant exclusion barred coverage for claims involving the discharge, dispersal, seepage, migration, release, or escape of pollutants, and the underlying complaints alleged personal injury, in part, by direct contact with or exposure to AFFF.[18] Accordingly, the allegations were sufficient to trigger the duty to defend.

Whether a subject pollution exclusion will bar coverage for PFAS litigation will depend on the type of exclusion on the policy. For example, it is likely easier to get around a Qualified Pollution Exclusion, also known as the “sudden and accidental” pollution exclusion, versus an Absolute Pollution Exclusion or Total Pollution Exclusion. Moreover, the interpretation and application of pollution exclusions in the jurisdiction where a claim is brought will have a significant impact on coverage. There are states, like North Carolina and California, that narrowly construe pollution exclusions to apply only to injuries arising from events commonly thought of as pollution.[19] On the other hand, states like Pennsylvania have interpreted pollution exclusions broadly, holding that they are unambiguous contract provisions that preclude coverage for all claims that involve toxic substances, regardless of whether they result from conventional types of pollution.[20]

In addition to pollution exclusions, it is becoming industry standard to see PFAS-specific exclusions on CGL policies.[21] These exclusions often bar coverage for liability arising out of the actual, alleged, threatened or suspected inhalation of, ingestion of, contact with, exposure to, existence of, or presence of PFAS. Although newer policies with these exclusions may expressly bar coverage for PFAS litigation, if the claims trigger multiple policies spanning several years, an insured has a reasonable argument that all prior policies issued without the PFAS-specific exclusions arguably cover PFAS-related claims.

In scenarios where a CGL does not have a PFAS-specific or pollution exclusion, insurers may rely on expected or intended injury, occupational disease, prior existing damages, or known claims exclusions to deny coverage for PFAS litigation. However, with long lines of litigation across the country on these common exclusions, insureds may not be out of luck.

Environmental/Pollution Liability Insurance Coverage

Given the increasing prevalence of pollution and PFAS exclusions on general liability policies, they may not be a reliable source of coverage for PFAS-related environmental pollution losses. Instead, policyholders often look to pollution/environmental-specific policies developed to address environmental/pollution-related liability and clean-up obligations. Common lines include Environmental Impairment Liability, Pollution Legal Liability, or Contractors Pollution Liability policies.

Environmental and pollution liability policies commonly apply to an insured’s liability or clean-up costs it incurs arising out of covered pollution incidents or pollution conditions. Accordingly, they are likely the best potential source of coverage for PFAS claims. However, these products are proprietary and their terms vary significantly from one carrier to the next, unlike CGL policies. The lack of standardization in these policies allows policyholders greater flexibility to customize coverage to meet their specific needs. Additionally, there is a dearth of case law to date interpreting the language in these policies, since their language has yet to be interpreted by courts. Ultimately, a careful review of a policy’s terms and provisions to ensure adequate protection against PFAS-related losses is essential.

Unfortunately, some environmental and pollution liability insurers are already adding exclusions for PFAS-related liabilities to their policies. Nonetheless, given that some courts will rightfully construe such exclusions narrowly, these policies may still represent the most viable option for addressing PFAS-related losses.

Conclusion

The recent increase in regulatory focus on PFAS is likely to drive further litigation over liabilities stemming from these chemicals. As PFAS litigation continues to develop, insureds should work closely with their risk management team and partners to assess the potential to push these risks to their insurers. In addition to commercial general liability and pollution liability, other lines of coverage, including Directors & Officers Liability or Professional Liability, may be implicated depending on the allegations of a given claim.

SDV is monitoring the rapidly evolving landscape of PFAS litigation to keep its clients apprised of their potential risks and avenues for coverage. If you have any questions about how you can trigger coverage for PFAS-related claims and litigation, please contact Jasjeet Sahani at jsahani@sdvlaw.com.

The author would like to thank SDV associate Andrea Catania for her contributions to this article.