Increased litigation alleging exposure to per- and poly-fluoroalkyl substances (PFAS) present potential significant losses for companies in a wide range of industries. PFAS are a group of chemicals commonly used in consumer products and manufacturing applications. After health studies linked PFAS exposure to adverse health impacts, there has been increased regulatory attention and significant litigation. The risks from this litigation to companies that manufactured or sold PFAS-containing products is manifest. And with that increased litigation risk, so too, the need to secure insurance coverage has grown. As is often the case, the ability to secure coverage for PFAS-related claims will depend on the specific facts and language of the policies at issue. Through this post, we identify several of the coverage issues associated with these claims.
What are PFAS?
PFAS are chemicals commonly used in manufacturing, industrial and consumer products such as food packaging, nonstick cook-wear, and cosmetics. PFAS have been used since the 1940s and are commonly referred to as “forever chemicals” due to how long they take to degrade naturally. Because of their popularity, PFAS are found virtually everywhere, including in drinking water, household products, personal care products, and soil and groundwater near waste sites. And because they are slow to break down, PFAS can build up in people and the environment over time. According to the EPA, research suggests that exposure to certain PFAS may lead to adverse health outcomes. See Our Current Understanding of the Human Health and Environmental Risks of PFAS.
PFAS-related litigation has generally consisted of either pollution or product-liability claims. As a result, policyholders may seek coverage under commercial general liability (CGL) policies, which typically cover claims for bodily injury and property damage. CGL policies are usually written as “occurrence-based” policies, meaning that coverage is determined based on when the underlying exposure or injury occurred, rather than when the lawsuit was filed. Because many PFAS claims are predicated on alleged progressive exposure to PFAS or pollution that occurs over multiple years, these claims may trigger, or give rise to coverage under, numerous policies, including legacy policies issued decades ago.
Where multiple policy periods are implicated by a claim, a common issue is which policy(ies) is/are responsible to provide coverage. The answer is often dependent upon which state’s law governs the claim. In some states, courts have applied an “all sums” – or joint and several liability – approach to allocation issues. Under this approach, the policyholder may claim coverage from one triggered policy up to the full amount of limits available under that policy. Courts in other states have adopted a “pro-rata” allocation approach under which liability is apportioned between all triggered policies based on the time each policy was on the risk, thus limiting the potential coverage available under each policy.
PFAS-related claims also may implicate other types of coverage. Pollution legal liability (“PLL”) policies provide coverage for pollution-related events, including cleanup costs for damage caused by pollution and third-party property and bodily injury claims resulting from the pollution. The intersection of claims and policies presents issues as to which type of coverage must respond to a claim and which policy has priority of coverage.
Other issues presented, including the exhaustion of limits, unavailable/insolvent insurance policies, and the number of occurrences, may also impact the extent of coverage available to a policyholder.
Defenses to coverage
Central to insurers’ efforts to deny coverage for PFAS-related claims is application of pollution/contamination exclusions. Court rulings have diverged, with distinctions arising due to the nature of, and allegations contained in, the underlying claim, as well as differences in the applicable pollution exclusion.
Starting in the early 1970s, most CGL policies included an exclusion for pollution claims except those resulting from “sudden and accidental” pollution. By the mid-1980s, that exception was removed by an “absolute” pollution exclusion. Whether and how such pollution exclusions are applied is critical to coverage determinations. For example, in Wolverine World Wide, Inc. v. Am. Ins. Co., the court found that the claims fell within the sudden and accidental exception to the pollution exclusion at issue and that the insurer had a duty to defend the policyholder “until it is determined that every claim in the lawsuit involving pollution is conclusively determined to be intentionally discharged by Wolverine.” By contrast, in Tonoga Inc. v. New Hampshire Ins. Co. (2021 A.D.3d 1091 (N.Y. App. 3rd Dept. 2022), the court found that the pollution exclusion precluded a manufacturer’s coverage claim. Looking at the underlying claim, the court held that allegations of long-term dumping, spills and disposal of PFAS were inconsistent with application of the sudden and accidental exception to the pollution exclusion at issue.
Even an “absolute” pollution exclusion may not entirely preclude coverage. In Colony Insurance Co. v. Buckeye Fire Equipment Co., the court held the insurer had a duty to defend certain claims against the policyholder arising from PFAS-containing fire equipment. Because some of the claims asserted against the policyholder alleged harm from direct exposure to the products, the court ruled that those claims did not involve “traditional environmental pollution” and were thus outside the scope of the absolute pollution exclusion in the policies at issue.
Other exclusions, such as those precluding coverage for owned property and intentional acts also may be implicated by PFAS-related claims. Insurers may also attempt to utilize knowledge-based defenses to preclude coverage for policyholders. These include arguments asserting: the absence of an accident or occurrence; expected or intended damages; known loss; lack of fortuity; or alleged improper disclosures when renewing or obtaining the insurance policies at issue.
Insurance companies also have begun to utilize PFAS-specific exclusions. In June of 2023, the Insurance Services Office published endorsements expressly excluding PFAS-related claims for insurers to use in their CGL policies. The endorsement includes broad exclusions for bodily injury and property damage resulting from PFAS exposure. See ISO Updates Forms to Exclude Coverage for Perfluoroalkyl And Polyfluoroalkyl Substances (PFAS).
What policyholders need to consider
Faced with potential PFAS-related liabilities, policyholders should carefully review their existing and legacy policies and work with coverage counsel to identify potential coverage. And, when considering their insurance needs on a going-forward basis, policyholders should carefully assess their potential exposure to PFAS-related liabilities and whether the policies afford coverage for such risks.