Per- and polyfluoroalkyl Substances (“PFAS”) are a class of substances that have increasingly become the target of federal and state regulation in everything from drinking water, groundwater, site contamination, waste, air emissions, firefighting foam, personal care products, food and food packaging, and now consumer and commercial products. PFAS are widely-used chemicals that have the unique ability to repel both oil and water, which led to their application in many products including items such as stain and water-repellent fabric, chemical-and oil-resistant coatings, food packaging materials, plastics, firefighting foam, solar panels and many others. The carbon-fluorine bond is the strongest in nature, making these compounds highly persistent in the environment.
The U.S. Environmental Protection Agency (“EPA”) released a PFAS Strategic Roadmap in 2021 detailing the Agency’s commitment to addressing PFAS in a whole-of-agency approach. The EPA has been implementing various regulations as part of the PFAS Strategic Roadmap and is prioritizing action on PFAS in order to “safeguard communities from PFAS contamination.” Notably, the EPA also lowered its interim drinking water health advisories for certain PFAS to near zero levels, signaling states to adopt these policies for drinking water. States are also taking the lead on passing aggressive policies to broadly ban PFAS as a class in a variety of consumer products sold in their states, resulting in a patchwork of regulations that have created supply chain challenges for companies doing business across state lines.
Insurance Coverage Implications for PFAS-Related Regulatory Actions and Litigation
As regulators continue to increase their focus on PFAS, enforcement actions will rise as well. This is in addition to third-party actions that are already being brought nationwide, with an increased rate of filings anticipated as regulatory pressure ramps up. The claims of groundwater contamination and exposure to PFAS-containing products are directed at manufacturers and other businesses in the supply chain.
Insurance policies may provide coverage for regulatory actions or third-party private claims. Careful examination of the policy language is needed because policies can be unique and its terms and provisions can mean the difference between there being coverage or not, as described below.
Policies May Provide Coverage but Beware of the Pollution Exclusion
A company’s commercial general liability policies may provide coverage for PFAS-related claims. Typically, these policies cover bodily injury or property damage when the occurrence that caused the injury or damage took place during the policy period. Since cases generally allege that PFAS contamination and exposure has occurred over a long period of time, decades in many instances, there may be coverage under older policies.
One of the significant challenges facing policyholders is the existence of a policy’s pollution exclusion. The year the policy was issued is significant in interpreting the scope and application of this exclusion. Since 1986, the standard form commercial general liability policy has contained an “absolute” pollution exclusion which will bar coverage in many instances. Between the mid to late 1970s and 1986, however, many policies contained what is known as a “qualified” pollution exclusion. The “qualified” pollution exclusion carves out an exception to the exclusion where the pollution was “sudden and accidental.” Whether the “sudden and accidental” exception to the exclusion applies is a complex issue of its own, with different jurisdictions interpreting it in a variety of ways, some more broadly and others more narrowly. See, e.g., State of California v. Allstate Ins. Co., 45 Cal.4th 1008, 1024 (2009) (“an ‘accidental’ discharge, within the meaning of the ‘sudden and accidental’ exception to the pollution exclusion, is one the insured neither intended nor expected to happen”).
Depending on the specific factual scenario and the law that applies, the “sudden and accidental” exception may or may not apply to allegations of a long-term history of PFAS discharges. For example, a federal district court in Michigan determined that insurers breached a duty to defend in numerous cases brought against a tannery business that allegedly discharged PFAS over a 60-year period. See Wolverine World Wide, Inc. v. Am. Ins. Co., No. 1:19-CV-10, 2021 WL 4841167, at *11 (W.D. Mich. Oct. 18, 2021) (holding that insurers had a duty to defend in light of the sudden and accidental exception, “until it is determined that every claim in the lawsuit involving pollution is conclusively determined to be intentionally discharged”). On the other hand, a state appellate court decision in New York held the “sudden and accidental” exception did not apply to discharges of PFAS because “allegations that a solution was dumped over a period of many years suggests ‘the opposite of suddenness.’” Tonoga, Inc. v. New Hampshire Ins. Co., 159 N.Y.S.3d 252, 258 (2022). This exemplifies the critical nature of how the outcome may change based on which jurisdictional law is being applied.
A pollution exclusion will not always be dispositive of whether coverage exists in PFAS-related action, depending on the facts alleged, the applicable law, and the specific policy language. For example, allegations of PFAS exposure are alleged in product liability cases, with some courts questioning the application of the pollution exclusion, holding that it is meant to apply in traditional environmental pollution cases, not product liability ones. See, e.g., Colony Ins. Co. v. Buckeye Fire Equip. Co., No. 319CV00534FDWDSC, 2020 WL 6152381 (W.D.N.C. Oct. 20, 2020), aff’d, No. 20-2208, 2021 WL 5397595 (4th Cir. Nov. 18, 2021) (holding that insurer had a duty to defend PFAS claims against a firefighting foam manufacturer under North Carolina law despite the existence of a hazardous materials exclusion as the firefighters’ claims of direct exposure to the foam are different than injuries caused by “traditional environmental pollution”).
The issue of the exclusion’s application in a non-traditional environmental pollution case arose again more recently in Admiral Insurance Co. v. Fire-Dex, LLC. No. 1:22-CV-1087-PAB, 2022 WL 16552973 (N.D. Ohio Oct. 31, 2022). The coverage suit involved the question of whether a Total Pollution Exclusion, among other provisions, in Admiral’s policies applied to lawsuits filed by firefighters alleging they became ill from exposure to PFAS through their protective gear and use of fire-fighting foam. The action was dismissed for lack of subject matter jurisdiction because the court deemed an Ohio state court was the preferred forum for “these novel questions of law.” Id. at *10. Admiral has since filed a notice of appeal with the Sixth Circuit.
Beyond a commercial general liability policy, there are other specialty insurance policies that may provide coverage, including stand-alone products liability policies and pollution policies. The pollution policies tend to be less standardized and require careful scrutiny of its particular terms and provisions. Notably, these policies may apply to both remediation work required under regulatory actions as well as private third-party claims. These policies may also be written on an occurrence or claims-made basis, which could significantly impact the potential for coverage.
As indicated above, a company’s best bet for coverage for PFAS claims may be under a historic general liability policy that lacks the absolute pollution exclusion, or a stand-alone pollution or products liability. Of particular value are those general liability policies that date back decades. A company, once it has identified the time period that the PFAS-related releases may have occurred, should do its best to locate copies of these older policies. The insurance broker may be a resource, assuming they are still in business and have evidence of these older policies. Consultants called “insurance archeologists” also may be of value. If copies cannot be located, alternatives do exist. Depending on the jurisdiction, secondary evidence can be used to establish the existence and terms of prior policies. This may also be a fertile ground for expert testimony.
Policyholders will also need to be mindful of notice requirements in their policies and be prepared to provide notice within the specified time requirements as required under varying state law. Some states interpret notice requirements strictly, some require that the policyholder act with reasonable diligence in locating policies, and some require the insurer to prove that any delay in notice caused it prejudice. Given the variability in state law, a policyholder should act quickly upon receipt of a PFAS-related claim. Another potential significant impact of timing is that certain policies may require the policyholder’s insurer to cover site investigation and response costs in the case of regulatory action. Thus, starting the insurance coverage discussion at the earliest opportunity may enhance the likelihood of recovery for these costs.
As PFAS-related regulation and litigation continues to expand across the country, so too will insurance coverage cases as policyholders seek coverage for their claims. Given the continually evolving state of the law on the insurance issues, coverage counsel should be consulted to navigate the landscape (which varies from state to state and over time) and to maximize the prospects for obtaining coverage for a PFAS-related claim.