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PFAS regulation and implications for insurance coverage

The PFAS regulation

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 commonly 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 fabrics, chemical and oil-resistant coatings, food packaging materials, plastics. , fire foam, solar panels and many others. The carbon-fluorine bond is the strongest in nature, which makes these compounds very persistent in the environment.

The US Environmental Protection Agency (“EPA”) released a PFAS Strategic Roadmap 2021 that outlines the agency’s commitment to addressing PFAS in a holistic manner. The EPA has implemented various regulations as part of the PFAS Strategic Roadmap and prioritizes actions against PFAS to “protect communities from PFAS contamination.” Notably, the EPA also lowered its interim drinking water health advisories for some PFASs to near zero levels, signaling states to adopt these drinking water policies. States are also taking the lead in adopting 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 borders.

Insurance Coverage Implications for PFAS-Related Regulatory Actions and Litigation

As regulators continue to increase their focus on PFAS, enforcement actions will also increase. This is in addition to third-party actions already brought nationwide, with an increased number of filings expected as regulatory pressure increases. The allegations of groundwater contamination and exposure to PFAS-containing products are aimed at manufacturers and other companies in the supply chain.

Insurance policies can provide coverage for regulatory actions or private third-party claims. Careful examination of policy language is needed because policies can be unique and their terms and conditions can mean the difference between having coverage or not, as described below.

Policies may provide coverage but beware of the pollution exclusion

A company’s commercial liability policy may provide coverage for PFAS-related claims. Typically, these policies cover bodily injury or property damage when the event that caused the injury or damage occurred during the policy period. Because cases generally allege that PFAS contamination and exposure occurred over a long period of time, decades in many cases, there may be coverage under older policies.

One of the significant challenges that policyholders face is the existence of a policy’s pollution exclusion. The year the policy was issued is relevant to the interpretation of the scope and application of this exception. Since 1986, the standard commercial general liability policy form has included an “absolute” pollution exclusion that will bar coverage in many cases. 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 exception where the pollution was “sudden and accidental.” Whether the “sudden and accidental” exception to the exemption applies is a complex question of its own, with different jurisdictions interpreting it in a variety of ways, some more broadly and some more narrowly. See e.g. State of California v. Allstate Ins. Co., 45 Cal.4th 1008, 1024 (2009) (“an “accidental” release, within the meaning of the “sudden and accidental” exception to the pollution exception, is one that the insured neither intended nor expected to occur”).

Depending on the specific factual scenario and applicable law, the “sudden and accidental” exception may potentially apply to allegations of a long-term history of PFAS releases. For example, a federal district court in Michigan found that insurers breached a duty to defend in several cases brought against a tannery that allegedly released 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 (WD Mich. Oct. 18, 2021) (holding that insurers had a duty to defend under the sudden and accidental exception, “until it is determined that each claims in the lawsuit involving contamination are ultimately determined to be intentionally discharged”). On the other hand, a New York state Supreme Court decision held that the “sudden and accidental” exception did not apply to releases 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 NYS3d 252, 258 (2022). This exemplifies the critical nature of how the outcome can change based on which jurisdictional law is applied.

A contaminant exclusion will not always determine whether coverage exists in PFAS-related actions, 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 exception, holding that it is intended to apply in traditional environmental pollution cases, not product liability cases. See e.g. Colony Ins. Co. v. Buckeye Fire Equip. Co., No. 319CV00534FDWDSC, 2020 WL 6152381 (WDNC Oct. 20, 2020), aff’dno. 20-2208, 2021 WL 5397595 (4th Cir. Nov. firefighters’ claims for direct exposure to the foam are distinguishable from injuries caused by “traditional environmental pollution”).[1]

The question of the application of the exception in a non-traditional environmental pollution case arose again recently in Admiral Insurance Co. v. Fire-Dex, LLC. No. 1:22-CV-1087-PAB, 2022 WL 16552973 (ND Ohio Oct. 31, 2022). The coverage process involved the question of whether a total contamination exclusion, among other provisions, in Admiral’s policy applied to lawsuits filed by firefighters who alleged they were sickened by exposure to PFAS through their protective equipment and use of firefighting foam. The suit was dismissed for lack of subject matter jurisdiction because the court held that an Ohio state court was the preferred forum for “these new legal issues.” Id. at 10. Admiral has since filed an appeal to the Sixth Circuit.

In addition to a commercial general liability policy, there are other specialty policies that may provide coverage, including stand-alone product liability policies and pollution policies. Pollution policies tend to be less standardized and require close scrutiny of their particular terms and conditions. In particular, these policies may cover both remediation work required by regulatory action as well as private third-party claims. These policies can also be written on an occurrence or claims basis, which can significantly affect the potential for coverage.

Insurance takeaways

As noted above, a company’s best bet for coverage of PFAS claims may be under a historical general liability policy that lacks the absolute pollution exclusion, or a stand-alone pollution or product liability policy. Of particular value are the general liability insurances that go back decades. Once a company has identified the time period in which the PFAS-related releases may have occurred, it should do its best to locate copies of these older policies. The insurance broker can be a resource, provided they are still in business and have proof of these older policies. Consultants known as “insurance archaeologists” can also be of value. If copies cannot be found, there are alternatives. Depending on the jurisdiction, secondary evidence may be used to establish the existence and terms of prior policies. This can also be a breeding ground for expert testimony.

Policyholders must also pay attention to the notice requirements of their policies and be prepared to give notice within the specified time requirements required by various state laws. Some states interpret the notice requirements strictly, some require the policyholder to act with reasonable diligence in finding coverage, and some require the insurer to prove that any delay in notice caused the injury. Given the variation in state law, a policyholder should act quickly upon receipt of a PFAS-related claim. Another potentially significant impact of timing is that some policies may require the policyholder’s insurer to cover site investigation and response costs in the event of regulatory action. Therefore, starting the discussion about insurance coverage as soon as possible can increase the likelihood of recovery for these costs.

As PFAS-related regulation and litigation continues to expand across the country, so too will insurance cases as policyholders seek coverage for their claims. Given the ever-evolving state of the law on insurance issues, coverage counsel should be consulted to navigate the landscape (which varies from state to state and over time) and to maximize opportunities to obtain coverage for a PFAS-related claim.

[1] For a more detailed discussion of Colony Ins. Co. v. Buckeye Fire Equip. Co.see our previous post titled “PFAS: From Happy Mistake to Ubiquity to Toxic Liability (But Is There Coverage?)”

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