Manufacturers face an ever increasing risk of liability exposure for pollution caused by polyfluoroalkyl substances, commonly known as “PFAS.” In early June this year, it was reported that 3M, as have other large chemical manufacturers, settled pending litigation involving PFAS-contamination in U.S. cities for an estimated $10 billion and aimed to resolve allegations that 3M polluted bodies of water in several U.S. cities.[1] This reported settlement comes after another recent $1.19 billion settlement related to the contamination of water systems.[2] Moreover, environmental regulators—including the Environmental Protection Agency (“EPA”) under the Biden Administration—have made PFAS a priority in recent years.[3]
As a result, litigation and regulatory actions revolving around PFAS contamination has drastically increased as companies face potential liability for billions in clean-up costs and to resolve personal injury and property damage claims.[4] As PFAS-related litigation is projected to increase over the coming years, companies are turning towards their insurance carriers to provide coverage for these claims. Unfortunately, many insurers have refused to provide coverage for these lawsuits, even under policies designed to cover personal injury and property damage risks.[5] Some insurers have even started to write out PFAS from coverage under their policies.[6]
However, as explained in this article, PFAS risks may implicate multiple insurance policies spanning several years, and not all insurance policies are the same. Coverage for PFAS risks will likely turn on the specific facts at issue and the language of the policies. Therefore, a policyholder facing a PFAS claim should not accept an insurer’s denial of coverage and should first consult with an experienced attorney to evaluate its claim.
What are PFAS?
Polyfluoroalkyl substances, or PFAS, are chemicals commonly used in manufacturing products such as food wrapping, nonstick cook-wear, and make-up products.[7] They are commonly referred to as “forever chemicals” due to their long-lasting nature and slow break down, which make them attractive for manufacturing as they are particularly heat resistant.[8]
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.[9] It is estimated that as many as 200 million Americans are exposed to PFAS chemicals through their tap water and nearly all Americans, including newborns, carry PFAS in their bloodstream.[10]
Recently, PFAS litigation has increased due, in part, to the EPA’s proposed National Primary Drinking Water Regulations (“NPDWR”) targeting six PFAS chemicals. The NPDWR, released on March 14, 2023, will establish legally enforceable PFAS levels called maximum contaminant levels (“MCLs”), and will require public water systems to monitor the water supply for PFAS, notify the public of the levels of PFAS, and reduce the levels of PFAS if they exceed the proposed standards.[11]
Litigating PFAS-Related Issues
Litigation surrounding PFAS can be consolidated into two categories: pollution claims and products liability claims. First, pollution claims were the focus of earlier PFAS litigation and were mostly filed by cities alleging water contamination by large manufacturers. In late May of this year, a group of defendants settled for $1.19 billion to begin cleanup in cities that have been affected by PFAS leaking into their water systems.[12] However, even where settlements are reached for pollution clean-up, the deals do not typically resolve personal injury lawsuits or claims of environmental damage that are pending against the companies. Thus, the final amount of liability could be significantly greater than the settlement payout.
Second, products liability suits are increasing against companies who use PFAS in their manufacturing. These claims primarily allege fraud and mislabeling products that are marked “all natural” or “free from harmful chemicals,” but in actuality contain “harmful levels” of the man-made chemical PFAS. For example, in April 2022, a class action lawsuit was filed against Burger King Corporation in the Northern District of California which alleged that the Whopper is “unfit for human consumption” because the packaging contained PFAS chemicals.[13] The plaintiff alleged that Burger King fraudulently misrepresented the packaging as “safe and sustainable” or failed to inform the public of the harmful chemicals. The lawsuit was voluntarily dismissed in August of 2022 by the plaintiff.
Insurance Coverage for PFAS Contamination
Fortunately, for organizations facing enforcement or lawsuits for alleged PFAS contamination, there may be insurance coverage available to protect against those losses, including costs defending against such matters.
- Coverage Under Commercial General Liability Policies
Commercial general liability (“CGL”) policies cover claims for bodily injury and property damage when the damage occurs during the policy period. CGL policies are “occurrence-based” policies, meaning that coverage is tied to when the underlying exposure or injury occurred, not when the lawsuit was filed or when the regulatory action was initiated. Because many PFAS claims are predicated on alleged progressive exposure to PFAS or pollution that occurs over several years, these claims may implicate multiple policies—perhaps even some policies dating back decades. Coverage for pollution risks under CGL policies has evolved over time.
Beginning in the 1970s, most CGL insurers began including some form of an exclusion for pollution risks, but which carved back coverage for “sudden and accidental” pollution.[14] Then, in the mid-1980s many CGL policies added what is often referred to as a “total” or “absolute” “pollution exclusion.” Courts in many jurisdictions have interpreted such pollution exclusions narrowly, and therefore may not present a total bar to coverage for pollution claims. For example, in Colony Insurance v. Buckeye Fire Equipment, the court addressed whether an insurer had a duty to defend a company that manufactured firefighting equipment containing PFAS.[15] The court held that despite a hazardous material exclusion in the policy, Colony Insurance had a duty to defend because the hazardous material exclusion applied only to traditional environmental pollution, not bodily injury resulting from the pollution. In any event, the coverage analysis under the pollution exclusion may depend on both when the policy was issued and what law applies to that policy. Therefore, it is important to review all potentially implicated policies during the alleged exposure period for coverage.
In light of the foregoing, coverage for PFAS claims may depend on how exposure is allocated to different policy years. In this context, allocation refers to which policy is liable for coverage when there are multiple policies during a relevant period of contamination. Allocation is especially prevalent in PFAS litigation because the pollution or harm cannot likely be reduced to a single instance or sometimes even a single year. If the policyholder has multiple policies over the relevant time of contamination, a frequently litigated issue is which policy is liable for the payout. There are two types of allocation in insurance claims: “all-sums” and “pro rata” allocation. All-sums allocation, or joint and several liability, allows the policyholder to claim coverage from one policy during the relevant time period, up to the full amount allowed by the policy. The selected policy may then seek claims from other relevant policies held by the policyholder.[16] Alternatively, pro-rata allocation apportions liability between all triggered policies in a given period based off the period in which the policy is applicable. A case that addressed these issues albeit not in the PFAS context is Gaston County Dyeing Machine Co. v. Northfield Insurance Co., where the court held that to determine which policy applied during a relevant period involved examining each policy’s terms individually.[17] In other words, it is a case-specific issue. Which form of allocation will prevail is jurisdiction specific. One example can be seen in EnergyNorth Natural Gas, Inc. v. Certain Underwriters at Llyod’s, where the court rejected the all-sums apportionment in favor of the pro-rata allocation method.[18] The Supreme Court of New Hampshire reached this decision due to the fact that pro-rata allocation “guarantees that all of the carriers in the risk during a long-tail environmental exposure injury respond to it.”[19]
- Coverage Under Pollution Legal Liability Policies
Pollution legal liability (“PLL”) policies are specific to covering pollution-related events. Specifically, PLL policies usually cover cleanup costs for pollution damage on the insured’s property and surrounding property, as well as claims by third parties for bodily injury resulting from pollution. Therefore, PLL policies are more likely to cover clean-up costs at the insured’s own site than a CGL policy, which typically excludes damage to the insured’s own property. But PLL policies also may provide concurrent or overlapping coverage for personal injury or property damage claims related to PFAS contamination.[20] Importantly, PLL policies are specifically designed to cover pollution claims so there are no pollution exclusions in PLL policies. However, there may be other exclusions or limitations in PLL policies that an insurer will try to rely on to deny or limit coverage. For example, many PLL policies will contain a retroactive date, which would preclude liability for pollution conditions that commence before a certain date. Moreover, many PLL policies will exclude pollution conditions that the insured was aware of—and did not disclose to the insurer—before the policy was issued. Therefore, insurers will often ask questions early on in the claim process designed to establish prior knowledge of a PFAS contamination. The authors are also seeing underwriters ask more PFAS-related questions during the renewal process.
Unlike CGL policies, PLL policies are typically “claims made” policies, meaning that coverage is triggered when a lawsuit is filed or when a clean-up demand is made. Complying with PLL policies requires notice to the insurance company of a discovery of pollution usually within a set time frame. Beyond compliance with the notice requirements, PLL coverage is not a heavily litigated topic within the PFAS-context. However, we expect to see more PLL coverage cases as PFAS claims increase.
- Coverage under Directors and Officers Liability Policies
Lastly, directors and officers (“D&O”) insurance is a narrow policy that could provide some coverage for PFAS-related litigation depending on the circumstances of the suit. These types of claims usually allege knowledge by a company’s officers or directors of the PFAS contamination and inaction despite that knowledge. D&O insurance could become more useful if litigation increases against directors and officers in the form of shareholder suits or otherwise.[21]
The Future of PFAS Insurance Coverage
As of the beginning of 2023, the Insurance Services Office (“ISO”) has not published a draft PFAS-specific exclusion. However, the ISO is working on a draft that could be published in the near future. In the meantime, insurers have begun to enact a PFAS-specific exclusion which would carve out coverage for PFAS-related issues. The carve-out comes in the form of either a standalone policy or as a policy modification to specifically encompass PFAS but the carve-out is hard to draft given the pervasive nature of PFAS and its potential to seep into the soil and water supply.
Until PFAS exclusions become a standard practice, litigation is expected to continue over whether current policies cover PFAS related incidents. Best practice for insured companies is to check their current policies for any new PFAS-specific exclusions and, if there is a claim against the company, to be prepared to provide notice of claims broadly within all applicable policy periods.[22] It is also important to remember that the forum in which litigation occurs can often be determinative of the outcome. As PFAS-related litigation is relatively new, courts have not fully developed caselaw on the subject which will lead to inconsistencies between differing jurisdictions.
As PFAS litigation continues to grow and develop in the U.S., policyholders that may be at risk of PFAS-related claims are encouraged to review their policies and work with counsel to identify the existing scope of their PFAS coverage and strategize ways to increase such coverage in the future. Additionally, policyholders that are receiving pushback from their insurers on PFAS-related claims are encouraged to dig deeper with their counsel to understand the viability of their PFAS insurance claims rather than accept coverage denials from in
[1]Judge Delays Trial in 3M PFAS Lawsuit as Parties Eye Settlement, The Guardian (June 5, 2023) https://www.theguardian.com/environment/2023/jun/05/3m-lawsuit-water-contamination-pfas-toxic-chemicals.
[2] Clark Mindock, Chemical Makers Settle PFAS-Related Claims for $1.19 Billion, Reuters (June 2, 2023) https://www.reuters.com/business/chemical-makers-reach-pfas-related-settlement-us-2023-06-02.
[3]See United States Environmental Protection Agency, Per- and Polyfluoroalkyl Substances (Mar. 14, 2023) (PFAS) https://www.epa.gov/pfas.
[4] Shannon E. McClure, et. al., Litigation Over ‘Forever Chemicals’ is Growing: Is Your Company the Next Defendant?, Reuters (Dec. 7, 2022) https://www.reuters.com/legal/legalindustry/litigation-over-forever-chemicals-is-growing-is-your-company-next-defendant-2022-12-07.
[5] John Ellison, et. al., The Emerging PFAS & PFOA Insurance Coverage Battleground, PropertyCasualty360 (Apr. 18, 2022) https://www.propertycasualty360.com/2022/04/18/pfas-and-pfoa-litigation-and-regulation-an-emerging-insurance-coverage-battleground-414-220627.
[6] Courtney DuChene, Environmental Insurers: Climate Change Will be a PFAS Liability Multiplier, Risk & Insurance (Sept. 24, 2021) https://riskandinsurance.com/environmental-insurers-climate-change-will-be-a-pfas-liability-multiplier.
[7]Our Current Understanding of the Human Health and Environmental Risks of PFAS, EPA (June 7, 2023) https://www.epa.gov/pfas/our-current-understanding-human-health-and-environmental-risks-pfas.
[8]PFAS Explained, EPA (April 10, 2023) https://www.epa.gov/pfas/pfas-explained.
[9]Our Current Understanding of the Human Health and Environmental Risks of PFAS, EPA (June 7, 2023) https://www.epa.gov/pfas/our-current-understanding-human-health-and-environmental-risks-pfas.
[10]Our Current Understanding of the Human Health and Environmental Risks of PFAS, EPA (June 7, 2023) https://www.epa.gov/pfas/our-current-understanding-human-health-and-environmental-risks-pfas.
[11]Proposed PFAS National Primary Drinking Water Regulation, EPA (June 6, 2023) https://www.epa.gov/sdwa/and-polyfluoroalkyl-substances-pfas.
[12] Clark Mindock, Chemical Makers Settle PFAS-Related Claims for $1.19 Billion, Reuters (June 2, 2023) https://www.reuters.com/business/chemical-makers-reach-pfas-related-settlement-us-2023-06-02.
[13] Complaint, Hussain v. Burger King Corporation, (4:22-CV-02258)
[14] Malcolm C. Weiss, PFAS Regulation and Insurance Coverage Implications, National Law Review (Feb. 14, 2023) https://www.natlawreview.com/article/pfas-regulation-and-insurance-coverage-implications.
[15]Colony Insurance Company v. Buckeye Fire Equipment Co., 2020 WL 6152381 (W.D. N.C. 2020).
[16]See EnergyNorth Natural Gas, Inc. v. Certain Underwriters at Lloyd’s, 156 N.H. 333, 338 (2007).
[17]Gaston County Dyeing Mach. Co. v. Northfield Ins. Co., 351 N.C. 293, 524 S.E.2d 558 (2000).
[18]EnergyNorth Natural Gas, Inc. v. Certain Underwriters at Lloyd’s, 156 N.H. 333, 344 (2007).
[19]Id.
[20] Alec D. Tyra, et. al., The PFAS Pollution Problem, CLM (Nov. 22, 2022) https://www.theclm.org/Magazine/articles/the-pfas-pollution-problem/2555#:~:text=Insurance%20carriers%20began%20offering%20pollution%20legal%20liability%20%28PLL%29,significant%20role%20in%20PFAS%20cleanup%2C%20regulation%2C%20and%20litigation.
[21] John Ellison, et. al., The Emerging PFAS & PFOA Insurance Coverage Battleground, PropertyCasualty360 (Apr. 18, 2022) https://www.propertycasualty360.com/2022/04/18/pfas-and-pfoa-litigation-and-regulation-an-emerging-insurance-coverage-battleground-414-220627.
[22] John Ellison, et. al., The Emerging PFAS & PFOA Insurance Coverage Battleground, PropertyCasualty360 (Apr. 18, 2022) https://www.propertycasualty360.com/2022/04/18/pfas-and-pfoa-litigation-and-regulation-an-emerging-insurance-coverage-battleground-414-220627.
