This is the third in a series of articles published by the Product Liability and Complex Torts group at Nilan Johnson Lewis, P.A., for product manufacturers as they prepare to respond to PFAS regulatory demands and mitigate their risk of PFAS litigation exposure.

Part 3. Review Your Insurance Policy for PFAS Exclusions

PFAS, known by the moniker “forever chemicals,” are the focus of rapidly evolving regulatory regimes, which in turn are driving novel theories of litigation against manufacturers whose products contain PFAS. Insurers, mindful of the high cost of defending and indemnifying their insured businesses’ PFAS risks, have begun modifying or re-interpreting business insurance policy provisions to mitigate their own coverage burden. This article will report on insurers’ recent efforts to deny Commercial General Liability coverage for tort and environmental liability arising from PFAS exposure by inserting PFAS-specific exclusions in new policies and invoking pollution exclusions in past policies. This article will also advise manufacturers on how to protect themselves.

What Manufacturers Should Know

To date, lawsuits and regulatory action for per-and polyfluoroalkylated substances (“PFAS”) have mostly targeted primary producers of PFAS, such as chemical companies and manufacturers of fire-suppressant foams. However, recent litigation and regulatory action has also targeted secondary manufacturers, textile manufacturers, cosmetics manufacturers, and fast food companies, among others.

A manufacturer’s commercial general liability (“CGL”) policies may provide coverage for PFAS-related claims. This can include the immediate defraying of costs for defending against such matters. CGL policies are usually written as “occurrence-based” policies. This means coverage is determined based on when the underlying exposure or injury occurred, rather than when the lawsuit was filed. Since cases generally allege PFAS contamination and exposure has occurred over a long period of time, numerous policy periods may be triggered. Therefore, coverage for PFAS claims may depend on whether a relevant contamination period implicates multiple CGL policies.

Given the increasing regulatory attention to PFAS and broadening of companies targeted for lawsuits or regulatory actions, insurers have started to include PFAS-specific exclusions in many CGL policies. In June of 2023, the Insurance Services Office (“ISO”) published endorsements expressly excluding PFAS-related claims for insurers to use in their CGL policies. The endorsement includes broad exclusions for bodily injury, property damage, and personal and advertising injury resulting from PFAS exposures. See ISO Updates Forms to Exclude Coverage for Perfluoroalkyl And Polyfluoroalkyl Substances (PFAS). These are the ISO’s PFAS-specific exclusions for CGL policies:

• CG 34 95 Exclusion – PFAS: To use with products/completed operations liability coverage part or Owners and Contractors protective liability coverage part.
• CG 34 96 Exclusion – PFAS: To use with the railroad protective liability coverage part.
• CG 40 32 Exclusion – PFAS: To use with the commercial liability coverage part.

Insurers are also invoking pollution exclusions in CGL policies to deny coverage for PFAS-related actions. Between approximately 1973 and through 1985, most insurers included a “qualified” pollution exclusion allowing coverage for pollution that is “sudden and accidental.” After approximately 1985, most insurers inserted “absolute” pollution exclusions.

Depending on the specific factual scenario and the applicable state law, the “sudden and accidental” exception may or may not apply to allegations of a long-term history of PFAS discharges. In nearly half the states, courts have held CGL policies containing an “absolute” pollution exclusion are ambiguous, and therefore provide coverage for pollution that was not expected or intended. Additionally, some courts have questioned the application of the pollution exclusion in product liability cases. These courts have held the pollution exclusion is meant to apply in traditional environmental pollution cases, not product liability cases. Therefore, a pollution exclusion will not always be dispositive of whether coverage exists in PFAS-related actions.

Other traditional exclusions in CGL policies may also be implicated. These include exclusions precluding coverage for owned property and intentional acts. Insurers may also attempt to utilize knowledge-based defenses to preclude coverage for PFAS-related liability.

What Manufacturers Should Do

Manufacturers should assess their potential exposure to PFAS-related liabilities, collect information about historic CGL policies, and carefully review their existing and past policies to identify potential coverage. A PFAS-related claim filed in the future may relate back to occurrences from decades ago. Those policies likely require prompt notice to the insurer to preserve coverage. Every policy period starting from the date when PFAS exposure began may be implicated. Going forward, manufacturers should also consider whether new CGL policies and their exclusions afford coverage for PFAS-related liability.  Manufacturers should take care to identify whether PFAS exclusions are being added to any of their CGL policies. Manufacturers should also consider whether their circumstances warrant providing notice to their insurers of potential PFAS-related liability before such exclusions take effect.

The next article in our series will advise manufacturers on how to investigate the presence of PFAS in their products, by consulting internal resources and suppliers and considering third-party testing.