Insurance Coverage Can Shield Policyholders in Plastics Lawsuits

There is a real prospect of plastics-related liability, evidenced by the continued focus by federal and state governments on this issue and the continued proliferation of plastics litigation and significant settlements. Companies that may be subject to plastics-related investigations, litigation, and liability should carefully evaluate how they can offset defense costs and potential losses associated with plastics-related liabilities, governmental investigations, or actions through insurance.

A modern pollution liability policy may offer protection against plastic pollution. This could include coverage for site cleanup costs, damage to natural resources, and third-party claims for bodily injury or property damage.

More broadly, potential plastics-related liability to third parties for property damage or bodily injury may be covered by current or historic commercial general liability insurance, including product liability insurance. These policies usually are occurrence-based. This means the policy or policies that respond would be those in place when the alleged event or the alleged property damage or bodily injury took place, rather than when a claim for liability is made.

Alleged exposure or liability related to long-term activity can trigger commercial general liability policies spanning multiple years or even decades. These policies often contain product liability coverage for claims of injury or damage resulting from products manufactured by the policyholder.

Policyholders should keep in mind several key issues that often come up in determining coverage for long-term liabilities under such policies.

Occurrence. This may be defined as an accident, event, or happening, including continuous or repeated exposure to conditions, which unexpectedly causes bodily injury or property damage.

Potential coverage issues may hinge on whether the harm was expected or intended by the policyholder, and the number of occurrences if bodily injury or property damage spans multiple years or decades.

Trigger of coverage. For long-term injuries or damages, courts employ varying approaches to determine what event is required in order for a particular insurance policy to respond. Incidents that may trigger coverage include exposure to plastics, actual injury or damage from plastics, when injury or damage was discoverable or manifested, or a continuous trigger running from the date of exposure to the date of discovery or manifestation of injury or damage.

Allocation. One framework known as joint and several liability or all sums allocation permits a policyholder to pick any triggered policy period under which to recover all its loss or damage—even portions taking place outside the policy period—up to the amount of available policy limits during that period. A pro rata allocation requires loss or damage to be allocated over a certain time, with each triggered policy only responsible for the loss or damage that took place during its policy period.

Policyholders may have to confront pollution exclusions in their insurance policies. While modern commercial general liability policies have some form of pollution exclusions, older policies may have more limited exclusions or may not have them at all. The first pollution exclusion, known as the qualified or partial pollution exclusion, was added to commercial general liability policies in the early 1970s and excluded coverage for pollution events except those that were “sudden and accidental.”

Courts adopted varying interpretations of pollution events that were sudden and accidental—some courts required the event be abrupt in timing and unexpected, while others required the event to be unexpected. This led to the Absolute Pollution Exclusion in 1985, which removed the sudden and accidental exception to the exclusion.

Some courts continued to limit the scope of the pollution exclusion rather than extending the exclusion to substances not traditionally thought of as pollutants pollutants or to situations not traditionally viewed as environmental contamination.

For example, the District of Hawaii recently considered whether insurers had a duty to defend the insured against climate change lawsuits. The case hinges in part on whether greenhouse gases are “pollutants” as that term is used in the pollution exclusion. The court explained that one reasonable argument against greenhouse gases being pollutants is that they “are emitted around us daily and yet are relatively harmless to our immediate health, particularly in limited amounts.”

The court ultimately certified the question for the Hawaii Supreme Court. Certification may occur when a federal court has to apply an area of state law that is unresolved. Rather than trying to guess what the state’s highest court would decide, a federal court can certify the question to the state’s highest court.

Directors and officers liability insurance may cover consumer protection, greenwashing, and securities, and derivative claims made against directors and officers (or the company) alleging misrepresentations concerning product recyclability or similar allegations.

A New Jersey court held that a directors and officers policy covered costs arising from a securities claim alleging that the insured made false and misleading statements concerning pollution liability. The court rejected the insurer’s argument that there was no coverage under the policy’s pollution exclusion, reasoning that the complaint in the underlying litigation had its root in securities fraud and misrepresentation, not pollution. This exclusion may not be present in current directors and officers liability insurance policies.

Such insurance also may apply to government agency formal or informal investigations and inquiries of a company or its directors and officers, including responding to governmental subpoenas.

Other types of insurance that could come into play for plastic-related liability can include: commercial property insurance if a policyholder is dealing with damages to its own property, or errors and omission/professional liability insurance if a policyholder is facing liability for the use of plastics in its provision of professional services to others. It’s best to think broadly about what insurance could respond based on the liability or loss at issue.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Brian Scarbrough is co-chair of Jenner & Block’s insurance recovery and counseling practice.

Arie Feltman-Frank is an associate at Jenner & Block, focusing on environmental and workplace health and safety law.

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