In recent years there has been a sharp increase in litigation involving per- and polyfluoroalkyl substances (PFAS), as previously reported in Bloomberg. Much of this litigation involves groundwater near manufacturing facilities, airports, and military bases.
Regulators and special interest groups are now focusing on the alleged presence of PFAS in biosolids, cosmetics, and artificial turf, among other products. Apart from PFAS, plastics and microplastics are also under increasing scrutiny. Like PFAS, they are used in many industries, persistent, and can be found in many places, including humans, food, and drinking water.
Mitigating Substantial Costs
Companies targeted in both PFAS and plastics-related lawsuits face protracted litigation with substantial defense costs and, potentially, settlements and adverse judgments. Insurance coverage could mitigate these substantial costs.
Since the allegations in PFAS and plastics-related litigation could implicate operations and products dating back decades—to the 1960’s and earlier—insurance coverage could be available under decades’ worth of insurance policies.
Companies with other so-called “long tail” risks, such as environmental and asbestos lawsuits, already know the drill. They long ago reconstructed their historic insurance programs, creating coverage charts graphically depicting the policies and their key attributes. They know, among other items, the limits of liability; which policies have aggregate caps on coverage and which are uncapped; which policies have self-insured retentions; whether policies have been eroded by prior claims; which policies are lost; which insurers are insolvent; whether and when so-called “qualified” and then “absolute” pollution exclusions first appeared in their programs; and how historic corporate transactions impact their programs.
These companies also know the difficulties of actually securing coverage from their historic insurers.
But PFAS and plastics-related lawsuits are likely to also draw in companies with no prior “long-tail” experience. For these companies, navigating these issues may require consideration of many new issues.
What Policies Are Likely to Be Implicated?
The policies most likely to provide coverage for lawsuits predicated upon bodily injury or property damage are commercial general liability or stand-alone products liability policies. Coverage might also be available under pollution legal liability policies or, in the case of shareholder suits, directors and officers liability policies. Other policy types also could be implicated depending on the circumstances.
What Policies Should I Consider First?
Some policies require strict reporting requirements or are subject to the law of a jurisdiction, like New York, and insurers argue these require prompt notice. Insurance policies currently in effect may be written on a “claims-made-and-reported” or “occurrence-first-reported” basis. These policies could have strict reporting requirements that, if not complied with, could result in a complete loss of coverage. Even in the absence of strict notice requirements, insurers sometimes argue that policies require prompt notice, particularly policies governed by New York law.
What If I Cannot Find Policies?
Many companies are not initially able to locate historic insurance policies. Fortunately, a variety of strategies can be employed to locate policies that have been lost. There also are cases in many jurisdictions addressing lost or partial policies, including issues related to the burden of proof and the types of evidence that can be admitted to prove the terms of the policies. These issues are frequently fact dependent and jurisdiction specific.
What Triggers Coverage?
Although there can be significant differences depending on the policy language and applicable law, many standard-form general liability and products policies are triggered by the potential that the alleged property damage or bodily injury took place during the policy period. For example, if a plaintiff alleges that a company began manufacturing products containing PFAS in the 1960s, all policies in effect from that time until the present could be triggered.
What Happens When Multiple Policies Are Triggered?
These issues have been the subject of decades of extensive litigation and there is no single approach.
Under one common approach that has been adopted in many states, known as “all sums,” each individual policy is required to cover 100% of a company’s defense costs, settlements, and judgments up to the applicable policy limits.
Under a different approach, known as “pro rata,” each individual policy is responsible for only a portion of the company’s losses.
Since the approach taken can have a major impact on how much a company can recover from its insurers, forum battles are common, with insurers sometimes preemptively filing suit in an effort to secure a more favorable forum or law. Companies should therefore focus on these issues at the outset of a claim.
What Should I Know About Pollution Exclusions?
Insurers may take the position that no coverage is available for PFAS and plastics-related litigation due to pollution exclusions. Versions of such exclusions began to appear in some policies during the 1970s, and became common by the mid-1980s.
Whether pollution exclusions—including so-called “absolute” pollution exclusions—actually bar coverage for PFAS and plastics-related lawsuits will depend on multiple factors, including the allegations of the lawsuit, the specific policy language at issue, and the applicable law.
It is not known whether PFAS or plastics-related litigation will ultimately implicate a large number of companies. But the litigation trend is significant enough that companies with potential exposure would be well served to consider how insurance coverage may fit into their larger risk mitigation plans.
This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Jeff Kiburtz is of counsel in the Los Angeles office of Covington & Burling LLP. He focuses on representing policyholders in complex insurance coverage matters.