Pollution exclusions and PFAS claims: Reading tea leaves from early coverage rulings
Lawsuits have been filed across the country that allege harms purportedly caused by PFAS chemicals.
A multitude of lawsuits have been filed across the country that allege harms purportedly caused by “PFAS” chemicals. The underlying litigations have resulted in billions of dollars in settlements, which, in turn, have led to demands for insurance coverage and associated coverage litigation. Most PFAS-related coverage actions remain in relatively early phases of litigation.
That said, a handful of early court decisions on insurance coverage issues related to PFAS have, thus far, focused on the duty to defend under commercial liability insurance policies and, in particular, application of pollution exclusion clauses.
“PFAS” stands for per- and polyfluoroalkyl substances, which are sometimes called “forever chemicals” because they are long-lasting and break down slowly over time. Since the 1940s, PFAS have been used in a variety of industrial applications and consumer products, including fire-extinguishing foam; various non-stick, stain-repellent and water-repellent products; and grease-resistant food packaging.
According to the U.S. Environmental Protection Agency (EPA), due to “their widespread use and their persistence in the environment,” certain PFAS are found “all over the world and are present at low levels in a variety of food products and in the environment” and “exposure to some PFAS in the environment may be linked to harmful health effects in humans and animals.”
‘Tonoga’
Tonoga Inc. (Tonoga) operated a manufacturing facility in the Town of Petersburg, in Rensselaer County, New York, which produced materials coated with polytetrafluoroethylene. From 1961 to 2013, Tonoga’s manufacturing process used certain types of PFAS chemicals called PFOA and PFOS which were allegedly discharged into the environment as part of the company’s routine processes. Tonoga v. New Hampshire Insurance et al., 201 A.D.3d 1091, 1092 (N.Y. App. Div. 3d Dep’t Jan. 6, 2022).
After PFOA and PFOS were discovered in the municipal water supply and in leachates from a landfill, a number of lawsuits were brought against Tonoga, “each generally alleging that it negligently allowed PFOA and/or PFOS to pollute local water supplies, air and soil, causing the plaintiffs in the underlying actions certain bodily injury and property damage.”
Tonoga subsequently commenced an insurance coverage action against two liability insurance carriers. The Supreme Court entered summary judgment for the insurers, and the Third Department affirmed, ruling that the insurers had no duty to defend because the “total” and “qualified” pollution exclusions in their respective policies barred coverage as a matter of New York law.
The total pollution exclusion precluded coverage for damages “arising out of the . . . discharge, dispersal, release or escape of pollutants,” with “[p]ollutant” defined as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.” Applying that language, the Third Department explained that, “whether a substance is unambiguously an irritant, contaminant or pollution within the meaning of a pollution exclusion is necessarily situational,” and that, “under these facts, it is clear that PFOA and PFOS are pollutants within the meaning of the exclusions” (citations omitted)
The court focused on allegations that the substances had been “discharged into the environment as part of [the policyholder’s] routine processes,” and concluded that “the damages resulting from this sort of broadly dispersed environmental harm fall squarely within pollution exclusions such as these.”
With respect to the qualified pollution exclusion, the Third Department held that the exception for “sudden and accidental” discharge was not applicable. The court identified “the gravamen of each suit” as being “decidedly [the policyholder’s] knowing discharge of PFOA and/or PFOS as part of its routine manufacturing processes” over decades.
The court emphasized that, in determining whether a claim comes within the sudden-and-accidental exception, “a court should not attempt to impose…a strained, implausible reading of the complaint that is linguistically conceivable but tortured and unreasonable.” To that end, the court found that certain vague allegations of there “likely” being “yet other ways” in which the chemicals were discharged into the environment did not bring the claims within the sudden-and-accidental exception to the qualified pollution exclusion.
‘Buckeye’
In Buckeye, the policyholder sought coverage for hundreds of underlying claims related to its manufacture of PFAS-containing products—namely, “fire equipment containing toxic aqueous film-forming foams.” Colony Insurance v. Buckeye Fire Equipment, 2020 U.S. Dist. LEXIS 194709, 2020 WL 6152381, at *1 (W.D.N.C. Oct. 19, 2020). Approximately two-thirds of the claims alleged only environmental exposure to PFAS, and the remaining one-third alleged both “direct” exposure to PFAS in the products and environmental exposure. The insurer moved for summary judgment on the basis of a pollution exclusion.
The result was that the insurer was found to have no duty to defend with respect to the two-thirds of claims that alleged solely environmental exposure to PFAS. Indeed, the policyholder actually “concede[d]” that there was no duty to defend claims that alleged “solely environmental exposure.” However, with respect to the remaining one-third of claims that alleged a mixture of direct and environmental exposure, the court concluded that the insurer had a duty to defend because that subset of underlying complaints “allege injury caused by something other than traditional environmental pollution.”
The Tonoga and Buckeye decisions illustrate certain key factors that may drive the resolution of future disputes over the application of pollution exclusions to PFAS claims.
First, and importantly, Tonoga makes clear that PFAS can qualify as a “pollutant” within the meaning of a pollution exclusion under New York law. The notion that at least some categories of PFAS-related claims will be barred from coverage by pollution exclusions should not be controversial. Indeed, in Buckeye, the policyholder conceded that a pollution exclusion barred coverage for PFAS claims alleging solely environmental exposure.
Second, Tonoga opened the door to the possibility that pollution exclusions could also bar coverage for other types of PFAS liabilities beyond environmental exposure claims. The court held only that “broadly dispersed environmental harm” from PFAS “fall[s] squarely within pollution exclusions”; it did not opine that other varieties of PFAS claims fall outside of pollution exclusions. In the time since Tonoga was issued, that door has not been closed.
Third, future cases will likely address whether pollution exclusions bar coverage for other PFAS liabilities, such as claims alleging harm from exposure to PFAS “discharged” or “released” by a product. As Tonoga indicated, whether a substance is deemed a “pollutant” in any given case is “necessarily situational” and will depend on the specific facts alleged in the case.
Various factual scenarios involving alleged harm caused by PFAS-containing products might fall within the scope of a pollution exclusion. For example, once PFAS is “released” from a product, the claimant could be: (1) initially exposed directly, arguably implicating the plain language of a pollution exclusion insofar as it would constitute harm “arising out of” the “release” of a “pollutant”; and/or (2) later exposed through the environment after the PFAS is dispersed into the environment where it persists for a prolonged period of time, a scenario even more closely analogous to the “broadly dispersed environmental harm” addressed in Tonoga.
Future coverage litigation regarding PFAS liabilities are likely to implicate myriad other factual and legal issues beyond pollution exclusions. For the foreseeable future, though, pollution exclusions will remain a focus of PFAS-related coverage litigation in New York and elsewhere.
Matthew C. Penny is counsel and Bryce L. Friedman is a partner at Simpson Thacher & Bartlett.
Opinions expressed here are the author’s own.
Related: