(Article from Insurance Law Alert, March 2023)
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Previous Alerts have discussed the limits of general liability coverage for property damage and bodily injury claims arising out of exposure to various harmful substances, such as asbestos, lead paint particles, carbon monoxide, and toxic fumes. In many cases, policyholders have argued that such claims are not excluded from coverage by a pollution exclusion because they do not arise from traditional environmental contamination. An emerging area of litigation is whether claims arising out of exposure to PFA “forever chemicals” are excluded from coverage by virtue of pollution exclusions.
Thus far, a handful of courts have addressed insurers’ coverage obligations for PFA claims against policyholders in the face of a pollution exclusion. In two cases, the court granted insurers’ motions to dismiss, concluding that pollution exclusions barred coverage for alleged bodily injuries and property damage arising out of PFA claims as a matter of law. See Tonoga, Inc. v. New Hampshire Ins. Co., 159 N.Y.S.3d 252 (N.Y. App. Div. 3d Dep’t 2022); Grange Ins. Co. v. Cycle-Tex Ins. Co., 2022 WL 18781187 (N.D. Ga. Dec. 5, 2022). Notably, the Tonoga court held that coverage was not only barred by a total pollution exclusion but also a qualified pollution exclusion that contained an exception for “sudden and accidental” discharges. The court held that vague references in the complaint regarding “other ways” or “likely” types of discharge were insufficient to withstand the insurer’s motion to dismiss as to its duty to defend. Additionally, the Tonoga court deemed it irrelevant that PFA substances were not specifically named in the exclusion or known to have a detrimental effect on the environment at the time the policy was formed.
However, other courts have ruled that insurers are required to defend suits alleging bodily injury and property damage arising out of exposure to PFA chemicals. In Wolverine World Wide, Inc. v. Am. Ins. Co., 2021 U.S. Dist. LEXIS 200978 (W.D. Mich. June 15, 2021), the court held that the underlying complaint, which alleged bodily injury and property damage claims stemming from the policyholder’s historical operations and waste disposal practices, was “arguably” within the scope of coverage, noting that the underlying actions were “silent, uncertain, and or unclear as to whether any of the alleged polluting events were ‘sudden or accidental’ or ‘unexpected or unintended.’” A North Carolina district court also concluded that an insurer was obligated to defend an underlying PFA suit in Colony Ins. Co. v. Buckeye Fire Equip. Co., 2020 U.S. Dist. LEXIS 194709 (W.D.N.C. Oct. 20, 2020). There, the court explained that under North Carolina law, the terms “discharge, dispersal, release, or escape” are “environmental terms of art” which apply to “prototypical environmental harms.” Because the underlying complaints alleged harm caused by both contamination of water well systems and firefighters’ direct contact with PFA-containing equipment, the court held that the exclusion did not relieve the insurer of its defense obligations.
An Ohio district court recently declined to exercise jurisdiction over a declaratory judgment action relating to an insurer’s duty to defend and indemnify underlying PFA claims. In Admiral Ins. Co. v. Fire-Dex, LLC, 2022 U.S. Dist. LEXIS 198034 (N.D. Ohio Oct. 31, 2022), the court explained that resolution of the coverage issues, including application of total pollution exclusions, involved “novel and unsettled matters of state law” which were best left for a state court forum.
Aside from pollution exclusion clauses, future coverage litigation in this context is likely to implicate other complex questions of fact and law, including issues relating to the date of allegedly covered bodily injury or property damage (see Crum & Forster Specialty Ins. Co. v. Chemicals, Inc., 2021 U.S. Dist. LEXIS 146702 (S.D. Tex. Aug. 5, 2021)), questions of causation between PFA exposure and any potential bodily injury, applicability of a “discharge” requirement in many pollution exclusions for claims that arise out of PFA-containing products as opposed to environmental contamination, and the applicability of intended act exclusions, among other things.