On April 19, 2024, the U.S. Environmental Protection Agency announced the designation of two per- and polyfluoroalkyl substances (PFAS)—perfluorooctanoic acid (PFOA) and perfluorooctanesulfonic acid (PFOS) and their salts and structural isomers—as hazardous substances under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA).[1] In its designation, the EPA has identified over 85 industries it believes are most likely to be directly or indirectly affected by the designation.
PFAS liability is a relatively new and fast-evolving litigation frontier that has witnessed a number of high-profile, PFAS-related lawsuits and billion-dollar settlements in recent years. Industry experts expect the number of suits, the scope of liability, and range of defendants to only continue growing. Indeed, in the same week that the EPA announced its April 19 designation, several municipalities and water districts in Southern California sued a collection of chemical and product manufacturers for allegedly contaminating the public water supply for millions of residents with PFOA and PFOS.[2]
The legal landscape on the insurance coverage front is likewise evolving quickly. Thus far, insurers have generally sought to deny coverage for PFAS under Commercial General Liability (CGL) policies and coverage lawsuits involving PFAS are popping up around the country. Reminiscent of the crescendo of asbestos coverage litigation years ago, there is no doubt that insurance companies are prepared for a fight over whether PFAS are a covered liability.
Corporate policyholders should recognize that increased PFAS liability and litigation is coming and few industries will be immune. To best position themselves to obtain insurance protection against these claims, policyholders should formulate a plan now, before they are facing a lawsuit, to maximize their potential insurance recovery, including by taking the following steps:
1. Locate, Assemble and Review All Current and Legacy Commercial General Liability (CGL) Policies.
Occurrence-based CGL policies provide coverage for “bodily injury” and “property damage.” These policies will be a primary avenue of coverage for PFAS liability. CGL policies typically provide unlimited “duty to defend” coverage and historical CGL policies can cover “occurrences” or exposures that took place during the policy period but did not result in alleged injuries until decades later. Since, PFAS claims can concern exposure to PFAS decades ago, often before digital storage existed, identifying legacy CGL policies may provide crucial PFAS coverage.
It frequently takes weeks or months for a company working from scratch to assemble an accurate record of its historical policies. Waiting to start that process until a lawsuit arises will only increase pressure, decrease available time, and allow insurance companies to use any delay in notice caused by this time-consuming exercise as an excuse to deny coverage. Thus, policyholders should locate and assemble all CGL policies issued to it going back to the start of a company’s operations, including those issued to predecessor companies and acquired through mergers and acquisitions.
If policyholders cannot locate their legacy CGL policies, potential sources to find lost or missing policy information, includes: 1) the insurance company that issued the policy; 2) insurance brokers; 3) insurance archivists that are hired to track down policies; 4) law firms involved in historic claims; 5) vendors and government entities that may have been given a copy of the policy; and 6) schedules of insurance included with purchase agreements from prior acquisitions. And in the search for legacy CGL policies, policyholders shouldn’t forget about more recent CGL policies—dates of exposure and injury from PFAS can trigger dozens of policies including recently purchased policies.
2. Review and Consider all Potential Sources of Coverage.
Depending on the allegations made and who the allegations are made against, other types of insurance—not just CGL—may provide coverage for PFAS liabilities. For example, claims of negligence and errors performed while performing a business activity that caused alleged PFAS exposure could be covered under E&O liability insurance. Likewise, alleged “wrongful acts” by directors and officers that led to PFAS liability could trigger D&O coverage, including potential stock drop claims for companies with significant PFAS exposure. Further, some companies purchase coverage for environmental claims such as Pollution Legal Liability policies that could cover PFAS claims. In short, policyholders should consider all sources of coverage and not assume that only one policy or one type of policy provides coverage.
3. Identify any Historical or Current Third-Parties That May Be Required to Provide Indemnity and Additional Insured Coverage.
Policyholders should identify any historical or current third-parties, such as prior property owners, contractors or vendors, that may be required to provide indemnity and additional insured coverage. Once identified, policyholders should tender requests for indemnity and additional insured coverage to those entities and their insurers. This is another source of recovery for PFA liabilities not to be overlooked.
4. Determine What PFAS Your Business Might Have Used in the Past or Are Currently Using.
The list of PFAS chemicals and products that contain PFAS continues to grow daily. The more a company knows about what substances it has used in the past and present, the better equipped it will be to quickly deal with underlying liability suits and negotiate effectively with insurers.
5. When A PFAS Claim is Filed, Tender Notice to All Potential Insurance Carriers (Primary and Excess).
When a policyholder receives any notices of potential claims or actual lawsuits / demands involving PFAS, it should provide notice to all insurance policies that could even potentially apply. Failure to provide notice of a Claim or notice of a circumstance that could give rise to a Claim is an easy way for an insurer to deny coverage. Excess policies should also be noticed if there is any chance, even remote, that their layer could be implicated.
6. Do Not Assume That A Claim Is Not Covered Because An Insurer Sends a Reservation of Rights Letter or Denial.
As discussed briefly above, PFAS insurance coverage litigation is in its nascent stage and there is much uncertainty about coverage for PFAS. Any insurer or broker stating that PFAS exposures are categorically excluded under any line of coverage is not giving the full picture. Coverage often hinges on the specific facts alleged in each case. Therefore, policyholders should push back on any denials or reservations of rights and should not assume there is no coverage based on an insurer’s, or brokers, initial position.
7. Be Cognizant of PFAS-Specific Exclusions in New Policies at Renewal Time.
Policyholders should consider whether their insurers are including PFAS exclusions and/or pollution exclusions in their new policies. Because including these exclusions limit coverage, policyholders can negotiate for their removal and/or or use their inclusion when negotiating premiums. Notably, there is no one uniform PFAS exclusion in the market. Many of the endorsements that insurers are seeking to add now are incredibly broad and could be used by insurers to deny coverage for claims involving products containing PFAS, even if the alleged injuries were not caused by PFAS.
8. Consult Coverage Counsel.
If facing possible PFAS-related liabilities or litigation, policyholders should consult coverage counsel early to strategize and construct the optimal gameplan to maximize insurance recovery from all policies that may provide coverage.
[1] For detailed information on the EPA’s April 19 designation, check out “Contaminants Compass: April 2024 Special Edition,” a monthly newsletter by McGuireWoods LLP that provides updates, legal observations and actionable tips to navigate the evolving legal challenges of PFAS.
[2] See https://www.reuters.com/legal/litigation/new-pfas-lawsuit-cites-epas-forever-chemicals-drinking-water-rules-2024-04-15/
