This article will discuss policyholder concerns after a California federal court recently found that some PFAS claims in an MDL were excluded under a pollution exclusion, but others were not. The case is Nat'l Foam, Inc. v. Zurich Am. Ins. Co., No. 23-CV-03873-LB, 2025 WL 699361, at *1 (N.D. Cal. Feb. 26, 2025).
Factual and Procedural Background
The policyholder in Nat'l Foam, Inc. sold Aqueous Film-Forming Foam products, which contained per- and polyfluoroalkyl substances (PFAS). 182 cases were filed against the insured, which were consolidated in an MDL. The MDL included cases with two types of exposures: (1) direct exposure to PFAS, and (2) indirect exposure from drinking water contaminated by PFAS.
The CGL insurer denied coverage under a pollution exclusion, and the insured filed a breach of contract suit against the insurer. The court granted the policyholder's motion for summary judgment in part and found that the insurer had a duty to defend the direct exposure claims. The court then granted the insurer's motion for summary judgment in part and found no duty to defend the indirect exposure claims.
Legal Arguments
The court's analysis focused on whether the claims were from direct exposure or indirect exposure. First, the court found that the pollution exclusion does not apply to the direct exposure claims because the plaintiffs' damages arose out of the use of the ordinary use of the products. The court reasoned that even though PFAS is a chemical, a pollutant is not just a type of substance, it is also a mechanism of harm. A pollution exclusion in California only excludes environmental pollution. The court found that the direct exposure plaintiffs were not injured by environmental pollution because they were exposed to PFAS from the regular use of the product.
Second, the court found that the pollution exclusion does exclude the indirect exposure claims - through contaminated drinking water - because the complaint alleged exposure through environmental pollution. The court reasons that “[t]his type of harm — contact with harmful materials via general environmental exposure — is generally understood as pollution, so the [pollution exclusion] provides clear notice of a policy exclusion.” Id. at *7.
Policyholder Takeaways
- While this opinion ruled against policyholders on the indirect exposure cases, it does take a policyholder-friendly view of the pollution exclusion. The traditional view is that pollution exclusions only exclude damages caused by environmental pollution. Since then, courts have expanded the pollution exclusion to cover any alleged harmful substance (by classifying it as a pollutant). The traditional view of the pollution exclusion is more beneficial to policyholders.
- Based on this opinion, policyholders should look for ways to classify the claims against them as direct exposure, not indirect exposure. This opinion gives hope to insureds who sell products that may expose consumers to PFAS through its regular use.
Some plaintiffs allege indirect exposure to PFAS — such as from contaminated drinking water — while others, like firefighters, allege direct exposure to PFAS from using National Foam's fire-extinguishing products.
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