Reducing PFAS, plastics-related legal costs with insurance

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 suspected presence of PFAS in biosolids, cosmetics and artificial turf, among other products. In addition to PFAS, plastics and microplastics are also under increasing scrutiny. Like PFAS, they are used in many industries, are persistent, and can be found in many places, including people, food, and drinking water.

Significant cost reduction

Companies subject to both PFAS and plastics-related lawsuits face protracted litigation with significant defense costs and, potentially, settlements and adverse judgments. Insurance coverage can mitigate these significant costs.

Because PFAS allegations and plastics-related litigation could involve operations and products dating back decades—to the 1960s and earlier—insurance coverage could be available on insurance policies for decades.

Companies with other so-called “long-tail” risks, such as environmental and asbestos lawsuits, already know the drill. They have long reconstructed their historical insurance programs, creating coverage charts graphically depicting policies and their key attributes. They know, among other things, the limits of responsibility; which policies have aggregate coverage caps and which are unlimited; which policies have self-insured retentions; whether the policies have been undermined by previous claims; which policies are lost; which insurers are insolvent; whether and when so-called “qualified” and then “absolute” pollution exemptions first appear in their programs; and how historical corporate transactions affect their programs.

These companies also know the difficulty of actually securing coverage from their historic insurers.

But lawsuits involving PFAS and plastics are also likely to attract companies with no prior “long tail” experience. For these companies, navigating these issues may require addressing many new issues.

What policies are likely to be involved?

The policies most likely to provide coverage for lawsuits involving bodily injury or property damage are commercial general liability policies or product liability policies. Coverage may also be available under pollution liability policies or, in the case of shareholders’ interests, directors’ and officers’ liability policies. Other types of policies may also be involved depending on the circumstances.

What policies should I consider first?

Some policies require strict reporting requirements or are subject to the laws of a jurisdiction, such as New York, that insurers claim require immediate notice. Insurance policies currently in force may be written on a claims-made-and-reported or first-reported basis. These policies may have strict reporting requirements that, if not met, may result in a complete loss of coverage. Even in the absence of strict notice requirements, insurers sometimes argue that policies require prompt notice, especially policies governed by New York law.

What if I can’t find the rules?

Many companies initially cannot find historical insurance policies. Fortunately, various strategies can be used to find policies that have been lost. Many jurisdictions also have cases involving lost or partial policies, including issues related to the burden of proof and the types of evidence that may be admitted to prove the terms of policies. These questions are often fact-dependent and jurisdiction-specific.

What triggers coverage?

Although there can be significant differences depending on policy language and applicable law, many standard general liability policies and products are triggered by the potential that the alleged property damage or personal injury occurred 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 to the present can 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 a common approach adopted in many states, known as “all sums,” each individual policy is required to cover 100% of the company’s defense costs, settlements and judgments up to the applicable policy limits.

In a different approach, known as “proportionate,” each individual policy is responsible for only a portion of the company’s losses.

Because the approach taken can have a large impact on the amount a company can recover from its insurers, forum battles are common, with insurers sometimes pre-filing in an attempt to secure a more favorable forum or law. Therefore, companies should focus on these issues at the outset of the claim.

What should I know about pollution exemptions?

Insurers may take the position that coverage is not available for PFAS and plastics litigation because of pollution exclusions. Versions of such exclusions began appearing in some policies in the 1970s and became commonplace by the mid-1980s.

Whether pollution exclusions—including so-called “absolute” pollution exclusions—actually limit coverage for PFAS and plastics lawsuits will depend on numerous factors, including the allegations in the lawsuit, the specific language at issue in the policy, and applicable law.

It is not known whether litigation involving PFAS or plastics will ultimately involve a large number of companies. But the trend toward litigation is significant enough that companies with potential exposure would do well to consider how insurance coverage might fit into their larger risk mitigation plans.

This article does not necessarily reflect the views of The Bureau of National Affairs, Inc., publisher of Bloomberg Law and Bloomberg Tax, or its owners.

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Jeff Kibertz is of counsel in the Los Angeles office of Covington & Burling LLP. He focuses on representing policyholders in complex insurance coverage matters.

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