Per- and polyfluoroalkyl substances (PFAS) are a broad category of man-made chemicals that include PFOA, PFOS, GenX, and many others. Manufacturers used PFAS in a multitude of products such as Teflon and waterproof materials like Scotch-Guard. Dubbed the forever chemicals – PFAS are very persistent in the environment and human body – meaning they do not break down and can even accumulate over time. Evidence exists to link PFAS chemicals to adverse human health effects. Among many other products, PFAS chemicals have been widely used in aqueous film-forming foam (“AFFF”) as a firefighting agent since the 1960s.[1] Moreover, PFAS can and have contaminated water supplies through firefighting foam and other industrial discharges.[2] The evolution of the effects of direct exposure to PFAS chemical components and water source contamination has led to a sharp increase in litigation concerning AFFF and other PFAS chemicals.

As the litigation increases, insurers of manufacturers and suppliers of PFAS-containing products (current or former) should educate themselves on the coverage limitations and duties in this context. Some of the most litigated and least understood provisions within Commercial General Liability Insurance (CGL) are those concerning pollution. A recent case decided in North Carolina provides an example.

In late 2020, the U.S. District Court for the Western District of North Carolina, Charlotte Division, in a matter styled Colony Insurance Co. v. Buckeye Fire Equipment Co.,[3] held that, in North Carolina, an insurance company must defend personal injury claims arising from direct exposure to AFFF despite the presence of a “hazardous waste” exclusion in the controlling CGL policy.

Defendant Buckeye Fire Equipment Co. (“Buckeye”) is a manufacturer of firefighting equipment containing AFFF and has been sued in hundreds of underlying cases concerning AFFF. A significant portion of the underlying lawsuits against Buckeye contain allegations of personal harm from both direct and environmental exposure. One such case involved a firefighter/firefighting instructor who alleged direct exposure by handing firefighting foam containing AFFF and environmental exposure through a water system that was contaminated by AFFF, a PFAS.

Plaintiff Colony Insurance Co. (“Colony”) insured Defendant Buckeye. The CGL policy that Colony issued imposed a duty for Colony to defend Buckeye against lawsuits for bodily injury from hazardous materials and included a specific exclusion for same. Accordingly, Buckeye requested insurance coverage for lawsuits filed against it that allege direct exposure.

Colony filed a motion for summary judgment arguing that it was not required to defend under the CGL Hazardous Material exclusion in the CGL policy because the injuries alleged would not have occurred in whole or in part but for the actual discharge of hazardous materials.

The Hazardous Materials exclusion in the CGL policy issued by Colony to Buckeye did not specifically mention PFAS chemicals, but focuses on the manner of dissemination:

Hazardous Materials

(1) “Bodily injury”, “property damage” or “personal and advertising injury” which would not have occurred in whole or in part but for the actual, alleged, or threatened discharge, dispersal, seepage, migration, release or escape of “hazardous materials” at any time. . . .

This exclusion applies whether or not such “hazardous material(s)” has any function in your business, operations, premises, site or location.

B. SECTION V –DEFINITIONS is amended and the following added: “Hazardous materials” means “pollutants”, lead, asbestos, silica and materials containing them.

Emphasis added.

Buckeye conceded that Colony had no duty to defend in matters which allege solely environmental exposure. Both parties agreed that the issue of indemnification was not ripe. Therefore, the Court limited its analysis to whether Colony had a duty to defend Buckeye in the underlying cases alleging only direct exposure.

The Court put forth a brief analysis of North Carolina precedent which directs that terms listed in the Hazardous Materials exemption in the CGL such as “discharge, dispersal, seepage, migration, release, or escape” are environmental terms of art, and policy exclusions using this language require traditional environmental pollution to deny coverage to an insured under North Carolina law. The Court then concluded:

Here, the underlying complaints for which Defendant seeks coverage allege personal injury caused by both traditional environmental pollution and direct contact with or exposure to AFFF. The Hazardous Materials Exclusion at issue excludes coverage for personal injury that would not have occurred “but for the actual, alleged, or threatened discharge, dispersal, seepage, migration, release or escape of ‘hazardous materials’ at any time.” (Doc. 1-2, p. 32). Because the relevant underlying complaints allege injury caused by something other than traditional environmental pollution, which the policy exclusion requires as a matter of law, Plaintiff may not deny coverage to Defendant with respect to the underlying claims alleging direct exposure.

Colony filed an appeal to the U.S. Court of Appeals for the Fourth Circuit in November 2020. We will provide an update and analysis when a decision is rendered.

Insurance companies should reassess their CGL policies and Hazardous Materials exclusions – particularly for those insureds that have been sued in the mass tort arena – to determine their duty to defend. Hawkins Parnell & Young practices in all 50 states and can provide a state-by-state analysis of environmental terms of art as litigation concerning PFAS chemicals continues to grow.