During the past few years, per- and poly-fluoroalkyl substances (PFAS) have rapidly transformed from an "emerging" risk into an "emerged" risk. PFAS—also known as "forever chemicals" because they do not readily break down in the environment—have fallen under intense regulatory scrutiny because, although they are used in a wide range of applications, they allegedly cause certain diseases. Along with regulatory attention has come litigation initiated by a variety of plaintiffs against PFAS manufacturers and retailers.

The defendants, in turn, are pursuing insurance coverage for the underlying losses from their liability insurers. Battle lines between liability insurers and policyholders have now been drawn.  Initial coverage disputes have focused on several key issues: jurisdiction, forum, and choice of law; pollution exclusions; number of "occurrences;" and allocation of coverage. Not only are these and other issues important in the context of PFAS, but they may forecast future coverage fights concerning other risks as they potentially move from "emerging" to "emerged" status as well.

Jurisdiction, Forum and Choice of Law

To date, insurers and policyholders have spent considerable energy litigating PFAS coverage disputes in favorable forums under favorable law.

In some instances, one side or another has preferred to litigate in federal or, conversely, state court. In Admiral Insurance v. Fire-Dex, (6th Cir. 2023), an insurer filed suit in Ohio federal court seeking a declaration that an occupational disease exclusion precluded coverage for claims that PFAS-containing firefighting gear manufactured by the insured caused firefighters and their spouses to fall ill. The U.S. Court of Appeals for the Sixth Circuit, however, held that whether illnesses arising from PFAS in a manufacturer's finished products constitute "occupational disease[s]" is a novel question under Ohio law which is properly resolved by Ohio state courts in the first instance.

Some policyholders have attempted to litigate coverage in one particular jurisdiction—South Carolina federal court—which oversees a multidistrict litigation (MDL) for PFAS-containing firefighting foam known as aqueous film-forming foam (AFFF). After insurers sued one manufacturer, Tyco Fire Products LP (Tyco), in Wisconsin state court, Tyco filed suit in the MDL. In Tyco Fire Products v. AIU Insurance, (D.S.C. 2023), the South Carolina court held that the judicial panel on multidistrict litigation (JPML) should determine whether the case belongs in the MDL, but nonetheless asserted jurisdiction primarily on the grounds that litigating coverage in the same court would facilitate resolution of the underlying claims in the MDL. The JPML recently transferred other coverage claims into the MDL.

Separately, in a dispute over coverage for costs AFFF distributor Shambaugh & Son, L.P. (Shambaugh) incurred in responding to a subpoena, Shambaugh unsuccessfully sought to litigate in Texas, where the Texas Prompt Pay Act sets forth 18% per annum interest. See Shambaugh & Son v. Steadfast Insurance, (5th Cir. 2024). Despite the Fifth Circuit rejecting jurisdiction, Shambaugh now seeks to apply Texas law in coverage litigation in Connecticut.

Pollution Exclusions

Another contentious issue in PFAS coverage litigation has been the applicability of pollution exclusions.

In the high-profile decision Tonoga v. New Hampshire Insurance, (3rd Dep't 2022), a New York appellate court held that "sudden and accidental" and "absolute" pollution exclusions relieved insurers of a duty to defend the insured against claims involving PFAS contamination emanating from a manufacturing facility. Similarly, in Grange Insurance v. Cycle-Tex, (N.D. Ga. 2022), a Georgia federal court held that a "total" pollution exclusion precluded both defense and indemnity for a recycling company that faced PFAS water contamination claims.

Courts have not always applied pollution exclusions to PFAS claims, however. In Wolverine World Wide v. American Insurance, (W.D. Mich. 2021), the court refused to apply a "sudden and accidental" pollution exclusion in the context of PFAS from tannery operations until it became clear that every underlying claim involved intentional, rather than sudden and accidental, discharges. And in Colony Insurance v. Buckeye Fire Equipment, (W.D.N.C. 2020), the court required the insurer to defend the insured against firefighters' AFFF claims despite a "hazardous materials" exclusion because the firefighters alleged not only "traditional environmental pollution," but also "direct contact with or exposure to" AFFF, which North Carolina law has not recognized as falling within the scope of pollution exclusions.

Number of 'Occurrences'

Number of "occurrences" can be important in PFAS litigation because, the more "occurrences" there are, the more self-insured retentions an insured may need to satisfy and the more per occurrence limits an insurer may need to pay in connection with covered claims.

In perhaps the first decision on number of occurrences in the PFAS context, Century Indemnity v. Tyco Fire Products (Marinette Cnty. Cir. Ct. Jan. 24, 2024), the Wisconsin court found that AFFF contamination of water providers' water supplies throughout the country constituted multiple occurrences. The court held that "at a minimum there is a separate occurrence for each separate water provider in a given geographic location." The court explained that, under Wisconsin law as applied to the relevant policy language—which grouped "continuous or repeated exposure" to "substantially the same conditions" into one occurrence—number of occurrences is determined by reference to "elements of time and geography."

Allocation of Coverage

In addition to number of "occurrences," the Wisconsin court ruled on allocation of coverage in the Tyco case. Wisconsin law generally applies "all sums" allocation, which allows a policyholder to pursue coverage in connection with injuries and damages that happened over multiple years under a single policy year. Pro rata allocation, in contrast, spreads coverage across the years in which injury and damage took place. In the Tyco litigation, the Wisconsin court declined to deviate from prior Wisconsin decisions which allocated coverage on an "all sums" basis. See Century Indemnity v. Tyco Fire Products (Marinette Cnty. Cir. Ct. Mar. 21, 2024).

Although insurers may be able to pursue contribution from other insurers under "all sums" allocation, "all sums" allocation gives rise to significant uncertainty as to which policies may be called upon to respond to PFAS claims in the first instance, making allocation a highly fertile area for coverage disputes between insurers and policyholders.

Other Issues

Coverage disputes have also arisen with respect to several other issues, including whether certain losses constitute insured risks, whether certain PFAS claims "trigger" coverage under policies effective during certain times, and the applicability of "knowledge-based" defenses.

For instance, in the Shambaugh litigation, the parties disagree as to whether a subpoena directed to an AFFF distributor constitutes a "claim" such that the policy at issue may cover costs incurred to respond to the subpoena. Insurers have also asserted that medical monitoring and diminished property value do not involve "bodily injury" or "property damage."

Complex "trigger" questions often arise in the context of long-term environmental contamination and toxic tort exposure. In Crum & Forster Specialty Insurance v. Chemicals (S.D. Tex. 2021), a federal Texas court held that an insurer owed a duty to defend the insured against firefighter suits that did not specify when the firefighters were injured because it is possible that the firefighters were indeed injured during the policy periods. However, the court did not address indemnity, which would likely require specific dates of injury.

Finally, "knowledge-based" defenses include, for instance, "expected or intended," prior knowledge, and timely notice provisions. The strength of these defenses may vary based on policy language, the knowledge that individual policyholders had at certain times, and even the underlying causes of action. For example, in James River Insurance v. Dalton-Whitfield Regional Solid Waste Management Authority, (N.D. Ga. 2022), the court held that an expected or intended exclusion did not absolve an insurer from defending the insured against causes of action, such as negligence, that did not require the plaintiffs to establish knowing conduct.

Emerging Lessons for Emerging Risks

The coverage disputes over PFAS losses may provide insight into how coverage disputes may play out with respect to other risks as they likewise develop, including, among others, injuries allegedly caused by talcum powder, weed killers, personal products like hair straighteners, lead-encased telephone cables and microplastics.

For example, as MDLs are established to manage underlying lawsuits, insurers and policyholders may jockey over whether the MDL courts should decide coverage issues. Depending on state law, different types of pollution exclusions may or may not bar defense and/or indemnity in connection with "traditional environmental pollution" and/or "direct contact/exposure" claims. Parties may attempt to group "occurrences" together based on state law as applied to policy language and the particular circumstances (e.g., "time and geography" or the nature of the underlying claims). Today's emerging risks claims generally assert injury and/or damage over time such that allocation could be a key issue. Finally, disputes may arise over what constitutes insured risks, "trigger" issues, and "knowledge-based" defenses.

Just as underlying PFAS matters have continued to develop, PFAS coverage litigation will continue to mature and yield new lessons for new risks.

Patricia B. Santelle is a partner, Lynndon K. Groff is counsel, and Morgan Liptak is an associate at White and Williams. As members of the firm's insurance coverage and bad faith group, they represent insurance company clients in matters involving toxic tort, environmental, asbestos, and long-tail claims, among others. They can be reached at [email protected], [email protected] and [email protected], respectively.