By: Sara C. Tilitz and Lynndon K. Groff
Per- and poly-fluoroalkyl substances, commonly referred to as PFAS, have served as a key component in many industrial and consumer products for decades. These “eternal chemicals”, which have been linked to environmental contamination and adverse health effects, have attracted increasing attention from regulators, the plaintiffs’ bar and, by extension, industry. insurances.
The current “watch case” regarding PFAS is the Multi-District Litigation (“MDL”) in the United States District Court for the District of South Carolina, presided over by Judge Gergel. The MDL is comprised of more than 2,000 cases brought by individual plaintiffs and state and local governments arising from the manufacture and/or use of aqueous film-forming foam, also known as AFFF. The use of AFFF, which was historically employed in firefighting operations, including those undertaken by the US military, would result in the release of two types of PFAS into the environment – PFOS and PFOA.
On September 16, 2022, Judge Gergel denied a motion for partial summary judgment filed by corporate defendant 3M and other AFFF manufacturer defendants on the defense of government contractor immunity. While not an insurance coverage decision, the decision is important in the context of PFAS litigation and could have insurance coverage implications.
Defense of Government Contractor Immunity
The government contractor immunity defense was developed to protect the federal government’s interest in obtaining the products it needs at reasonable prices, despite potential defects in those products. Under the defence, a government contractor may claim immunity with respect to an allegedly defective product if the following three criteria, or “steps”, are met: (i) the government has approved reasonably accurate specifications for the product ; (ii) the product complied with those specifications; and (iii) the contractor advised the government of product hazards that were known to the contractor but not known to the government. A doctrine known as the “continued use” doctrine allows a contractor to satisfy the defense—including the first prong—where the government has continued to use the product after acquiring full knowledge of the risks of the product .
In 1969, the Navy promulgated a military specification (“MilSpec”) for the AFFF. 3M originally supplied MilSpec compliant AFFF containing PFOS. In 2000, 3M ceased manufacturing PFOS, and other contractors that used a different AFFF manufacturing process known as telomerization stepped in to fill the void left by 3M’s exit from the market. Although telomere-based AFFF does not contain PFOS, it can degrade to PFOA in the environment. Manufacturers of mobile telomere-based AFFFs included Tyco Fire Products LP, Chemguard Inc., Kidde-Fenwal, Inc., National Foam, Inc., and Buckeye Fire Equipment Company.
Decision dismissing partial summary judgment
In its order dismissing a partial summary judgment on the defense of government contractor immunity, the MDL court held that: (i) the MilSpec was not a reasonably precise specification under the first branch of the defense ; and (ii) there are factual questions as to whether the manufacturers of AFFF warned the government in a timely manner of the dangers of their AFFF products which were known to them but not to the government and whether the doctrine of “use continues” applies.
The court held that the MilSpec was not a reasonably accurate specification because it was only a “performance specification”, which allowed “each manufacturer to offer [its] own magical witch’s brew” concocted from “at least hundreds of different types of [PFAS]rather than a “design specification” which would have required the use of particular chemicals.
With respect to the third prong and the “continued use” doctrine, the court found that all AFFF manufacturers “had significantly greater knowledge than the government of the properties and risks associated with their products and had knowingly withheld highly important information from the government. The court described a long list of evidence that 3M, in particular, not only failed to timely disclose critical information to the government, but also “actively sought to discredit” adverse information that was disclosed.
Similarly, the court identified evidence that manufacturers of telomere-based AFFF, primarily through the Fire Fighting Foam Coalition (“FFFC”), misled the government into believing that their products AFFF would not degrade to PFOA, even though they had been told that their products could or in fact would. Further, the court determined that the government’s feverish regulatory activity immediately following 3M’s allegedly late disclosures, and the government’s subsequent decision to restrict the use of telomere-based AFFFs to only “mission-critical activities” , cast the applicability of the “continuing use” doctrine into doubt.
Potential impact on insurance coverage
The court order and opinion, although not issued in connection with insurance coverage, could have major coverage implications. General liability policies generally require that any injury or damage for which an insured seeks liability coverage arises from an “event”, which the policies generally define as an “accident”. To the extent an Insured knowingly or intentionally causes injury or damage or ought to have known that it would cause injury or damage, liability for such injury or damage may not be covered by coverage. Courts generally place the onus on the insured to prove that the injury or damage resulted from an accidental “event”.
Additionally, most general liability insurance policies contain an “expected or anticipated” exclusion that excludes liability coverage for injuries or damages that an insured expects or intends to do. Therefore, if an insured expects or intends to injure or sustain damage, coverage may not be available. Courts generally place the onus on the insurer to establish that an “expected or intended” exclusion applies.
The MDL tribunal ruling cites evidence presented by the plaintiffs that 3M and the makers of telomere-based AFFF intentionally withheld information about the known hazards of their products. Depending on how a court interprets the definition of an “event” and/or a “planned/intentional” exclusion from a policy, the decision and the evidence to which it refers (if substantiated) could support a defense based on either or both of these policy provisions.
However, the law of the applicable jurisdiction may provide additional parameters. For example, whether there was an “event” or whether an injury or damage was “planned or intentional” may depend on whether only the act that caused the injury or damage was planned or intentional, or whether the injury or damage itself was planned or intentional. . Likewise, proof of the actual subjective awareness or intent of the insured, as opposed to what the insured should have known objectively, may or may not be required.
In addition, the order and notice could have policy implications, if any, triggered by allegations of harm related to PFOS and PFOA. Many general liability insurance policies do not provide coverage for injury or damage of which the insured was aware prior to the policy period. Therefore, policies issued after an insured discovers that PFOS or PFOA was causing harm may not provide cover in relation to such harm. Similarly, insurers can argue that they should not be liable for damages that an insured failed to mitigate by failing to disclose the risks as soon as they became aware of those risks (even if the insured discovered the risks after the period of insurance). Again, the court ruling details what AFFF manufacturers may have known about the dangers of PFOS and PFOA, and when they may have known.
Of course, the court denied partial summary judgment only with respect to 3M and five other AFFF makers. The evidence she cites may apply to other policyholders to varying degrees, if at all. Parties should assess whether and to what extent the evidence contained in the MDL is relevant to them and should consider other evidence that may bear on the types of coverage issues discussed above.
If you have questions or need more information, contact Sara C. Tilitz (firstname.lastname@example.org; 215.864.7150) or Lynndon K. Groff (email@example.com; 215.864.7033).
This correspondence should not be construed as legal advice or legal advice on specific facts or circumstances. The Content is intended for general informational purposes only and you are urged to seek legal advice regarding your own situation and legal matters.