Hunton Insurance Recovery Blog

In 1938, a DuPont chemist’s experiment yielded not—as he first thought—a lumpen, waxy mistake, but a new chemical with remarkable properties: heat-resistance, chemical stability, and low surface friction. Decades of continuing experimentation yielded a class of chemicals with the capacity to make non-stick, water-resistant coatings. In time, these chemicals, per- and polyfluoroalkyl substances (PFASs), would become a major component in thousands of consumer goods: food packaging, non-stick cookware, waterproof clothing, paint, stain-resistant carpets and furniture, and firefighting foams. The discovery of the toxicity of these remarkable chemicals lagged behind the widespread adoption, but eventually yielded a moniker that reflected PFAS’s stability and longevity: “Forever Chemicals.”

In October 2021, the Biden administration announced a plan to address, among other concerns, PFAS’s migration to drinking water sources. EPA Administrator Michael S. Regan debuted the plan in Raleigh, North Carolina alongside Governor Roy Cooper.

The EPA’s decision to announce the plan in North Carolina reflected the state’s unique relationship to PFAS production and its results. North Carolina was home to a DuPont production plant and now has the third highest PFAS exposure of any state.[1] It is also the venue of a spate of PFAS-related insurance coverage litigation, including Colony Insurance Co. v. Buckeye Fire Equipment Co., which is pending in federal court in the Western District of North Carolina.

Buckeye is a Charlotte company with over four decades’ experience in the industrial fire protection industry. And now, it is one of hundreds of defendants in a consolidated Multi-District Litigation (MDL) pending in the South Carolina federal court. See Aqueous Film-Forming Foams Products Liability Litigation, MDL No. 2873.

Plaintiffs sued Buckeye and others for bodily injury and property damage caused by “traditional environmental pollution” (e.g., the release of PFAS into the environment) and direct contact with or exposure to Aqueous Film Forming Foams (AFFF). For example, one former firefighter instructor alleged that “he was significantly exposed to elevated levels of PFOS and PFOA in their concentrated form as a result of regular contact with [Buckeye’s] AFFF products and through PFOS and PFOA having contaminated the Fire College well system.”

Buckeye looked to its insurance company for a defense in this and the hundreds of other cases in which it is named as a defendant. Buckeye’s insurer, Colony Insurance Co., filed a declaratory judgment suit, claiming that it had no duty to defend Buckeye because of a “Hazardous Materials Exclusion” in the policy it issued to Buckeye. The exclusion, if applicable, eliminates coverage for claims “which would not have occurred in whole or in part but for actual, alleged, or threatened discharge, dispersal, seepage, migration, release or escape of ‘hazardous materials’ at any time.” However, under North Carolina law, the exclusion does not apply in this instance. Auto-Owners Ins. Co. v. Potter, 105 F. App’x 484, 494 (4th Cir. 2004).

As affirmed by the Fourth Circuit, the issue turned on whether pollution exclusions like the one in Colony’s policy, are limited in application to only “traditional” environmental damage. Under controlling North Carolina law, the exclusionary clause has a narrow application, limited only to “traditional” environmental harms. Id.

[U]nder North Carolina law, an insurer may not deny coverage to an insured based on a pollution exclusion, or any variation thereof, if the occurrence and the resulting personal injury and property damage allegedly suffered by underlying plaintiffs are not the prototypical environmental harms that a pollution exclusion clause is generally intended to protect against.

Colony Ins. Co. v. Buckeye Fire Equip. Co., No. 319CV00534FDWDSC, 2020 WL 6152381, at *3 (W.D.N.C. Oct. 20, 2020), aff’d, No. 20-2208, 2021 WL 5397595 (4th Cir. Nov. 18, 2021) (cleaned up). Because “something other than traditional environmental pollution,” i.e., PFAS, caused the underlying plaintiffs’ injuries, the hazardous materials exclusion did not apply. Id. at *4.

PFAS coverage litigation is in its relative infancy, but jurisdiction—and specifically how that jurisdiction applies a pollution exclusion—will play an important role as it continues. See also Shane Dilworth, ‘Forever Chemicals’ Coverage Suits Likely To Echo PCB Disputes, Law360 (Sept. 24, 2021) (quoting Michael S. Levine).

[1] Sheena Scruggs, PFAS – a problem in North Carolina drinking water, Envtl. Factor, NIEHS (Mar. 2019), https://factor.niehs.nih.gov/2019/3/feature/2-feature-pfas/index.htm.