The D.C. Circuit Court of Appeals recently rejected an effort by the United States Chamber of Commerce to undo EPA’s 2024 designation of two related chemicals, perfluorooctanoic acid (“PFOA”) and perfluorooctanesulfonic acid (“PFOS”) as “hazardous substances” under CERCLA section 102(a). With the designation affirmed, the EPA has greater ability to regulate these substances and, crucially, to impose the costs of cleaning up such substances on responsible parties. This will likely increase companies’ and landowners’ liability for these chemicals, either to EPA or to other private parties seeking to recover their cleanup costs under CERCLA.

Will these companies and landowners be able in turn to pass these costs onto their insurers? Under Indiana law, that depends entirely on the language of their policies, particularly how those policies define “pollutant.” Typical commercial general liability, or “CGL,” policies define “pollutant” as

any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkilis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.

In 1996 the Indiana Supreme Court, in Am. States Ins. Co. v. Kiger, 662 N.E.2d 943 (Ind. 1996), held that this definition was ambiguously overbroad, and could not be used to exclude coverage for the remediation of a gas station. So if this is the definition in the policy, the policy likely covers losses for PFOS and PFOA, unless some other exclusion or limitation applies.

The insurance industry responded to Kiger by drafting an “Indiana Endorsement,” stating that the same absolute pollution exclusion “applies whether or not such irritant or contaminant has any function in your business, operations, premises, site or location.” In State Auto. Mut. Ins. Co. v. Flexdar, Inc., 964 N.E.2d 845 (Ind. 2012) the Indiana Supreme Court held that this endorsement did not make the absolute pollution exclusion enforceable in Indiana, since it relied on the same overbroad definition of “pollutants.”

The insurance industry meanwhile formulated yet another pollution exclusion targeted at Indiana, this time listing specific substances that would not be covered if they caused bodily injury or property damage. Flexdar discussed one such response, which was to define “pollutants” as:

any solid, liquid, gaseous, bacterial, fungal, electromagnetic, thermal or other substance that can be toxic or hazardous, cause irritation to animals or persons and/or cause contamination to property and the environment including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste. Specific examples identified as pollutants include, but are not limited to, diesel, kerosene, and other fuel oils . . . carbon monoxide, and other exhaust gases . . . mineral spirits, and other solvents . . . tetrachloroethylene, perchloroethylene (PERC), trichloroethylene (TCE), methylene chloroform, and other dry cleaning chemicals . . . chlorofluorocarbons, chlorinated hydrocarbons, adhesives, pesticides, insecticides . . . and all substances specifically listed, identified, or described by one or more of the following references: Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) Priority List Hazardous Substances (1997 and all subsequent editions), Agency for Toxic Substances And Disease Registry ToxFAQsTM, and/or U.S. Environmental Protection Agency EMCI Chemical References Complete Index.

964 N.E.2d at 852.

As the District Court for the Southern District of Indiana held in St. Paul Fire & Marine Ins. Co. v. City of Kokomo, 2015 U.S. Dist. LEXIS 82465 at *32-33 (S.D. Ind. June 25, 2015), this and similar definitions only work to exclude coverage if the specific substance that caused the liability at issue is listed. The above list, from the Flexdar policy, does not expressly list PFOS or PFOA. However, the CERCLA Priority List does contain PFOA. Thus, PFOS contamination would likely be covered, while PFOA contamination may not be. Critically, though, no Indiana court has delved into the meaning of these general references to these lists and indices. Are these lists generally available? How does one check, for instance, the 1997 CERCLA Priority List? How does one know if one has searched “all subsequent editions”? If the list changes after a policyholder buys the policy, what effect does that have? These are all weaknesses to the list approach that will likely have to be hashed out in subsequent litigation.

The bottom line is that, while the inclusion of PFOA and PFOS as “hazardous substances” means a potential increase in liability for those substances, the designation likely does not in itself reduce the likelihood entities will be able to secure coverage for a claim related to them.

What matters for insurance coverage of those liabilities is the policy language and, in Indiana, even the more recent iterations of the pollution exclusion are, at best, ambiguous as to PFOA and do not exclude PFOS. Insurers are now going to great lengths to explicitly identify PFAS chemicals in their exclusions, which lends credence to the argument that the earlier exclusions were ambiguous on this point.

Indiana courts have yet to weigh in on this issue, but we expect they will be called to do so as litigation over financial responsibility for PFAS releases becomes more prevalent in the near future. 

If you have questions about liability for PFOS, PFOA, or anything else, and would like to explore insurance coverage for such liability, do not hesitate to reach out to PSRB.

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Tagged In: Indiana, insurance, insurance coverage, PFAS