BatesCarey partner Agelo Reppas recently secured an important victory before the New York Appellate Division, Third Department, which unanimously upheld a judgment finding that two AIG insurers owe no coverage in connection with PFAS environmental contamination claims. Tonoga, Inc. v. New Hampshire Ins. Co., No. 532546, 2022 WL 52903 (N.Y. App. Div. Jan. 6, 2022). 

The insured owned and operated a coated fabrics manufacturing facility located in the Town of Petersburg, Rensselaer County. From 1961 to 2013, the insured used PFOA and PFOS in its manufacturing processes. PFOA and PFOS are synthetic chemicals that are part of larger group of compounds known as per-and polyfluoroalkyl substances or “PFAS.” PFOA and PFOS are toxic and have adverse health effects, compounded by the fact that these chemicals do not break down in the environment or human body—earning them the moniker “forever chemicals.” Until they were phased out, PFOA and PFOS had been routinely used in the manufacture of a wide array of industrial and consumer products.

Due to the insured’s decades-long use of toxic chemicals in its manufacturing processes, PFOA and PFOS were continuously dispersed from the insured’s facility through multiple channels. The substances polluted the surrounding environment, contaminating the air, soil, groundwater, private wells and municipal water supply.

The New York Department of Environmental Conservation declared the insured’s facility a Superfund site and commenced administrative proceedings. The insured entered into a consent order, agreeing to undertake remediation measures and pay certain municipal costs. Around the same time, Petersburg residents sued the insured in seven personal injury/property damage lawsuits. 

The insured sought coverage from the multiple liability insurers that had issued policies during the decades the pollution was alleged to have occurred. Granite State Insurance Company and New Hampshire Insurance Company, which had issued two policies in the 1970s and 1980s, denied coverage based on their policies’ absolute and qualified pollution exclusions. New York Supreme Court agreed with the insurers and found no duty to defend or indemnify in connection with the underlying lawsuits and administrative proceedings. The insured appealed. 

The New York Appellate Division affirmed. The court held that the underlying actions fell squarely within the policies’ pollution exclusions. The court concluded that PFOA and PFOS unambiguously qualify as irritants, contaminants, or pollutants within the meaning of the exclusions. The court noted that the insured’s manufacturing processes had allegedly generated PFOA and PFOS byproducts and waste materials that were discharged into the environment and caused broad environmental harm. Whether the insured intended to cause environmental harm was irrelevant to the inquiry. The court rejected the insured’s argument that the exclusions were ambiguous because they did not expressly name PFOA and PFOS as irritants, contaminants or pollutants. The court also rejected the insured’s argument that it reasonably expected coverage for PFOA and PFOS contamination because New York law did not regulate these substances when the policies were purchased.

The court further held that the insured failed to meet its burden of showing that the qualified pollution exclusion’s “sudden and accidental” discharge exception applied to restore coverage. The court found the PFOA and PFOS discharges neither abrupt nor unintentional/unexpected because the discharges were volitional and long-term, having occurred over many years. The court noted that the gravamen of the underlying actions was the insured’s “knowing discharge of PFOA and/or PFOS as part of its routine manufacturing processes.” 

This is a significant win for the insurance industry. While there is a plethora of New York case law construing pollution exclusions, this is the first published decision finding that PFAS chemicals in particular qualify as irritants, contaminants or pollutants within the meaning of a pollution exclusion. The decision is also a significant win for the BatesCarey’s client, who was facing potentially enormous outside-of-limits defense expenses in connection with the underlying actions.