In June 2011, the U.S. Department of Health and Human Services released a report identifying formaldehyde as a “known carcinogen” with possible ties to leukemia.
Commentators have speculated that this development may spur a wave of toxic tort litigation. Formaldehyde is used in a wide variety of products, including building materials, adhesives, fabrics and beauty products. The ubiquity of formaldehyde has put it on the list of torts that are mentioned as potentially “the next asbestos.”
There is some recent precedent for tort liability based on formaldehyde. In April 2012, thousands of Gulf Coast residents displaced by Hurricane Katrina won a $14.8 million settlement against companies that manufactured and installed FEMA-distributed travel trailers containing toxic levels of formaldehyde.
As defendants and potential defendants of formaldehyde-based claims are considering their defenses and strategies to reduce or avoid claims, they should be aware that insurers are also considering their own defenses against claims for coverage of these claims by policyholders. One insurer defense against these claims, the pollution exclusion, has already been litigated in Florida courts.
In In re FEMA Trailer Formaldehyde Products Liability Litigation, MDL NO. 07-1873 (Jan. 25, 2011), the court applied a total pollution exclusion in a commercial general liability policy to deny coverage to a company that provided trailers for use as temporary FEMA housing for damages related to the escape of formaldehyde-related fumes.
The wording of pollution exclusions vary, as does their interpretation under various state laws. Moreover, specialty policies are available to cover the “gap” in coverage created by this exclusion. Policyholders at risk for formaldehyde-based suits should evaluate closely their current coverage position with respect to these claims and what options may be available to them that would better spread their risk.
Insurers, however, are unlikely to invoke only pollution exclusions to avoid payment of these claims. In fact, insurers may rely on the same studies that defendants and potential defendants of formaldehyde suits use to refute causation to argue that “injury,” which triggers some insurance policies, only occurred at some point other than the policy period. Fights over appropriate trigger are familiar to those who have litigated coverage for other long-tail claims, but changing or different science could re-open those issues.
To minimize the ultimate financial impact of formaldehyde claims, policyholders must bear coverage issues in mind as they formulate their defense and carefully consider their arguments with respect to causation and injury.
This is not an exhaustive list of the likely coverage issues that will arise if formaldehyde becomes a significant mass tort, but these illustrations do make clear that a company with risks in this area would be well-advised to consider the insurance aspect of the issue sooner rather than later.