Forecasting a potential litigation explosion arising from a company's allegedly hazardous product may be a determining factor as to whether a company survives the litigation storm or suffers a more dismal fate, such as bankruptcy. Unfortunately, forecasting the "mass-tort" phenomenon is an imperfect science and extremely difficult. Indeed, no one indicator or marker will definitively signify whether a suit involving a company's product is an isolated legal claim, a predecessor to a series of similar claims, or the beginning of a mass-tort litigation.
However, if manufacturers, distributors, and sellers have learned anything from the mass-tort litigations brought against various industries in the last three decades, it is this: be prepared. A critical part of that preparation includes an examination of an organization's historic insurance policies, as well as the current insurance it carries, that will potentially provide coverage for bodily injury and/or property damage claims arising from exposure to or use of a company's products.
Moreover, proper handling of significant claims from the start, pursuant to the terms of the insurance contracts, will directly affect the chances of an insured receiving complete coverage.
Notice clauses, batch clauses, and defense and settlement clauses all generally require specific affirmative actions by the insured as a prerequisite to insurance coverage; these obligations become even further complicated when applied to the unique mass-tort phenomenon.
In addition, companies generally carry a wide variety of insurance policies providing different types of coverage for different activities. All of these policies need to be examined by risk managers and coverage counsel in an effort to identify all policies that may be potentially applicable.
Potential for Large Verdicts for Personal Injury
Litigation involving claims for bodily injury resulting from exposure to wood preserved (or "treated") with chromated copper arsenate (commonly referred to as "CCA," an arsenic-containing compound) was in its infancy stage in 2002. It was a prime candidate for developing into more than a collection of isolated claims. Given the added complication that children and pregnant women are becoming the targeted plaintiffs by personal injury firms, there is indeed a specter of significant verdicts.
In April 2002, a lawsuit was brought on behalf of a 7-year-old child who was diagnosed with arsenic poisoning allegedly after getting a splinter from CCA-treated wood; the child now requires a liver transplant. On December 10, 2002, a Florida family whose daughter was born with birth defects allegedly caused by her mother's exposure to CCA-treated wood during her pregnancy sued the EPA to force a ban on the use of CCA-treated wood.
Potential Product Liability Claims
Product liability claims arising out of exposure to CCA-containing products may be brought by a variety of individuals. Potential claimants include purchasers of CCA-treated wood for use in outdoor decks or playgrounds, individuals injured by virtue of contact with structures made from CCA-treated wood, and contractors who work with CCA-treated wood in the course of their daily activities.
Potential Environmental Litigation
Additionally, there is a potential for environmental litigation because certain studies conclude that arsenic leaches over time into soil, surface waters, or groundwater, and CCA-treated waste products have been sent to unlined landfills for many years.
Any arsenic proven to have leached from CCA-treated wood structures, mulch containing CCA-treated wood chips, disposed CCA-treated products, and stored CCA-treated lumber products and byproducts will clearly generate immense removal and remediation costs for sites that have been contaminated.
An undercover investigation by a Florida news agency purportedly discovered that mulch being sold by a store contained arsenic above acceptable levels as defined by the EPA, allegedly because CCA-treated wood was being recycled into mulch.
Private property owners utilize CCA lumber for decks, playsets, mulch or a variety of other residential uses. In a recent study by the Environmental Working Group, arsenic found in the soil of two-fifths of the backyards or parks in which CCA-treated wood was used exceeded the EPA's Superfund cleanup standard of 20 parts per million. [See Environmental Working Group and the University of North Carolina-Asheville, All Hands on Deck, Aug. 28, 2002.]
Large Number of Potential Claimants
CCA suits will also impact a wide variety of defendants, similar to the beginning of the asbestos claims that rocked many industries in the last three decades. Retailers will be faced with product liability personal injury lawsuits arising from the sale of CCA-treated wood products. Those same retailers may also be faced with environmental lawsuits, either by private individuals or government entities, based upon property damage and contamination caused by their sale, disposal and/or storage of CCA-treated wood.
Distributors may also be faced with the same kind of lawsuits, especially those distributors that store CCA-treated wood in outdoor areas where arsenic from the wood may leach from the wood to the soil and/or the groundwater. Manufacturers of both the CCA product and the treated wood itself the "deep pockets" will no doubt be the largest and most numerous targets in these bodily injury and property damage lawsuits.
Magnifying the need for potential CCA litigation targets to ascertain what, if any, insurance coverage is available to them (both currently and historically) is the presence of multiple "markers" such as significant verdicts, class actions, media attention, regulatory action, and product withdrawal that are sometimes found prior to a mass-tort litigation.
The combination of "markers" in the CCA litigation eases the financial burden on a plaintiff's attorney when trying a CCA case, provides transferable proofs for subsequent litigations, and creates a media whirlwind that incites the plaintiff's bar to actively litigate CCA suits.
The most dangerous aspect of the CCA litigation, however, is the fact that the focus is being placed on children and the environment, both of which typically generate immense costs to defendants, either due to jury appeal or vast remediation expenses.
As a result, the CCA litigation is ripe to move beyond its current state to a larger, more organized, litigation. Thus, companies must evaluate their financial arsenals well in advance of the inevitable onslaught.
It is well recognized that the Herculean effort associated with organizing and pursuing tort claims against corporate giants is measured against the probability of obtaining significant verdicts in those cases.
There is no doubt that the CCA litigation offers this lure of significant verdicts to the plaintiff's bar. Recent developments, in conjunction with predecessor cases, clearly raise concerns of a significant upswing in CCA-related cases.
Personal Injury Cases
One such large personal injury case was brought on behalf of James R. Sipes, a U.S. Forest Service employee who alleged to have twice suffered severe esophageal bleeding after building picnic tables from CCA-treated wood while working in an enclosed garage.[Sipes v. Osmose Wood Preserving Co. of Amer., Inc., 546 N.E.2d 1223 (Ind. 1989)] Sipes settled with a group of 22 defendants for $667,000.
The two remaining defendants, including manufacturer Osmose Wood Preserving Co. of Amer., Inc., proceeded to trial. McCrea framed the lawsuit as one based on negligence, strict liability, and intentional failure to warn. The jury found defendant Osmose liable for $100,000 and no liability on the part of the other defendant. Id .
Of more significant concern to the industry is the fact that Sipes sought punitive damages based on claims that Osmose:
consciously and intentionally misled consumers by advertising that CCA-treated wood has "virtually the same characteristics as untreated wood" and did not warn that the wood contained arsenic;
was aware of two incidents involving injury to people who worked with wood treated with chemical compounds containing arsenic but did not report the incidents to the EPA despite the fact that other wood users could be injured;
withheld information from purchasers about toxic chemicals released when CCA-treated wood is burned; and
intentionally withheld for two years implementation of its own CCA-treated wood information program, which included safety information, as part of an effort to induce the EPA to halt its registration review process on inorganic arsenic.[Sipes v. Osmose Wood Preserving Co. of Amer., Inc ., 546 N.E.2d 1223 (Ind. 1989).]
Though the defendants defeated the punitive damage claim at the trial stage, the Supreme Court of Indiana found that such conduct, if proven, could sustain the award of punitive damages. [Id. ]
No Class-Action Certified
CCA-related litigation has clearly not reached the status of "mass tort," which typically involves thousands of claims arising from exposure to an allegedly toxic substance or from use of an allegedly hazardous product. Such litigations are often organized or controlled by only a small group of plaintiff's law firms due to procedural aggregative mechanisms or because of a directed effort by the plaintiff's bar to organize the relevant information and evidence. However, CCA-related class actions lawsuits have been denied class action status.
- Jacobs v. Osmose, Inc., 213 F.R.D. 607 (S.D. Fla. 2003) the Southern District of Florida refused to certify a class, stating that there were few factual questions that would lend themselves to class-wide treatment;
- Ardoin, et al. v. Stine Lumber Co., et al . (14th Jud. Dist. Ct., Calcasieu Parish, La., No. 2001-004808 Div. G filed 2001).
- Miller, et al. v. Home Depot, U.S.A., Inc., et al., No. 2001-001818 (14th Jud. Dist. Ct., Calcasieu Parish, La. filed 2001).
CCA Treated Wood Banned
Finally, on February 12, 2002, the EPA announced a voluntary decision by the wood industry to move away from the sale of CCA-treated wood for residential uses by December 31, 2003. The phase-out was a result of a series of closed-door negotiations with the EPA. Moreover, although it stopped short of recalling all the CCA-treated wood already in use, the EPA is currently waiting for the completion of a joint study on CCA by it and the Consumer Products Safety Commission. After finalizing the study, the agency will implement a risk assessment of existing CCA-treated wood structures.
As of January 1, 2004, CCA-treated wood (Chromated Copper Arsenate) has been banned for residential use. The EPA did not require removal of existing structures or surrounding soils.
The industry's move was designed to respond to consumer concerns, and was not an admission that the product is dangerous. However, the public perception towards the withdrawal agreement, spun by the plaintiff's bar and environmental groups, will be that the move is one to limit liability and an admission that the product is unsafe.
Possible Insurance Issues
It is clear that in addition to liability issues, a variety of insurance issues arise and should be examined before the CCA litigations become more widespread and expensive. Those issues at the forefront are those often faced by insureds in other bodily injury/property damage insurance coverage cases:
whether there is bodily injury or property damage during a particular policy period as contemplated by the insuring agreements of the applicable policies;
whether there is an insurer whose policy requires that it defend the insured;
if so, when must an insurer be notified of the claim or loss and what is required by the notice provisions (i.e., occurrence, claim or batch notification);
what is the trigger of coverage to be applied (i.e., manifestation, occurrence, or continuous trigger);
did the insured expect or intend the injuries alleged; and
what, if any, policy exclusions are applicable to potentially bar coverage?
Gather All Potential Applicable Policies
Because there may be minor differences in the policies of various insurers, the first step is to gather all potentially applicable policies (which may include policies dating back to the first date on which a CCA-containing product was manufactured, distributed or sold) and review the language to ascertain the exact coverage provided by each policy.
Not only do primary policies, or first-dollar coverage, need to be examined, but an insured must also review all excess or umbrella policies. Most companies who have been in business for more than ten years will have obtained insurance on an occurrence-based coverage program. Thus, those historical policies may potentially be applicable to damages arising from CCA-treated wood if bodily injury or property damage "occurred" during the policy period, even if a claim is made against the insured years later.
For instance, depending on the state law that is applicable to any insurance claim, all policies in existence during the time when arsenic may have been released from CCA-treated wood and impacted any soil or groundwater could potentially respond to a claim for environmental property damage.
Additionally, a claims-made policy covering the policy period during which a claim is made against the insured based upon an alleged injury or damage resulting from CCA-treated wood related injury would also potentially be responsive.
Most comprehensive general liability ("CGL") policies provide that the insurer will pay on behalf of the insured "all sums" that the insured is legally obligated to pay "as damages" because of bodily injury or property damage caused by an occurrence during the policy period.
The policy will define the important terms. For instance, an "occurrence" is typically defined to mean an accident, "including continuous or repeated exposure to conditions," which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured.
"Bodily injury" is generally defined as "bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time." Property damage is generally defined as "physical injury to tangible property, including all resulting loss of use of that property," and "loss of use of tangible property that is not physically injured." Courts have generally held that contamination of groundwater or soil is physical injury to tangible property and, thus, "property damage." See Boeing Co. v. Aetna Casualty & Sur. Co., 784 P.2d 507, 515-16 (Wash. 1990).
Duty to Defend
Most CGL primary policies also provide that the insurer shall have the "right and duty to defend" any suit against the insured seeking damages on account of such bodily injury or property damage, even if the allegations of the suit turn out to be groundless.
Put simply, an insurer must defend its insured whenever the underlying allegations state a potentially covered claim, and the insurer must continue defending the claim until it can prove there remains no underlying cause of action for which coverage potentially exists, and sometimes even beyond. [See, e.g., Voorhees v. Preferred Mutual Ins. Co ., 128 N.J. 165, 184 (1992).]
Under most CGL policies, the bodily injury or property damage claims alleged by plaintiffs in CCA lawsuits likely will be generic enough to obtain a defense from a primary carrier, where available under the policy.
In situations where no lawsuit is brought, but a claim is made against a policyholder, problems can arise with respect to an insurer's duty to defend. What constitutes a "suit" under typical duty to defend language can often be confusing and has led to a dichotomy in state court decisions over whether, for example, an administrative proceeding or a directive from the EPA are "suits" within the meaning of standard CGL policy language.
As an example, certain courts have held that only an actual lawsuit can trigger the duty to defend. [See, e.g., Foster-Gardner, Inc. v. National Union Fire Ins. Co. of Pittsburgh, Pa., 959 P.2d 265 (Cal. 1998); Lapham-Hickey Steel Corp. v. Protection Mut. Ins. Co., 655 N.E.2d 842, 846-48 (Ill. 1995); Patrons Oxford Mut. Ins. Co. v. Marois , 573 A.2d 16, 19-20 (Me. 1990).]
Other courts have determined that administrative orders and other "coercive" action by an environmental agency are sufficient to trigger a duty to defend. [See, e.g., Harrow Products, Inc. v. Liberty Mut. Ins. Co., 64 F.3d 1015, 1025-26 (6th Cir. 1995); Dico, Inc. v. Employers Ins. of Wausau, 581 N.W.2d 607, 613 (Iowa 1998); SCSC Corp. v. Allied Mut. Ins. Co ., 536 N.W.2d 305, 315 (Minn. 1995).] Thus, in situations where a state environmental agency or the EPA orders a CCA-treated wood manufacturer or other entity in the chain of distribution to participate in the clean-up of a contaminated site, an examination of state law is critical in determining whether to request a defense from the insurer.
Another reason to ensure that all historical policies are gathered and examined is that the trigger of coverage (that is, which years of coverage may be responsible for covering a particular claim) as a result of alleged bodily injury or property damage arising from exposure to CCA-containing products has not been addressed by any courts. An analogy can, however, be drawn to insurance coverage cases involving asbestos-related bodily injury and "generic" environmental property damage.
Multiple Policies May be Implicated
In some states, multiple policies may be triggered with respect to bodily injury resulting from CCA exposure, depending upon the facts involved. If the date, for instance, of installation of a CCA-containing product at a residence or playground is known, then an injured claimant's initial exposure to that product may trigger the policies in effect at that time and for as long as the exposure continues.
Some courts, for example, have held that bodily injury occurs during the time when an individual is exposed to asbestos. [See, e.g., Insurance Co. of N. Amer. v. Forty-Eight Insulations, Inc ., 633 F.2d 1212 (6th Cir. 1980), clarified on reh'g, 657 F.2d 814 (6th Cir. 1981), cert. den., 454 U.S. 1109, 102 S. Ct. 686, 70 L.Ed.2d 650 (1981)]
Thus, all policies in place during the time when a claimant was exposed to CCA-containing products may be triggered and, therefore, respond to any bodily injury claims.
Other courts have held that bodily injury as defined under a CGL policy does not occur until the disease becomes clinically evident, or manifests itself. [See, e.g., Eagle-Picher Industries, Inc. v. Liberty Mut. Ins. Co., 682 F.2d 12 (1st Cir. 1982), cert. den., 460 U.S. 1028, 103 S. Ct. 1279, 75 L.Ed.2d 500 (1983).] Thus, any policies in place during the date on which an arsenic-related illness becomes manifest are potentially impacted. Finally, other courts have held that the bodily injury occurs at the time of first exposure to an asbestos-containing product and continues through manifestation, in effect "triggering" each insurance policy on the risk during that period, even if exposure ceases. [ See, e.g., Keene Corp. v. Insurance Co. of N. Amer., 667 F.2d 1034 (D.C. Cir. 1981), cert. den., 455 U.S. 1007, 102 S. Ct. 1644, 71 L.Ed.2d 875, reh'g denied, 456 U.S. 1007, 102 S. Ct. 2023, 72 L.Ed.2d 875 (1982)]
Property Damage Claims
In the case of property damage caused by CCA-containing products, the trigger of coverage also will differ depending on the state in which the property damage occurred. In environmental contamination cases, courts generally have held that where there is proof of property damage during a particular policy period, that policy's coverage is triggered. [St. Paul Fire & Marine Ins. Co. v. McCormick & Baxter Creosoting Co., 923 P.2d 1200 (Or. 1996); Montrose Chem. Corp. v. Admiral Ins. Co., 913 P.2d 878, as modified on denial of reh'g, (Cal. 1995).]
It is important to remember that the damage resulting from the occurrence, pursuant to typical policy language, generally will not be covered if it was either "expected" or "intended" by the insured. Coverage, however, may exist for an insured's intentional acts where the resulting injury or damage was unexpected and unintended. [See, e.g., Aetna Casualty & Sur. Co. v. Dow Chemical Co., 28 F. Supp. 2d 421 (E.D. Mich. 1998); Vermont Mut. Ins. Co. v. Singleton, 446 S.E.2d 417 (S.C. 1994); James Graham Brown Found., Inc. v. St. Paul F&M Ins. Co ., 814 S.W.2d 273 (Ky. 1991).]
Insurers often seek extensive discovery from policyholders about the knowledge of a particular chemical or compound that caused the claimed damage, in an effort to show that the policyholder knew of the dangerous propensities of the chemical but continued using it. The EPA and other government agencies are also sources of information for plaintiffs, who often use Freedom of Information Act requests to obtain information regarding historical knowledge in a particular industry.
Trigger of Coverage
Trigger of coverage is one of the more important considerations when determining which, if any, of a policyholder's insurers should be put on notice of a claim alleging damage from a CCA-containing product. Some policyholders make it a practice to put their insurance companies on notice whenever a claim is received, no matter the size or potential damage.
This may be a prudent business decision in some jurisdictions, which have fairly Draconian rules about when an insurer must be put on notice. However, notifying an insurer of a claim that, under a plain reading of the policy, is not sufficient to meet the notice requirement may do more harm than good for the insured.
Notice provisions also vary depending upon the layer in which the policy sits. [See Tribune Co. v. Allstate Ins. Co ., 715 N.E.2d 263 (Ill. Ct. App. 1999) (holding that because of the differences between the notice requirements of primary and excess policies, the insured may have reasonably delayed giving notice to some of its insurers, but not others).]
Some policies, for instance, may include notice provisions that require the insured to exercise discretion in determining whether a potential claim or liability is likely to involve that policy. Thus, the "reasonableness" of the insured's assessment of a potential claim or liability may be at the heart of an insurer's "late notice" defense to coverage.
Some policies may require "prompt" notice of any event giving rise to damage with as much detail as the policyholder is able to provide. Thus, as always, the policies should be read closely to avoid any coverage denial on grounds of late notice.
Another issue arises with more recent claims-made CGL policies that contain "batch clauses," which typically provide that where a series of losses or liabilities occur that are attributable directly or indirectly to the same event, condition or cause, then the losses or liabilities will be treated as one occurrence.
In effect, this may require an insured to make a determination as to the potential scope of its CCA-related losses to determine if the aggregate losses will impact a policy that contains such a batch clause.
In most states, even where notice may have been given "late," the insurer will prevail on a defense of late notice only where it can demonstrate that it suffered prejudice as a result of the delay.[See, e.g., Lexington Ins. Co. v. Rugg & Knopp, Inc., 165 F.3d 1087 (7th Cir. 1999) (applying Wisconsin law).] It is important to determine which insurers to put on notice very soon after a potentially covered claim is received. Often, where "voluntary" payments are made, or obligations are undertaken before giving notice to an insurer, some courts have held that those payments or obligations are not recoverable. [See Northern Ins. Co. of New York v. Allied Mut. Ins. Co ., 955 F.2d 1353 (9th Cir.), cert. denied, 505 U.S. 1221, 112 S. Ct. 3033, 120 L.Ed.2d 903 (1992) (applying Washington law).]
One critical element in the push for insurance coverage for CCA-related claims will be the application of any "pollution exclusions" in relevant policies. Between approximately 1973 and 1986, many CGL policies contained a "sudden and accidental" pollution exclusion. This exclusion typically provides that the policy does not provide coverage for "bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any water course or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental." Far from clear, the phrase "sudden and accidental" is rife with ambiguity and, thus, has led to significant litigation over its meaning.
In the context of CCA-containing products, a court will need to determine whether arsenic from the product that causes bodily injury by virtue of a person's contact with that product falls within the exclusion. The exposure to arsenic by virtue of working with or handling CCA-containing products may not result from the "discharge, dispersal, release or escape" of a contaminant or pollutant into the atmosphere as contemplated by the exclusion. In fact, some courts have stated that claims arising from exposure to chemicals or other compounds within a confined work place are not barred by the "sudden and accidental" pollution exclusion. [ See, e.g., Lumbermens Mut. Cas. Co. v. S-W Indus., Inc., 39 F.3d 1324 (6th Cir. 1994) (applying Ohio law); Essex Ins. Co. v. Avondale Mills, Inc., 639 So. 2d 1339 (Ala. 1994); Continental Cas. Co. v. Rapid-American Corp ., 609 N.E.2d 506 (N.Y. 1993).]
Post-1986 CGL policies typically contain so-called "absolute" pollution exclusions. Courts are split on the issue of whether such an exclusion bars coverage for all injuries caused by contaminants, or whether the "exclusion applies only to injuries caused by traditional environmental pollution."[Kellman v. Meridian Mut. Ins. Co., 197 F.3d 1178, 1182-83 (6th Cir. 1999).] Thus, it remains an open question as to whether any of the potential CCA-related claims will be barred by application of the absolute or "sudden and accidental" pollution exclusions.
Regardless of whether CCA litigation reaches the epidemic some are predicting, enough claims are present to warrant the examination by CCA defendants (and potential defendants) of their current and historical insurance coverage.
The potential significance of the CCA litigation can not be overlooked, and the momentum appears to be building. Policyholders pay substantial premiums to shift certain risks away; yet, insurance availability is typically an afterthought for many insureds faced with a legal claim. Thus, the time for action is before the legal battles become enormous.