In June 2023, the U.S. Circuit Court for the Sixth Circuit declined to resolve a unique PFAS state-law issue in Admiral Insurance Co. v. Fire-Dex LLC when it rejected an insurer's attempt to avoid coverage for per- and polyfluoroalkyl (PFAS) lawsuits and found that the U.S. District Court properly declined to exercise subject-matter jurisdiction over the dispute.
Background
In Admiral, the insurer (Admiral) brought suit in the U.S. District Court for the Northern District of Ohio seeking declaratory judgment determining that Admiral was not required to defend its insured, Fire-Dex, in a string of actions alleging injuries and damages, primarily cancer, caused by exposure to PFAS-containing products.
Fire-Dex manufactures clothing worn by firefighters. It is also responsible for the manufacturing and production of aqueous firefighting foam (AFFF). In the string of actions, plaintiffs consisted of firefighters and spouses who claimed exposure to PFAS through the use of Fire-Dex products resulted in damages, including cancer.
In arguing that its coverage did not apply to the claims against Fire-Dex, Admiral highlighted and relied on a number of exclusions in its insurance policies: (1) Exclusions for occupational disease – no coverage for bodily injury "resulting from any occupational ... disease arising out of any insured's operations, completed operations or products"; (2) exclusions for prior existing damages; and (3) exclusions for pollution under a "total" pollution exclusion with a "hostile fire" exception. Fire-Dex filed a motion under Federal Rule of Civil Procedure 12(b)(1) challenging subject-matter jurisdiction and seeking to dismiss Admiral's complaint.
In short, Fire-Dex's motion argued that Admiral has no absolute right to seek a declaratory judgment in federal court even if the suit satisfies subject-matter jurisdiction. Instead, the claim of jurisdiction should be analyzed under the factors listed in Grand Trunk Western Railroad Co. v. Consolidated Rail Corp., 746 F.2d 323, 326 (6th Cir. 1984): (a) whether the judgment would settle the controversy; (2) whether the declaratory judgment would be useful in clarifying the legal relations; (3) whether the case is being used merely for "procedural fencing" or as a basis for "res judicata;" (4) whether a declaration would cause friction between federal and state courts and improperly encroach on state jurisdiction; and (5) whether there is an alternative remedy that is better or more effective. No one factor is more important than the other.
Under these factors, Fire-Dex claimed the federal court was the inappropriate forum to resolve these issues because, on the grounds of federalism, the resolution of insurance coverage issues for PFAS products claims involved novel and unsettled matters of state law which should be resolved by Ohio state court. Admiral claimed there was nothing novel about the federal court applying the policy exclusions – it noted the extensive history of Ohio courts applying policy exclusions in various coverage disputes.
The U.S. District Court for the Northern District of Ohio agreed with Fire-Dex and determined the jurisdiction would implicate federalism concerns. The court emphasized that Ohio state court decisions did not provide a sufficient basis to apply the policy exclusions, and there was not a single case where the court determined whether the policy exclusion(s) obligated an insurer to defend/indemnify an insured for PFAS exposure-related claims.
The Appeal
Admiral appealed the decision to the Sixth Circuit focusing on its argument that the occupational disease exclusion was sufficiently developed such that concerns of federalism did not exist. The Sixth Circuit rejected Admiral's argument and declined jurisdiction because the case involved a "novel issue of Ohio insurance law": whether exposure to PFAS in finished products and the resulting damages, satisfies the definition of an "occupational disease" under the occupational disease policy exclusion. Admiral Insurance Co. v. Fire-Dex LLC, No. 22-3992, 2023 WL 3963623 (6th Cir. June 13, 2023).
Importantly, the Sixth Circuit stated that "when unanswered questions of state law raise their heads, state courts are best suited to answer them, a proposition that has long been embraced in a host of settings." Id. at *3 (citing R.R. Comm'n of Tex. v. Pullman Co., 312 U.S. 496, 500-02 (1941) (citations and quotations omitted).
PFAS Takeaways
While there are a number of takeaways from the Fire-Dex opinion, its impact on the costs of defending PFAS claims is significant.
Admiral filed its original action to effectively avoid its defense obligation for PFAS-related claims. Of course, this came in the face of a recent upward trend of PFAS claims against companies that use, or used, PFAS, including without limitation manufacturers and retailers. Indeed, the costs of PFAS litigation are noteworthy. For example, 3M recently announced a proposed settlement of up to $12.5 billion to address PFAS contamination of U.S. public water systems; DuPont and its related companies announced a proposed settlement of approximately $1.2 billion to address similar U.S. public water claims; and chemical company Solvay recently announced a $393 million settlement with the State of New Jersey for of claims related to PFAS contamination in New Jersey.
The Fire-Dex opinion makes one thing clear: federal courts are not afraid to decline to resolve novel PFAS state-law issues. Policyholders that face PFAS liabilities related to PFAS products or products containing PFAS components should consider how the policy language will be treated under state law. Policyholders should also consider that insurers will not hesitate to bring an action to court to avoid providing coverage for the PFAS liabilities.
For the U.S. Circuit Court for the Sixth Circuit's unpublished opinion, click here.
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