ENDUSER: Construction/Wood Products: Coverage for Public Nuisance Claims
January 1, 2007
A new development in product liability law has broad implications for any company that manufactures a product that has been incorporated into a construction project.
Lead-paint manufacturers are currently facing another round of liability. This liability comes in the form of “public nuisance” lawsuits filed by government agencies seeking to require lead-paint manufacturers to abate a public nuisance, i.e., the incorporation of their allegedly hazardous product into buildings. (See, e.g., County of Santa Clara v. Atlantic Richfield Co., 137 Cal. App. 4th 292 [2006] [“Santa Clara”].) This development in product liability law has broad implications for any company that manufactures a product that has been incorporated into construction projects. If such a product turns out to have a potential for harming human health, governmental agencies may create a substantial liability problem for the product manufacturer by seeking to abate the public nuisance. This tactic is extremely problematic for the product manufacturer, because the difficulty of an individual claimant proving actual exposure and injury is removed. In some ways, this tactic is analogous to governmental agencies’ pursuit of tobacco companies in recent years, creating far greater exposure for the tobacco companies than did individual bodily injury lawsuits.
The financial impact of such public-nuisance lawsuits against product manufacturers may become substantial. One of the first places that product manufacturers should look for assistance is their liability insurance. Lawsuits to abate a public nuisance raise many interesting coverage questions under comprehensive general liability (“CGL”) insurance policies.
One issue is the trigger of coverage, i.e., what must take place during the policy period in order for a policy to respond to the loss. Is it when the paint was being applied to the buildings, when the paint was deteriorating, or when the paint was being ingested by occupants? Can a continuous injury trigger be applied in such cases, as in environmental property damage and asbestos bodily-injury cases?
In the Santa Clara case, the plaintiffs, a group of governmental agencies, claimed that the harm occurred over time as the paint deteriorated. The defendants, a group of lead-paint manufacturers, asserted that any damage must have occurred when the paint was originally applied and that all of the claims were therefore time-barred. The plaintiffs argued in response that “lead paint constantly and continuously damages those exposed to it, and that the presence of lead paint in each building containing it is injurious to health.” Although the trial court found that the injury occurred at the time the paint was applied, the Court of Appeal disagreed and found no time bar on the public-nuisance claim.
A product manufacturer faced with a public-nuisance lawsuit is entitled to a defense from its CGL insurer if there is a mere possibility of coverage, given the allegations of the complaint. The allegation of a continuous-injury process, such as in cases like Santa Clara, should be sufficient to establish a CGL insurer’s duty to defend its policyholder. Even a complaint that contains no specific allegations concerning the date of damage may give rise to a defense obligation, because the possibility of coverage still exists.
Policyholders have successfully argued that lead-paint claims involve continuing injury akin to asbestos, such that coverage is available under multiple policy years. Some states have specifically found lead-paint injuries are subject to a continuous injury trigger. (See, e.g., Maryland Cas. Co. v. Hanson, 902 A.2d 152 [Md. Ct. Spec. App. 2006] [Proof of repeated exposure to lead, which in turn results in lead-based poisoning injuries that continue for several years, gives rise to a continuous or injury-in-fact trigger].)
In public-nuisance cases, however, the covered “loss” is probably not individual bodily injury claims, inasmuch as abatement suits typically seek the removal of the hazardous condition. Rather, the covered “loss” is the damage to the property itself. With respect to such property-damage claims, the policyholder’s argument will be analogous to asbestos property damage claims. (See, e.g., Stonewall Ins. Co. v. National Gypsum Co., 1992 U.S. Dist. LEXIS 7607, at *27-32 [S.D.N.Y. May 16, 1992][Abatement costs for asbestos-containing materials in buildings are covered because the “incorporation of asbestos containing materials into a physical structure constitutes property damage...”].) The presence of lead paint on the physical structure of the building constitutes ongoing damage to the property.
Another issue that will be faced by lead paint manufacturers is whether the “as damages” requirement contained in standard form CGL policies is satisfied. (See CG 00 01 12 04, Sec. I, Coverage A, ¶1.1.) Public-nuisance lawsuits seek to require the lead-paint manufacturers to “abate” the nuisance caused by the use of lead paint in buildings. California courts have denied attempts to seek monetary damages under a public-nuisance theory, inasmuch as the products liability arena already provides for damages. (See City of San Diego v. U.S. Gypsum, 30 Cal. App. 4th 575, 586 [1994][under this theory, “nuisance would become a monster that would devour in one gulp the entire law of tort”]; see also Santa Clara, 137 Cal. App. 4th at 309 [same].)
The question is whether a demand for “abatement” constitutes “damages” within the meaning of a CGL policy. Blacks Law Dictionary defines abatement as “the act of eliminating or nullifying.” The California Supreme Court, in AIU Insurance Co. v. Superior Court, 51 Cal. 3d 807 (1990), held that the insured becomes legally obligated to pay a CGL policy’s coverage for “damages” because ‘property damage’ should be read broadly. It includes the costs of complying with government orders to investigate, monitor, clean up and mitigate hazardous waste contamination. However, purely preventative or prophylactic abatement measures do not give rise to insurance coverage. (Id. See also Hazen Paper Co. v. United States Fidelity & Guar. Co., 407 Mass. 689, 555 N.E.2d 576, 580, 582 [1990][Claim for removal of hazardous material, absent allegation of release, not damages under CGL policy]; Boeing Co. v. Aetna Casualty & Sur. Co., 113 Wash. 2d 869 [1990][“Damages” does not cover safety measures or other preventative costs taken in advance of any damage to property].)
With respect to lead-paint cases, the question may be whether the abatement is necessary to cure actual problems or to prevent potential problems. In Santa Clara, the plaintiffs alleged that the lead paint “inevitably has deteriorated and/or is deteriorating and/or will deteriorate, thereby contaminating these homes, buildings, and property.” (Santa Clara at 304-05 [emphasis added].) Where all three forms of deterioration are alleged (past, present and future), lead-paint manufacturers should be within the ambit of protection afforded by their CGL polices. Policyholders can also argue that abatement orders, whether for mitigation or prevention or both, satisfy the “as damages” requirement inasmuch as they require the expenditure of money to right a wrong. (See AIU, 51 Cal. 3d at 824-25.)
Another coverage issue that might arise is whether the absolute pollution exclusion (typical in post-1985 CGL policies) bars coverage for these types of claims. Some jurisdictions have found lead paint to be a “pollutant” within the meaning of the exclusion. (See, e.g., Peace v. Northwestern Nat. Ins. Co., 228 Wis. 2d 106, 596 N.W.2d 429 [1997][Ingested lead paint chips were a pollutant and, therefore, claims based on that condition were excluded]; Vance v. Sukup, 207 Wis. 2d 578, 588 N.W.2d 683 [Ct. App. 1996][Coverage excluded for ingestion of paint chips containing lead when airborne but not when based on contact from “intact accessible painted surfaces”]; Kaytes v. Imperial Cas. & Ind. Co., No. 93-1573 [E.D. Pa. Jan. 7, 1994]; St. Leger v. American Fire & Casualty Ins. Co., 870 F.Supp. 641 [E.D. Pa. 1994], aff’d [3d Cir. 1995].)
However, other jurisdictions have upheld coverage for lead-paint claims. (See, e.g., Byrd v. Blumenreich, 317 N.J. Super. 496, 722 A.2d 598 [App. Div. 1999][Absolute pollution exclusion does not apply to lead-paint poisoning claims]; Westview Associates v. Guaranty National Ins. Co., 95 N.Y.2d 334, 740 N.E.2d 220 [2000][Umbrella liability insurer had a duty to provide coverage for lead-paint claims filed against a property manager, notwithstanding a total pollution exclusion in its policy]; Insurance Company of Illinois v. Stringfield, 292 Ill. App. 3d 471, 685 N.E.2d 980 [1st Dist. 1997][the term “pollutant” should not be given a boundless meaning that might lead to absurd results and could not, in any event, be extended to lead poisoning claims as lead does not “irritate” anything].)
In some cases, policyholders might encounter resistance from their insurance company because of the “owned property exclusion,” which bars coverage for damage to the policyholder’s own property. However, this exclusion should not apply in most lead-paint cases, where the policyholder’s own product has not been damaged, but the property of a third party has allegedly been damaged by its incorporation. In other words, it is not the manufacturer’s lead paint that has been damaged, but the school or hospital building into which it has been applied.
In Certain Underwriters at Lloyd’s of London v. Superior Court, 24 Cal. 4th 945 (2001) (“Powerine”), the California Supreme Court held that a CGL insurer had no duty to indemnify a policyholder for environmental cleanup costs in the absence of a lawsuit against the policyholder, because the policyholder was not “legally obligated to pay as damages.” Because the public nuisance theory is most often set forth in a lawsuit seeking abatement, lead paint manufacturers can distinguish themselves from the policyholder in Powerine. A letter request from a government agency for abatement of a public nuisance, on the other hand, may not give rise to insurance coverage.
In conclusion, manufacturers of building products that may be deemed hazardous now face liability from government agencies bringing public-nuisance claims for abatement of the hazard. While many difficult issues arise from such lawsuits, strong arguments for liability insurance coverage, particularly for a defense of such suits, can be made. Policyholders should continue to retain all of their CGL policies and correspondence, and consult an insurance coverage specialist if they receive a public nuisance abatement action from a government agency.
For more information, contact Howrey LLP, 1299 Pennsylvania Avenue, NW, Washington, DC 20004; phone (202) 783-0800; fax (202) 383-6610; or visit www.howrey.com.
Lead-paint manufacturers are currently facing another round of liability. This liability comes in the form of “public nuisance” lawsuits filed by government agencies seeking to require lead-paint manufacturers to abate a public nuisance, i.e., the incorporation of their allegedly hazardous product into buildings. (See, e.g., County of Santa Clara v. Atlantic Richfield Co., 137 Cal. App. 4th 292 [2006] [“Santa Clara”].) This development in product liability law has broad implications for any company that manufactures a product that has been incorporated into construction projects. If such a product turns out to have a potential for harming human health, governmental agencies may create a substantial liability problem for the product manufacturer by seeking to abate the public nuisance. This tactic is extremely problematic for the product manufacturer, because the difficulty of an individual claimant proving actual exposure and injury is removed. In some ways, this tactic is analogous to governmental agencies’ pursuit of tobacco companies in recent years, creating far greater exposure for the tobacco companies than did individual bodily injury lawsuits.
The financial impact of such public-nuisance lawsuits against product manufacturers may become substantial. One of the first places that product manufacturers should look for assistance is their liability insurance. Lawsuits to abate a public nuisance raise many interesting coverage questions under comprehensive general liability (“CGL”) insurance policies.
One issue is the trigger of coverage, i.e., what must take place during the policy period in order for a policy to respond to the loss. Is it when the paint was being applied to the buildings, when the paint was deteriorating, or when the paint was being ingested by occupants? Can a continuous injury trigger be applied in such cases, as in environmental property damage and asbestos bodily-injury cases?
In the Santa Clara case, the plaintiffs, a group of governmental agencies, claimed that the harm occurred over time as the paint deteriorated. The defendants, a group of lead-paint manufacturers, asserted that any damage must have occurred when the paint was originally applied and that all of the claims were therefore time-barred. The plaintiffs argued in response that “lead paint constantly and continuously damages those exposed to it, and that the presence of lead paint in each building containing it is injurious to health.” Although the trial court found that the injury occurred at the time the paint was applied, the Court of Appeal disagreed and found no time bar on the public-nuisance claim.
A product manufacturer faced with a public-nuisance lawsuit is entitled to a defense from its CGL insurer if there is a mere possibility of coverage, given the allegations of the complaint. The allegation of a continuous-injury process, such as in cases like Santa Clara, should be sufficient to establish a CGL insurer’s duty to defend its policyholder. Even a complaint that contains no specific allegations concerning the date of damage may give rise to a defense obligation, because the possibility of coverage still exists.
Policyholders have successfully argued that lead-paint claims involve continuing injury akin to asbestos, such that coverage is available under multiple policy years. Some states have specifically found lead-paint injuries are subject to a continuous injury trigger. (See, e.g., Maryland Cas. Co. v. Hanson, 902 A.2d 152 [Md. Ct. Spec. App. 2006] [Proof of repeated exposure to lead, which in turn results in lead-based poisoning injuries that continue for several years, gives rise to a continuous or injury-in-fact trigger].)
In public-nuisance cases, however, the covered “loss” is probably not individual bodily injury claims, inasmuch as abatement suits typically seek the removal of the hazardous condition. Rather, the covered “loss” is the damage to the property itself. With respect to such property-damage claims, the policyholder’s argument will be analogous to asbestos property damage claims. (See, e.g., Stonewall Ins. Co. v. National Gypsum Co., 1992 U.S. Dist. LEXIS 7607, at *27-32 [S.D.N.Y. May 16, 1992][Abatement costs for asbestos-containing materials in buildings are covered because the “incorporation of asbestos containing materials into a physical structure constitutes property damage...”].) The presence of lead paint on the physical structure of the building constitutes ongoing damage to the property.
Another issue that will be faced by lead paint manufacturers is whether the “as damages” requirement contained in standard form CGL policies is satisfied. (See CG 00 01 12 04, Sec. I, Coverage A, ¶1.1.) Public-nuisance lawsuits seek to require the lead-paint manufacturers to “abate” the nuisance caused by the use of lead paint in buildings. California courts have denied attempts to seek monetary damages under a public-nuisance theory, inasmuch as the products liability arena already provides for damages. (See City of San Diego v. U.S. Gypsum, 30 Cal. App. 4th 575, 586 [1994][under this theory, “nuisance would become a monster that would devour in one gulp the entire law of tort”]; see also Santa Clara, 137 Cal. App. 4th at 309 [same].)
The question is whether a demand for “abatement” constitutes “damages” within the meaning of a CGL policy. Blacks Law Dictionary defines abatement as “the act of eliminating or nullifying.” The California Supreme Court, in AIU Insurance Co. v. Superior Court, 51 Cal. 3d 807 (1990), held that the insured becomes legally obligated to pay a CGL policy’s coverage for “damages” because ‘property damage’ should be read broadly. It includes the costs of complying with government orders to investigate, monitor, clean up and mitigate hazardous waste contamination. However, purely preventative or prophylactic abatement measures do not give rise to insurance coverage. (Id. See also Hazen Paper Co. v. United States Fidelity & Guar. Co., 407 Mass. 689, 555 N.E.2d 576, 580, 582 [1990][Claim for removal of hazardous material, absent allegation of release, not damages under CGL policy]; Boeing Co. v. Aetna Casualty & Sur. Co., 113 Wash. 2d 869 [1990][“Damages” does not cover safety measures or other preventative costs taken in advance of any damage to property].)
With respect to lead-paint cases, the question may be whether the abatement is necessary to cure actual problems or to prevent potential problems. In Santa Clara, the plaintiffs alleged that the lead paint “inevitably has deteriorated and/or is deteriorating and/or will deteriorate, thereby contaminating these homes, buildings, and property.” (Santa Clara at 304-05 [emphasis added].) Where all three forms of deterioration are alleged (past, present and future), lead-paint manufacturers should be within the ambit of protection afforded by their CGL polices. Policyholders can also argue that abatement orders, whether for mitigation or prevention or both, satisfy the “as damages” requirement inasmuch as they require the expenditure of money to right a wrong. (See AIU, 51 Cal. 3d at 824-25.)
Another coverage issue that might arise is whether the absolute pollution exclusion (typical in post-1985 CGL policies) bars coverage for these types of claims. Some jurisdictions have found lead paint to be a “pollutant” within the meaning of the exclusion. (See, e.g., Peace v. Northwestern Nat. Ins. Co., 228 Wis. 2d 106, 596 N.W.2d 429 [1997][Ingested lead paint chips were a pollutant and, therefore, claims based on that condition were excluded]; Vance v. Sukup, 207 Wis. 2d 578, 588 N.W.2d 683 [Ct. App. 1996][Coverage excluded for ingestion of paint chips containing lead when airborne but not when based on contact from “intact accessible painted surfaces”]; Kaytes v. Imperial Cas. & Ind. Co., No. 93-1573 [E.D. Pa. Jan. 7, 1994]; St. Leger v. American Fire & Casualty Ins. Co., 870 F.Supp. 641 [E.D. Pa. 1994], aff’d [3d Cir. 1995].)
However, other jurisdictions have upheld coverage for lead-paint claims. (See, e.g., Byrd v. Blumenreich, 317 N.J. Super. 496, 722 A.2d 598 [App. Div. 1999][Absolute pollution exclusion does not apply to lead-paint poisoning claims]; Westview Associates v. Guaranty National Ins. Co., 95 N.Y.2d 334, 740 N.E.2d 220 [2000][Umbrella liability insurer had a duty to provide coverage for lead-paint claims filed against a property manager, notwithstanding a total pollution exclusion in its policy]; Insurance Company of Illinois v. Stringfield, 292 Ill. App. 3d 471, 685 N.E.2d 980 [1st Dist. 1997][the term “pollutant” should not be given a boundless meaning that might lead to absurd results and could not, in any event, be extended to lead poisoning claims as lead does not “irritate” anything].)
In some cases, policyholders might encounter resistance from their insurance company because of the “owned property exclusion,” which bars coverage for damage to the policyholder’s own property. However, this exclusion should not apply in most lead-paint cases, where the policyholder’s own product has not been damaged, but the property of a third party has allegedly been damaged by its incorporation. In other words, it is not the manufacturer’s lead paint that has been damaged, but the school or hospital building into which it has been applied.
In Certain Underwriters at Lloyd’s of London v. Superior Court, 24 Cal. 4th 945 (2001) (“Powerine”), the California Supreme Court held that a CGL insurer had no duty to indemnify a policyholder for environmental cleanup costs in the absence of a lawsuit against the policyholder, because the policyholder was not “legally obligated to pay as damages.” Because the public nuisance theory is most often set forth in a lawsuit seeking abatement, lead paint manufacturers can distinguish themselves from the policyholder in Powerine. A letter request from a government agency for abatement of a public nuisance, on the other hand, may not give rise to insurance coverage.
In conclusion, manufacturers of building products that may be deemed hazardous now face liability from government agencies bringing public-nuisance claims for abatement of the hazard. While many difficult issues arise from such lawsuits, strong arguments for liability insurance coverage, particularly for a defense of such suits, can be made. Policyholders should continue to retain all of their CGL policies and correspondence, and consult an insurance coverage specialist if they receive a public nuisance abatement action from a government agency.
For more information, contact Howrey LLP, 1299 Pennsylvania Avenue, NW, Washington, DC 20004; phone (202) 783-0800; fax (202) 383-6610; or visit www.howrey.com.