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Lead in Drinking Water – Why Coverage Determinations are Not as Easy as You Might Think

June 13, 2016

Even now, a year after the Flint Michigan drinking water lead fiasco hit the press, it’s still being covered on a daily basis by almost every national news outlet.  And, each day, the story grows more scandalous and worrisome.  As public awareness of the prevalence and seriousness of injury from drinking water lead poisoning increases, so do tenders to carriers.  Due in part to some significant limitations and exclusions to coverage, claimants are casting a very broad net by implicating many forms of responsible entities and types of coverage.  The factual basis for doing so is that the presence of lead at the tap results from a complex interaction between the water source (i.e., the specific aquifer or water body), the supplier’s facilities and manner of treatment (i.e., the water company or municipality), and the makeup of the plumbing in the building where the water is ingested.  
 
Understandably, no carrier or TPA wants to be behind the curve on knowing how to respond to tenders, given that physical harm and remedial costs can both be very extreme.  Especially because this is a little-explored, and quickly growing area of law.  But the answer is not as simple as just examining a GL policy and the standard pollution or lead exclusion.  The issue of lead in drinking water triggers a wide variety of coverages, and can evade, or be excepted from, pollution and lead exclusions.  And, it can present a slippery slope, as more is learned during development of a claim.  Here are some of the more common forms of potentially applicable coverages and exclusions implicated, depending on the target of a claim.
 
Building owners may be targeted for having lead in their pipes, solder, or fixtures.  GL policies usually contain a pollution, lead, or owned-property exclusion that bars such claims.  The outcome depends on the specific language of the policy and exclusions, and how they are interpreted by the relevant judicial jurisdiction.  For example, many lead exclusions used by the insurance industry apply only to lead-based paint, and are not broad enough to exclude lead in water.  Numerous other reasons the exclusion may not apply include that water supplies are expressly carved out of it, or that the lead never entered the environment.  An additional threshold coverage issue may be whether the claims actually arise from excluded property owned by the insured, requiring a case-specific analysis of claims and facts.
 
Private-entity water suppliers may be targeted for a number of reasons.  Most obviously, they may be accused of having lead in their pipes or solder.  But, they may also be targeted for failing to properly implement a complex regulatory scheme, unique to the regulation of lead: Generally speaking, water suppliers are required to sample a subset of their users’ taps.  If 90% of the subset exceed a specified action level, then the supplier needs to take action by reducing the corrosiveness of its water in order to reduce the amount of lead leaching from its facilities or from buildings where it is being ingested.  If this doesn’t solve the problem, then the supplier may also have to institute education efforts, like educating people to run their taps long enough to flush out lead.  Therefore, suppliers may be targeted for failing to properly identify a lead problem, or for failing to take effective measures to reduce corrosiveness or otherwise reduce exposure.  
 
For private-entity suppliers, the above discussion regarding polices and various exclusions are equally relevant.  Suppliers may also be subject to claims beyond bodily injury, such as property damage, and improperly charging for unpotable water.  Therefore, additional coverages that might be triggered include Property Damage, E&O, and D&O policies. Note also that some carriers actually have provided additional coverage that specifically includes water supplies, including lead in water.  An important issue to such coverage may be whether the lead (or corrosiveness) was a chemical added by the entity, or instead was a natural condition of the water.
 
Public-entity water suppliers may also be targets, for the same reasons as private-entity suppliers.  However, an additional claim may be for discrimination.  Again, the above discussion regarding polices and various exclusions are equally applicable to public-entity suppliers.  But other policies may also apply, including Public Official’s Liability policies and Public Entity Management Liability policies.  These, of course, present their own unique language governing coverage.
 
Construction contractors may be targeted for using pipes, solder and fixtures that leach lead into the water.  And environmental consultants and environmental contractors may be targeted for failing to properly identify and address a lead problem.  Again, the standard policy and exclusion issues noted above are equally relevant.  Additionally, consultants and contractors may be covered by professional liability policies.  And, many Public Entity Management Liability policies also cover professionals employed by a public entity, such as architects and engineers.
 
As the above discussion demonstrates, claims of drinking water lead poisoning are often brought against a wide swath of entities, triggering a wide variety of policies.  When tenders are received, carriers and TPAs need to quickly identify all relevant policies and exclusions, and quickly determine and evaluate relevant facts.  If you have questions on this topic, any environmental law issue or would like assistance with a coverage determination, please contact Paul Schmidt at pmschmidt@zarwin.com or at (215) 569-2800.
 

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