In a blog post earlier this year, we discussed why EVALI (E-cigarette or Vaping Product Use Associated Lung Injury) may be the next big mass tort.  According to the CDC, there have been over 2,800 reported cases of EVALI with 68 confirmed deaths as of February.  With so many reported cases, companies in the vaping industry face potentially significant liabilities in the tort system.Companies all along the supply chain are at risk, including manufacturers of vaping devices, batteries, and juices. Distributors of these products, grocery and convenience stores that sell them, and even mom and pop smoking and vaping stores that sell DIY vaping liquids and other vaping products are also at risk.   

With all of this in mind, there are many actions companies associated with these potential liabilities should take to prepare for the future.  In our previous post, we talked about how companies can ensure they have the data they need to proactively manage their claims and pursue any insurance recovery should this become a mass tort.  Here, we will discuss some steps that companies facing vaping liabilities can take to understand their insurance policies that may prove invaluable.  

Getting Organized 

According to the CDC, vaping use (especially among teens) has increased dramatically since 2007. This means that vaping product manufacturers and sellers need to get their hands on their commercial general liability policies going back a decade or more, depending on when they began making or selling vaping products. As further discussed below, EVALI suits could trigger policies across several years so policies providing coverage at any point along the time of your involvement with vaping could be in play. If you do not have your policies readily at hand, your broker should have copies available. 

Since there could be dozens or even hundreds of policies to manage, we also recommend capturing your basic policy information (insurer, policy number, dates, limits, deductibles or retentions, attachment point) in an electronic format with a link to an electronic copy of the policy file. A spreadsheet might suffice, and a relational database would be even better. Once you have your policies organized, there are some key terms and exclusions you should identify to realize the true value of your coverage portfolio. Securing the services of an experienced insurance coverage attorney is probably a good idea, too. 

Key Terms and Definitions 

Reviewing an insurance policy for coverage starts by understanding certain rules and terminology defined in the policy.   

• Notice Language – Insurers require notice of a claim to be given to them within a period after the insured becomes aware of a potential loss.  The policy will define not only what this time frame is, but also who should receive the notice, and how it should be delivered. Policies typically also include voluntary payment exclusions which require settlement offers to be approved by insurers.  Failure to notify insurers of specific developments along the life of a claim can defeat coverage for the claim.  A way to make sure that proper notice is given is to have a good system in place to ensure that claims are processed in a timely fashion and notice is automatically generated. 
• Defense Language – Many primary policies put the burden of defense on the insurer, which can save the insured huge amounts of money.  Since defense costs frequently eclipse the cost of indemnity, this analysis will be important in determining how far coverage will go.  
• Bodily Injury Definition – It is important to understand what bodily injury does or does not include according to the policy, such as addiction or suits brought by governments on behalf of their residents. 
• Occurrence Definition – This definition and any other deemer language should clarify if a policy will consider all EVALI cases to be the same occurrence and a single limit.  Depending on the presence of deductibles and whether your policy has higher aggregate limits than occurrence limits, a single occurrence could result in more or less coverage.   

Exclusions 

It is also important to understand what types of claims may be excluded outright in the policies. Policy language for exclusions can vary in important ways, so it is important to understand each policy’s limitations separately. 

• Advertising Exclusion – Many lawsuits that have already been filed alleging that E-cigarette manufacturers falsely claimed that their products were a safer alternative to traditional tobacco cigarettes.  Others suits allege that vaping companies deliberately targeted minors with their marketing and product designs.  Companies with these types of claims need to focus on language relating to advertising and representations. 
• Design Defect Exclusion – Injuries relating to EVALI including addiction could be seen a defect to the design of the product.  If a design defect does exist, it should specify what it considers to be a design defect. 
• Expected or Intended Exclusion – Insurers may argue that the vaping industry ought to have anticipated that injuries would occur, and therefore vaping-related losses are not fortuitous and are not covered. As always, the exact policy language is important here. 
• Governmental Proceedings Exclusion – With toxic torts, there is always a chance that lawsuits will be brought by municipal bodies as well as individuals.  Understanding whether your policies contain any such limitations will factor into the coverage analysis.  
• Pollution Exclusions – Does vapor from a vaping device constitute a pollutant, and if so, would coverage be excluded because of a broad pollution exclusion? Some pollution exclusions have a carve out for pollution from products, so as always, the actual language in your policies is important.  
• Products/Completed-Operations Exclusion – Companies should be aware of the wording of Products/Completed-Operations exclusions if their policies contain them.  Some exclusions are limited to certain types of claims or certain ingredients, while others are very broad. In particular, coverage for injuries arising from cannabis use or cannabis products may be excluded given the complicated legal landscape. 

Trigger Considerations 

Determining which policies may respond to EVALI suits is a more difficult process that one might expect.  Does the use of vaping products trigger all policies in effect during the period of use, or are only the policies enforced when the EVALI manifests? One step is to determine whether an insured’s policies provide coverage on a claims-made or an occurrence basis.  Claims-made policies have discrete triggers by nature that require the claim to be filed during the policy period, reporting period (a period of time that claims-made policies will define in the policy), or an extended reporting period (if purchased by the insured).  They are typically also limited to acts or injuries that occurred on or after a stated retroactive date. Occurrence-based policies are triggered by bodily injury or property damage occurring during the policy period, even if the insured did not become aware of such injury until after the policy expired.  

It is important to know exactly how the policy defines an occurrence to realize the full amount of potentially available coverage.  Information on this is located in the definition of bodily injury, the definition of occurrence, and any other occurrence deemer language located in the policy.   

Don’t Get Caught Off Guard 

EVALI suits continue to be filed nationwide and the vaping industry remains in plaintiff firms’ and regulators’ crosshairs. As the underlying litigation continues to evolve, companies in the vaping industry, even those not yet subject to suits, should consider getting a handle on their insurance to understand whether it might provide critical financial support. As an emerging issue, insurance coverage issues for EVALI suits have not been widely litigated to date making it important for impacted companies to understand their unique policies and stay abreast of current trends.