Canadian Underwriter

Getting the Lead Out

September 30, 2015   by Heather A. Sanderson, principal, Sanderson Law

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Although banned in Canada in 1976 and in the United States in 1978, lead paint remains present in many older houses. It was used prior to these dates as well, mainly because when added to paint, lead speeds up drying, increases its durability, maintains a fresh appearance and resists corrosion from moisture, according to the Royal Society of Chemistry.

In March 2014, a California state court ordered three major paint companies to pay $1.15 billion towards the funding of an agency to inspect for and remove lead paint in pre-1978 homes in order to halt poisoning and prevent the future inevitable degradation of the paint. It was found that the Defendants knew as early as the 1920s and 1930s that lead paint was poisoning children, but continued to promote the sale and use of the paint as interior house paint when alternatives existed.

Using the ‘but for’ causation test, the Court held each Defendant jointly and severally liable on the basis of public nuisance (see: The People of the State of California v. Atlantic Richfield Company, Conagra Grocery Products Company, E.I. Du Pont de Memours and Company, NL Industries, Inc., and The Sherwin-Williams Company, Case No. 1-00-VC-788657, Superior Court of California).

The case is under appeal, but it is sending shock waves through the insurance industry, as there is concern that the case will spawn similar litigation throughout the United States, with coverage litigation to follow.

Deteriorating lead paint in high friction areas, such as windowsills and doors, flakes, chips and forms dust. Due to normal hand to mouth behavior, children often ingest the lead. Any level of lead exposure lowers a child’s IQ, causes memory impairment and, reportedly, is a cause of Attention Deficit and Hyperactivity Disorder (ADHD), as noted in the California case.

In fact, it has been reported that Freddie Gray, the 25 year old Baltimore man who died as a result of spinal injuries sustained in the back of a Baltimore police van in April 2015, was poisoned by lead as a child while living in old tenement buildings with peeling lead paint. At the time of his death he was reportedly living on the proceeds of a lead paint settlement case (see: O’Hare, Sean, London Daily Mail, Mail Online, How Freddie ‘Pepper’ Gray, 25, lived off a lead paint settlement after being poisoned as a child and was well known to police following at least 18 arrests, April 28, 2015

The same article quotes Ruth Ann Norton, head of the Green & Healthy Homes Initiative and a founding member of the Maryland Lead Poisoning Prevention Commission, as saying that lead-poisoned children are ill-equipped to finish school.

A chip of lead paint the approximate size of a period at the end of a sentence will increase lead blood level readings (California v. Atlantic Richfield Company). One gram of lead, the size of a packet of sugar, spread over 100 rooms with a size of 10 x 10, will produce a lead dust hazard at twice the level recommended by the United States Environmental Protection Agency.

The majority of Canadian lawsuits for environmental harm have failed due to flawed expert reports and the absence of evidence (see: Strand Theatre Ltd. v. Prince Albert (City), 2014 SKCA 85, leave to appeal to the Supreme Court of Canada, refused, 2015 Carswell Sask 165).

Multiple studies have confirmed that Canadian children are being harmed by the presence of lead paint (see O’Grady, Kelly and Perron, Amélie, Reformulating Lead-Based Paint as a Problem in Canada, American Journal of Public Health, 2011 December). If the massive body of evidence necessary to support a liability case against historical lead-paint manufacturers in Canada can be gathered, a Canadian court may find that exposure to degrading lead paint in pre-1976 housing is the liability of property owner. Moreover, liability could extend to those who were involved in the manufacture and sale of lead paint, raising significant insurance coverage issues for which there are no easy answers.

Absent a tight lead paint exclusion, under third party coverage, is this ‘property damage?’ If there is evidence that the lead paint will eventually degrade and that bodily injury will be a virtual certainty as a result, is this a case of ‘bodily injury?’ Is a demand to abate the presence of lead paint ‘compensatory damages?’ Is the event an ‘occurrence’ or ‘accident’ if there is knowledge of toxicity when lead paint was developed and sold? If these threshold third party coverage issues are surmounted, there will be issues as to whether the pollution exclusions apply, but those arguments may be weak.

One Alberta case, Medicine Hat (City) v. Continental Insurance Co., 2002 ABQB 259, suggests that lead dust may be a pollutant but ingestion of the dust may not be a “discharge, dispersal, release or escape of lead dust” within the meaning of an exclusion, but rather an “exposure” of the inhabitants of the pre-1976 to lead dust. “Exposure” has a broader meaning than “discharge, dispersal, release or escape,” suggesting that the pollution exclusion may be inapplicable.

Proof of the mere possibility that the policy will respond or indemnify triggers a defence under third party coverage (see: Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33; Monenco Ltd. v. Commonwealth Insurance Co., 2001 S.C.R. 49; Nicols v. American Home Assurance Co., 1990 1 S.C.R. 801).

Primary insurers whose policies have been triggered will then face the debate as to allocation of defence costs. (Québec courts have not yet ruled on how defence costs are to be allocated between multiple insurers in the context of multi-year continuous damage claims. The comments that follow apply to common law Canada.)

There are inconsistencies amongst the provinces as to allocation of defence costs for uninsured periods. For example, In Lombard General Insurance Company of Canada v. 328354 B.C. Ltd., 2012 BCSC 431, the British Columbia Supreme Court held that in the absence of proof as to what defence costs will be expended to defend covered claims, an insured will not be required to financially support the defence for periods of time for which no insurance applied. In Goodyear Canada Inc. v. American International Companies, 2013 ONCA 395, the Ontario Court of Appeal held that the insured is liable for periods for which there is no responding coverage.

The question may turn on whether insurers can use the traditional time on risk analysis and force the insureds to fund those periods for which no insurance is available. Subject to the Lombard decision, the traditional course in Canada has been to allocate defence and indemnity costs according to a time on risk analysis. See, for example, Royal & Sun Alliance Insurance Co. of Canada v. Fiberglas Canada Inc. (1999), 12 C.C.L.I. (3d) 282 (Ont. Gen. Div.).

Will excess carriers be persuaded to drop down and defend, sharing defence costs with the primary insurers? Before it will drop down, the excess insurer must have a contractual duty to defend which is ascertained by investigating whether that policy contains a defence agreement and if so, whether there is coverage under the excess wording: (ACE INA Insurance v. Associated Electric & Gas Insurance Services Ltd., 2013 ONCA 685).

It is possible that lead paint will be “the next asbestos.” Even in Canada.

Heather A. Sanderson is a principal with Sanderson Law in Calgary, Alberta. Heather is a nationally recognized author and insurance coverage counsel who has appeared as counsel before a full panel of the Supreme Court of Canada. Currently, Heather is a director of Canadian Defence Lawyers (CDL), a member of CDL’s Insurance Coverage & Practice Committee and Chair of the DRI’s Insurance Law Sub-committee, Canadian Law and Cross-Border Issues.