Managing and Mitigating the U.S. PCB Litigation Risk
Polychlorinated biphenyls (PCBs) are chemicals that were produced until the 1970s and were used in a wide array of industrial products and building materials, especially to reduce fire risk in electrical components. Monsanto voluntarily ceased manufacturing PCBs in 1977, two years before the EPA banned their production. Nevertheless, the Company currently faces legacy PCB-related litigation in the U.S. and has a clear strategy to manage and mitigate these risks, which relate to actions that date back more than four decades.
There are two categories of PCB-related litigation: environmental impairment cases on the one hand and injury and building cases on the other. The Company has strong legal defenses for all cases and will only consider settlements when it can do so on reasonable terms.
In most cases, the products containing PCBs that are alleged to be the source of PCB impairments to the environment, or exposures in buildings or to people, were manufactured and/or disposed of by third party companies, not by Monsanto.
Importantly, Monsanto has broad indemnification agreements with many former PCB customers under which these companies agreed to indemnify Monsanto for litigation-related costs as a condition of continuing to receive PCBs in the 1970s. As communicated, Monsanto is actively seeking to enforce these contracts and recover these costs in a lawsuit it filed in the Circuit Court for St. Louis County in Missouri.
1. Environmental Impairment Litigation
In June 2020, Bayer announced a $650 million settlement agreement involving a class of approximately 2,500 municipal entities that allege PCB impairments of their water bodies. The necessary court approval was granted on November 19th, 2022. This settlement resolves most of the Company’s exposure to municipal government PCB water litigation.
Additionally, the Company entered into separate agreements with the Attorneys General of New Hampshire, New Mexico, Ohio, Oregon, Washington, and also Washington D.C. to resolve similar PCB cases brought by these governments. There are also pending cases that have been filed by the Attorneys General of Illinois, Maryland, New Jersey, and Pennsylvania and the Company will litigate these cases aggressively and only settle them if they can be resolved on reasonable terms. A case brought by the state of Delaware was dismissed by a court on July 11, 2022.
Based on data reported to EPA about impairments of waterways by PCBs and the fact that PCBs in the environment are generally declining more than 40 years after production ceased, the Company believes that the scope of potential future state litigation is limited. While additional lawsuits are possible, this is far from a nationwide risk.
2. Personal Injury and Building Litigation
The Company faces a limited number of personal injury cases in which plaintiffs claim that exposure to PCBs in schools caused their health problems. Nearly all of these cases arise from one school, the Sky Valley Education Center (SVEC), in the Seattle area, where approximately 200 plaintiffs have brought suit. There is one three plaintiff case alleging PCB exposure at Burlington High School in Vermont. The Burlington School District (BSD) has also filed a lawsuit alleging that Monsanto should pay for a new high school after the old one was shut down for a number of reasons, including PCB concerns. While it is possible that more cases like these may be filed, it is significant that there has not been any noticeable plaintiff advertising or surge in these filings since the recent round of these cases reached verdicts beginning in 2021.
The Company has strong defenses in these cases including that the relevant products at issue, like fluorescent lighting fixtures and caulk, were manufactured by other companies, not Monsanto, and were decades beyond their useful lives. The evidence also is not sufficient in these cases to support a causation and liability finding against the Company as air samples taken in the SVEC cases, for example, found no PCBs in most classrooms and trace concentrations below EPA safe evaluation levels in others. Similarly, the available blood samples for plaintiffs in the SVEC litigation showed background PCB levels, the same as the typical American.
The Company also believes that school districts themselves could be held responsible for the alleged injuries and building problems as the U.S. Environmental Protection Agency has provided more than 30 notices that date back decades advising owners and managers of pre-1980 buildings, including school districts and their maintenance personnel, about best management practices to address PCB-containing products that are beyond their useful lives.
The trial court in Washington State has ruled against the Company on these and other significant legal defenses in the trials to date which we believe to be errors. The first of these cases, Erickson, is now on appeal and a win on a cross-cutting issue would likely mean that all 5 cases that resulted in plaintiff verdicts would have to be retried. One other case resulted in a mistrial, but with the jury finding in Monsanto’s favor on one legal count.
3. Enforcing Indemnification Agreements to Recover Costs
The Company’s lawsuit seeking to enforce its indemnification agreements with its former customers is a major element of its strategy to mitigate the financial risk of the PCB litigation and recover its costs. The indemnity agreements were executed in 1972, following Monsanto’s announcement of its plan to phase out non-electrical uses of PCBs in response to concerns about their environmental persistence. For electrical uses, however, there were no alternative safety fluids. Thus, consistent with the conclusions of the federal Interagency Task Force, Monsanto agreed to continue to manufacture and sell PCBs for use in closed electrical applications until alternatives became available, but only if these customers agreed to defend, indemnify, and hold Monsanto harmless for all legal costs and claims arising from these sales. Six former Monsanto customers, accounting for approximately 93% of PCB sales, entered into these indemnity agreements. Given the increasing costs of defending current cases, settlements and potential judgments, Monsanto filed suit in August 2022 in the Circuit Court of St. Louis County in Missouri to enforce these contracts and recover costs from its former customers. This suit is at an early phase, but the Company believes it is a strong position to recover substantial litigation-related costs from this action.