The Potential Liabilities and Insurance Coverage Implications of Solar Panels

By Samantha Evans, Cozen O'Connor | May 19, 2014

Solar panels are quickly becoming a fixture in our everyday lives. Whether driving down a country road or the busiest highway, you will see solar panels dotting the roofs of commercial buildings and residential homes alike. Comprised of photovoltaic cells, solar panels harness and convert the sun’s energy into usable electricity otherwise generated by the use of oil, coal and “dirtier” fossil fuels. Solar panels offer an attractive, alternative “green” source of energy for eco-conscious individuals and businesses.

The environmental benefits associated with solar panels cannot mask the potential bodily injury and property damage risks associated with their manufacture and use. The manufacturing process involves the use of toxic chemicals including cadmium, arsenic and silica. Silica represents a primary component in many solar panel brands because it allows for the most efficient transfer of the sun’s energy into electricity. The manufacturing process can also release harmful and sometimes carcinogenic compounds such as silica dust, silicon tetrachloride and sulfur hexafluoride.

While litigation involving solar panels is sparse, the following scenario highlights the potential bodily injury and property damage claims that manufacturers, installers and disposers may face as this product continues to grow in popularity:

Manufacturer establishes a processing plant in Rural Town, USA. The plant is located in an under-populated area, surrounded by a spattering of homes. Manufacturer’s employees produce hundreds of solar panels and distribute the panels to Installer. Installer installs the panels on commercial buildings and residential homes across the country. Manufacturer discovers that some of panels have faulty cells prior to installation and delivers the panels to Disposal Company. Disposal Company disposes of the unused product in a designated landfill located near the plant.

An employee may sue Manufacturer for bodily injury damages because of chemical exposure during the manufacturing process. A homeowner living adjacent to the manufacturing plant, or to the landfill, may sue Manufacturer or Disposal Company if toxic chemicals contaminate the homeowner’s potable water supply, sickening the homeowner and his family. A business owner may seek to recover property damage costs from Manufacturer to replace individual panels that short and fail. A residential owner may seek to recover from Installer and Manufacturer for property damage when a panel or series of panels catch fire, burning the residence.

These claims highlight some of the coverage issues that may arise under a standard general liability policy. Manufacturer and Disposal Company, seeking coverage for the homeowner’s exposure claims, will have to most directly contend with the application of the total pollution exclusion. The typical total pollution exclusion broadly excludes coverage for damages “arising out of the actual, alleged or threatened discharge, dispersal, release, or escape of pollutants.” The manufacturing process involves chemicals, including silica, that courts routinely consider “pollutants,” and an insured would not be entitled to coverage for bodily injury “arising out of” silica. Because many jurisdictions interpret “arising out of” broadly to require only a “but for” causal connection, an insured may not be entitled to coverage even where a loss is caused both by pollutants and non-pollutants.

Standard general liability policies provide coverage for “property damage” caused by an “occurrence,” defined to include an “accident.” Many jurisdictions hold that faulty workmanship, which does not cause damage to third party property, is not an occurrence. Installer will be most affected by the “occurrence” definition to the extent the Installer’s faulty workmanship causes property damage to the panels alone.

Liability policies similarly exclude coverage for damage to the insured’s “work,” defined to include the insured’s operations, and “product,” defined to include anything the insured manufactures, installs, distributes, or handles. As with the “occurrence” definition, courts often hold that these exclusions apply to damage to the insured’s work or product, but do not apply to exclude coverage for damage to third party property caused by the insured’s faulty workmanship. Accordingly, Manufacturer and Installer may not have coverage for damage to the solar panels, but would have coverage for a fire that causes harm to other parts of the homeowner’s residence.

The above scenarios represent a small sampling of the types of lawsuits that may arise from the use of solar panels. Realistically, plaintiffs will not only sue parties in the product’s manufacturing chain, but may also name contractors, subcontractors and property owners. Each lawsuit will require an analysis of the coverage implications based on the type of insured involved, the insured’s role in causing the damage and the nature of the damage being claimed.

Samantha Evans is an associate in Cozen O’Connor’s Global Insurance Department. Evans focuses her practice on liability coverage issues and insured defense.

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