PFAS – Out of the Frying Pan into the Court Room?
Fenchurch Law considers the impact of PFAS on the UK insurance sector, following the rise of litigation progressing through the US courts.
What Are PFAs?
PFAS, or Polyfluoroalkyl Substances, also known as Forever Chemicals, are a group of over 10,000 chemicals that do not readily degrade.
These synthetic chemicals have been utilised in products such as non-stick cookware, waterproof clothing and cosmetics since the 1950s for their non-stick, water- and heat-resistant properties. A concerning aspect of PFAS is that they can accumulate indefinitely in the environment and in living organisms. Their highly durable nature has led scientists to investigate the long-term effects of these chemicals on the body and the environment, with alarming results.
Currently, PFAS are linked to several health issues, including immunosuppression and certain types of cancer. Consequently, and unsurprisingly, regulators are now aiming to tighten the regulation of PFAS chemicals to limit ongoing risks.
Regulatory Landscape in the UK
PFAS are currently regulated under the UK REACH regime (Registration, Evaluation, Authorisation, and Restriction of Chemicals). However, only a limited number of specific PFAS are restricted for use in the UK. For example, PFOA (Perfluorooctanoic acid) and PFOS (perfluorooctane sulfonate) are types of chemicals within the PFAS category and have been listed as Persistent Organic Pollutants (POPs), making it illegal (with limited exceptions) to manufacture or use them in the UK and requiring their removal from products and waste streams.
The emerging risks associated with PFAS use are being closely monitored, with the HSE initiating a six-month consultation earlier this year on the use of PFAS in firefighting foam. UK regulation lags behind other countries; for example, the US has already declared PFAS a critical contamination crisis.
Although the UK regulatory framework for PFAS is still in its early stages, the Environmental Agency has begun assessing the risks. It has identified over 10,000 “high risk” sites believed to contain elevated PFAS levels. Some of the highest-risk sites include firefighting foam manufacturing plants, RAF bases, and airports.
Emerging Risks for the Insurance Sector
PFAS present a complex challenge for insurers. They pose potential long-tail liabilities, similar to claims arising from asbestos or environmental pollution, arising from historic use. Moreover, the increased focus of regulators and claimants on PFAS means insurers must navigate a rapidly changing risk that spans numerous lines of insurance – including general liability, product liability, environmental impairment, directors & officers, as well as property and speciality lines.
Insurers' response to this uncertain risk exposure has been to introduce specific exclusions, often based on existing pollution exclusion clauses. For instance, insurers may add a clause excluding any claims “arising out of, resulting from or relating to PFAS of any kind”. Of course, such exclusions will not be relevant to the extent cover attaches to expired policies.
Lloyd’s has also issued standard PFAS exclusion wordings, LMA5595A and LMA5596A[1].
Types of Claims
- Nuisance Claims: arising from contamination of public drinking water and environmental cleanup.
- Personal injury Claims: resulting from exposure to PFAS in everyday products.
- Property Damage/Diminution of Value Claims: caused by PFAS seeping into the ground from industrial manufacturers.
- False Advertising & Product Labelling: Due to products failing to identify the dangers of PFAS.
The New Asbestos?
The insurance market has been questioning whether PFAS will become the “next asbestos”, as both are similar in that they were once widespread, marketed as safe, and only later revealed to be potentially dangerous.
However, a key difference between PFAS and asbestos is that exposure to many different types of PFAS is unavoidable in the modern world, whereas asbestos exposure can usually be traced back to a specific place and time to establish a cause. This causal link is likely to be far more difficult to establish in the context of PFAS exposure.
Currently, unlike in asbestos claims, no disease has been solely linked to PFAS exposure. This complicates the process of directly attributing the development of diseases such as cancer to PFAS, requiring substantial expert evidence to support the claim that the claimant would not have developed the disease without specific PFAS exposure.
UK PFAS Litigation
Although PFAS litigation is advancing through US courts with multimillion-dollar settlements already reached, UK litigation remains in the early stages. So far, there have been no PFAS cases litigated in UK courts, but two British law firms have announced investigations into PFAS contamination cases. While formal proceedings may take time, we might soon see the first UK group action application for PFAS.
Similarly, to date, there have been no regulatory actions; however, the UK Environment Agency or local authorities could designate contaminated sites for remediation in the future. Companies might then face clean-up costs and seek insurance coverage for those expenses.
Furthermore, the lack of UK personal injury claims may stem from the difficulty in proving a causal link between exposure and injury. While legal systems in countries like the US are more claimant-friendly in this regard, the UK requires evidence that a defendant’s actions caused the harm. The widespread presence of PFAS compounds further complicates this issue. There is no precedent in the UK for relaxing causation standards for PFAS, unlike asbestos, where English law permits more lenient rules for mesothelioma causation.
If and when PFAS claims arise, several key coverage questions will need to be answered, including whether PFAS claims constitute “pollution” and whether the contamination was sudden or gradual. When did an “occurrence” of contamination or injury happen (continuous trigger or not)? Can a claimant’s blood PFAS levels amount to an “injury” within the policy period?
Conclusion
PFAS present an increasing challenge across various sectors due to their persistence, health hazards, and complex liability concerns. Their extensive use, environmental durability, and potential health effects have led to heightened scrutiny and regulatory measures. However, the UK’s response via regulators and the Courts is still in its early phases compared to other jurisdictions.
As UK regulation and litigation evolve, proactive risk management and continuous vigilance will be essential to navigate the uncertainties associated with these “forever chemicals.”
[1] https://lmalloyds.imiscloud.com/LMA_Bulletins/LMA23-035-TC.aspx
Chloe Franklin is an Assoicate at Fenchurch Law
The Cost of Alleging Fraud: Costs Judgment Handed Down in Malhotra Leisure Ltd v Aviva [2025]
Introduction
This article examines the Commercial Court’s recent costs judgment in Malhotra Leisure Ltd v Aviva [2025], a case with significant implications for policyholders facing fraud allegations from their insurers. The decision underscores the risks insurers face when making serious allegations without sufficient evidence, and the potential for substantial costs consequences if those allegations fail.
Background
Earlier this year, we reported on the Commercial Court’s decision in Malhotra Leisure Ltd v Aviva [2025] EWHC 1090 (Comm).
To recap, during the Covid-19 lockdown in July 2020, water had escaped from a cold-water storage tank at one of the Claimant’s hotels causing significant damage.
Aviva, the Claimant’s insurer under a property damage and business interruption policy, refused to indemnify the Claimant on the basis that:
- the escape of water was deliberately and dishonestly induced by the Claimant; and
- there were associated breaches by the Claimant of a fraud condition in the policy.
However, considering that there was no evidence that (a) the escape of water had been induced by the Claimant, or (b) there was any financial motive for it to have been, the Commercial Court held that Aviva’s fraud allegations failed.
The judgment read as a cautionary tale, reminding insurers that allegations of dishonesty cannot be pleaded lightly and that reasonably credible evidence must exist to establish a prima facie case of fraud.
You can read our article on the underlying judgment here - Court pours cold water on insurer’s fraud claims: Malhotra Leisure Ltd v Aviva - Fenchurch Law UK.
The Costs Judgment
This month, the Commercial Court handed down judgment on a number of consequential matters. Crucially; whether Aviva should pay the Claimant's costs of the proceedings on an indemnity or standard basis.
An award of costs on the indemnity basis is considerably more favourable than an award on the standard basis because it:
- places the onus of showing that costs are unreasonable on the paying party;
- disapplies the requirement for proportionality; and
- renders the parties’ approved budgets irrelevant for the purposes of assessment.
In this case, the Claimant had budgeted costs of £546,730.50 but incurred costs of £1,202,957.09. The difference—over £650,000—depended on whether indemnity costs were awarded.
The starting point in all cases is that costs should be assessed on the standard basis and the burden of proving that costs should be assessed on an indemnity basis lies with the receiving party (in this case, the Claimant). Whilst there is no presumption in favour of indemnity costs where a defendant makes unsuccessful allegations of fraud, it will frequently attract indemnity costs in practice.
In Clutterbuck v HSBC Plc [2016] 1 Costs LR 13, David Richards J, as he then was, stated that “the seriousness of allegations of fraud are [sic] such that where they fail they should be marked with an order for indemnity costs because, in effect, the defendant has no choice but to come to court to defend his position”.
In other words, failed allegations of fraud should be a significant factor in persuading a court that indemnity costs should be awarded.
The Claimant referred the Court to the test set out in Suez Fortune Investments Ltd v. Talbot Underwriting Ltd [2019] Costs LR 2019. Namely whether, when one looks at the circumstances of the case as a whole, they are “out of the norm” in such a way as to make it just to order costs on the indemnity basis.
The Parties’ Arguments
The Claimant argued that, because Aviva’s allegations were so serious, they had inflicted financial and reputational damage and, because those allegations had turned out to be misconceived, justice demanded that costs should be recovered on an indemnity basis. An order for indemnity costs would allow it to recover a higher percentage of the costs that it had been forced to incur in order to defend and vindicate itself. It is no answer to an application for indemnity costs to say, as Aviva did, that the allegations were reasonably made or advanced by experienced and responsible counsel (Farol Holdings v Clydesdale Bank [2024] EWHC 1044 (Ch)).
In support of its argument that it’s conduct did not warrant such an outcome, Aviva submitted that what is required for an order of indemnity costs is conduct that is unreasonable to a high degree, and that a fraud defence supported by credible, lay and expert evidence is not deemed to be speculative, weak, opportunistic or thin simply because it ultimately proves unsuccessful at trial.
It pointed out that the insurance industry is plagued with fraudulent claims and the financial pressures facing businesses both during and following the Covid-19 lockdowns only exacerbated the problem. It submitted that insurers have a duty to challenge insurance claims which appear disingenuous (in whole or in part) otherwise fraudulent claims go unchallenged, premiums across the industry increase and all policyholders suffer. Legally, it pointed out that the Court must be careful not to use hindsight when assessing the strength of an unsuccessful party's case pursuant to Governors and Company of the Bank of Ireland & Anr v Watts Group Plc [2017] EWHC 2472 (TCC).
The Decision
Despite Aviva’s plea, in a judgment handed down on 6 November 2025, Nigel Cooper KC ordered it to pay the Claimants' costs on an indemnity basis, for the following reasons:
- The allegations of dishonesty made by Aviva (that individuals at the Claimant had devised a fraudulent scheme to damage the Claimant’s own property in order to defraud, and had subsequently lied to the court in respect of this) were of the highest level of seriousness.
- Both the Claimant and individuals at the Claimant had suffered financial and reputational harm as a result of Aviva’s allegations.
- Aviva had pursued the allegations through to the end of trial without entertaining settlement discussions with the Claimant.
- The risks associated with making the allegations were reasonably apparent from when they were first raised, given that there was no evidence that the flood had been induced by the Claimant.
- Aviva’s case evolved at trial without any attempt to amend its pleadings.
Implications for Policyholders and Insurers
This case serves as a salient reminder that fraud cannot be pleaded lightly. Aviva’s argument that it has a duty to challenge insurance claims that appear disingenuous is perhaps telling of what is at the heart of an increasing issue in the insurance industry; insurers being too willing to pursue fraud allegations. While there is no suggestion that insurers should not be able to allege fraud in circumstances where there are bona fide reasons to do so, those allegations must be balanced against the damage and harm they cause to policyholders if they prove to be incorrect. The starting point should a holistic assessment, considering all factors before such allegations are pursued, rather than the presumption that any suspicion of dishonesty should lead to a fraud allegation.
For policyholders, the case demonstrates that robustly defending unfounded fraud allegations can lead not only to vindication but also to recovery of costs on the indemnity basis.
An insurer must assess the risk, consider engaging in settlement discussions and ensure that all allegations are appropriately pleaded. Otherwise, it may well pay a significant price.
Authors
Daniel Robin, Deputy Managing Partner
The unattractive reality of the King Trader Decision - a botched appeal
The Court of Appeal has handed down its judgment in MS Amlin v King Trader.
The case stems from the 2019 grounding of MV Solomon Trader. After Bintan Mining Corporation (“BMC”), the charterer insured by MS Amlin, became insolvent, the vessel’s owner (King Trader Ltd) and its P&I Club sought to enforce a US$47 million arbitration award against MS Amlin under the Third Parties (Rights Against Insurers) Act 2010. The policy included a “pay-first” clause, requiring the insured to pay the liability before receiving an indemnity. Anticipating BMC’s inability to pay due to insolvency, MS Amlin sought a declaration that it owed no indemnity due to the pay-first clause. In July 2024, the High Court (Foxton J) granted the declaration. King Trader and the P&I Club appealed on three grounds.
Issues forming the appeal
Three issues below were considered by the Court of Appeal:
- Incorporation: Were the policy’s general conditions (including the pay-first clause) part of the insurance contract?
- Inconsistency: If incorporated, did the pay-first clause conflict with the primary insuring terms (and thus not apply)?
- “Red Hand” Notice (Onerous Term): Was the pay-first clause so onerous or unusual that it should not bind the insured (or its assignees) since it wasn’t sufficiently brought to their attention?
On 5 November 2025, the Court of Appeal (Sir Geoffrey Vos MR, Singh LJ, Males LJ) dismissed the appeal on all grounds, confirming that the pay-first clause defeated the owners’ and Club’s claim.
Court of Appeal Decision
Incorporation
The Court of Appeal agreed with the first instance judge that the pay-first clause was indeed part of the policy, was enforceable, and had been properly incorporated into the contract. The policy’s Certificate of Insurance expressly incorporated a policy booklet containing the general conditions, and no reasonable reader would assume that only the Certificate contained all terms. The Court saw no merit in the suggestion that the pay-first clause “was not part of the contract”.
Inconsistency
The court also found no inconsistency between the pay-first clause and the policy’s insuring clause. The charterers’ liability insuring agreement promised to indemnify the insured against liabilities (such as the arbitration award) that were established by final judgment or award. The pay-first clause qualified that promise by making actual payment of the liability a precondition to indemnity. The owners argued this “emasculated” the cover, but the Court held it merely “qualifies and supplements” the indemnity; it does not negate it. The Court found no actual conflict, so the pay-first condition remained effective alongside the main insuring terms.
“Red Hand” Notice
On the “red hand” argument (a reference to Lord Denning’s dictum that especially onerous clauses must be printed with a red hand pointing to them), the Court of Appeal gave a definitive response. Vos MR preferred the term “onerous clause doctrine” for this principle. He emphasised the high threshold for declaring a contract term unenforceable due to lack of notice in a commercial setting. The pay-first clause, though harsh in outcome, was not unusual in marine insurance, and such clauses are common and well understood in that market. Moreover, BMC had a professional insurance broker, who is presumed to know the significance of standard terms and explained this significance to the insured. The Court held the pay-first provision was neither onerous nor unusual enough to require special notice beyond what was given. Therefore, the owners and Club could not avoid it on that basis. The Judgment clarifies that the onerous clause doctrine has little application between sophisticated parties of equal bargaining power in commercial insurance.
Policyholder Perspective – Key Takeaways:
This decision confirms that English law will uphold clear “pay first” or “pay-to-be-paid” provisions in marine insurance contracts, even where this leaves an insolvent policyholder’s creditors without recourse. This outcome is harsh, as pay-first clauses reduce the efficacy of insurance protection just when it’s most needed. However, the Court of Appeal’s confirmation that there is little room to escape these clauses puts further emphasis on the need for insureds to carefully consider whether a “pay-first” requirement is acceptable to them, or if they (and their brokers) should really negotiate these clauses out of policies before inception.
From a policyholder’s standpoint, the case is the latest stark reminder to scrutinise policy wordings for onerous conditions, such as pay-first clauses. Such terms can fundamentally restrict coverage in scenarios of insolvency, and also will have a broader impact on the cash flow of an insured.
It’s worth noting that the 2010 Act does, however, invalidate pay-first requirements for certain kinds of claims (notably personal injury or death in marine policies), but aside from those exceptions, the clause will bite.
In King Trader, the inability of the insured to pay meant the loss ultimately stays where it fell – on the insolvent insured and the third parties – rather than shifting to the insurer.
Our colleague, Anthony McGeough, concluded that the underlying Judgment was an ugly decision for policyholders, (bad for policyholders, but correctly decided). The resounding failure of the appeal suggests that the Court of Appeal has made this case uglier still.
For our commentary on the underlying Judgment, click here.
Authors
Toby Nabarro, Partner, Fenchurch Law Singapore
Dru Corfield, Associate, Fenchurch Law