26. Legal Risks

As a company with international operations, the Covestro Group is exposed to numerous legal risks, particularly in the areas of product liability, competition and antitrust law, patent disputes, tax law, environmental law, and compliance issues such as corruption and export control. The outcome of any current or future proceedings cannot be predicted. It is therefore possible that legal judgments or regulatory decisions or future settlements could give rise to expenses that are not covered, or not fully covered, by insurers’ compensation payments and could significantly affect the earnings of the Covestro Group.

Legal proceedings currently considered to involve material risks are outlined below. The legal proceedings referred to do not necessarily represent an exhaustive list:

Carbon monoxide pipeline from Dormagen to Krefeld-Uerdingen

The carbon monoxide pipeline is intended to connect the chemical production sites at Dormagen and Krefeld-Uerdingen and complement the network already existing between Dormagen and Leverkusen. The aim is to ensure a safe and reliable supply of carbon monoxide to and across all sites. Although the pipeline was almost completed by the end of 2009, it cannot currently be put into operation because of ongoing court proceedings. Following confirmation by the Düsseldorf Administrative Court in 2011 that there were no grounds to challenge the material aspects of the planning permission decision, in particular the safety of the materials used and the legal conformity of the relevant pipeline act (Rohrleitungsgesetz), the plaintiffs and the regional government against which legal proceedings had been instituted lodged appeals before the Higher Administrative Court in Münster. In 2014, the Münster Higher Administrative Court raised no objections in principle to the safety and routing of the pipeline, but questioned the constitutionality of the pipeline act which forms the legal basis for the project. On December 21, 2016, the German Federal Constitutional Court dismissed the corresponding constitutionality question referred to it by the Münster Higher Administrative Court as inadmissible and confirmed the legal opinion of the Covestro Group. The Münster Higher Administrative Court must now return to considering the facts of the appeal.

Duties to inform for the use of diisocyanates (United States)

On September 14, 2016, Covestro LLC, Pittsburgh (United States), – amongst three other defendants – was served with a lawsuit filed by a law firm for a plaintiff in California Federal Court. This has since been transferred to a federal court in Washington D.C. (United States) by agreement of the parties involved. This action seeks financial damages due to fines allegedly enforceable and due by the defendants to the U.S. Environmental Protection Agency because they supposedly withheld information about the health risks associated with the manufacture and use of (TDI), (MDI), and (PMDI). The U.S. government declined to intervene and proceed with the claims itself despite sufficient opportunity to do so under the applicable laws. It is therefore now up to the law firm to proceed with the claims asserted on behalf of the government. Violations of the Toxic Substances Control Act (TSCA) and False Claims Act (FCA) are asserted. The trial court dismissed the action on October 23, 2017. The plaintiff then filed a timely appeal, which the court of first instance dismissed on June 22, 2018. The plaintiff thereupon appealed this decision. Covestro continues to consider the action to be without merit and will therefore defend the claims using all legal means.

Civil class action lawsuits (United States) over diisocyanates

On July 9, 2018, Covestro LLC, Pittsburgh (United States) – as one of numerous other defendants – was served the first of now 12 class action lawsuits initiated by various U.S. MDI and TDI customers. The plaintiffs allege that the defendants have violated various provisions of the Sherman Antitrust Act since January 1, 2015, by acting in coordination to limit production capacities of and TDI and, at the same time, raising prices for these products in the market. On October 3, 2018, the U.S. Judicial Panel on Multidistrict Litigation ruled that all class action lawsuits in pretrial proceedings would be centralized in the District Court for the Western District of Pennsylvania. Covestro currently considers these claims to be without merit and will therefore use all legal means to defend itself against these allegations – also in light of the official conclusion in November 2018 of the six-month investigation by the U.S. Department of Justice into possible anticompetitive practices in relation to MDI.

TDI/toluylene diisoycanate
A chemical compound from the class of aromatic isocyanates, primarily used in polyurethane foams and coating systems
MDI/diphenylmethane diisocyanate
A chemical compound from the class of aromatic isocyanates, primarily used in polyurethane foams
PMDI/Polymeric diphenylmethane diisocyanate
A chemical compound from the class of aromatic isocyanates, primarily used in polyurethane foams
MDI/diphenylmethane diisocyanate
A chemical compound from the class of aromatic isocyanates, primarily used in polyurethane foams