PFAS – A Challenging and Uncharted Course Ahead
Ubiquitous in their presence and disturbing because of their potential harmful effects, Per- and Polyfluoroalkyl Substances (PFAS) loom ominously over society. Recent U.S. regulatory activity and lawsuit outcomes concerning these chemicals portend a decades-long slog for the insurance industry. This blog discusses the potential health risks of PFAS and the current regulatory and legal climate, and offers suggestions as to how carriers should proceed in the years ahead.
What Are PFAS?
As we discussed in a prior blog, PFAS raise concerns because they’re so pervasive – and potentially harmful to our health. In existence since the 1930s, PFAS have been used in products well-known to all of us, including Teflon, food packaging and firefighting foam known as Aqueous Film Fighting Foam (AFFF). They encompass such chemicals as perfluorooctanoic acid (PFOA), perfluorooctanoic acid (PFOS), GenX, and more than 7,800 others.1 The very thing that makes PFAS so effective – their ability to resist oil and moisture – also makes them potentially harmful because they tend to remain in the human body and never completely break down. Studies, while not definitive, have linked PFAS to cancer, pregnancy-induced hypertension, and thyroid disease. And it’s likely that all of us have PFAS in our blood to some degree.
While PFAS have been used for decades, they’ve only recently been deemed hazardous. Older versions (PFOA and PFOS) were phased out in 2000 in the U.S. but are still being produced overseas. Newer forms such as GenX are still in use today. PFASs have been found in many places, most notably around military installation plants, airports and in water supplies. As we learn more about these health risks, plaintiffs will be seeking compensation for medical monitoring and potentially bodily injury. Given the potential exposure, insurers and reinsurers can’t help but be concerned.
Litigation and Regulatory Activity
The past two decades have given rise to a wave of PFAS litigation, beginning with DuPont for purported PFAS water contamination emanating from the firm’s plant near Parkersburg, West Virginia. Since then, various state water utilities have filed suits seeking to recoup costs for remediating PFAS-tainted water supplies. Settlements have been significant, such as the $850 million that 3M paid to the state of Minnesota in 2018.
More recently, 11 California local water districts sued PFAS manufacturers DuPont de Nemours, The Chemours Company, 3M and Corteva in December 2020, alleging they were responsible for a more than $1 billion in cleanup costs of PFAS that leached into groundwater and water systems.2
Today PFAS litigation, which is largely focused on remediation and driven by potential adverse health consequences, includes more than 5,000 complaints in 40 courts and involves 193 defendants in 82 industries.3
Some commentators suggest that PFAS water remediation litigation could expand to other defendants beyond the PFAS producers themselves, including producers of textiles, semiconductor manufacturing, and cable and wire manufacturers.4
On the regulatory front, states such as New York have begun regulating PFAS as a hazardous substance, while also establishing new drinking water standards in terms of acceptable exposure levels, and enacting regulations outlining proper storage and limited releases into the environment. At the federal level, the EPA in June proposed a new rule that would require all PFAS manufacturers, importers and processors to submit a comprehensive report disclosing and detailing all uses to which PFAS were applied over a 10‑year period.5 In October, the EPA announced that it would designate perfluorooctanoic acid (PFOA) and perfluorooctane sulfonate (PFOS), which are in the PFAS family of chemicals, as hazardous substances by 2023, with a proposed rule by spring 2022.6
To Exclude or Not to Exclude?
As mentioned, PFAS have been used pervasively for many decades, but they’ve only recently been identified as potentially hazardous. This raises legitimate questions as to how remediation suits will construe CGL policies. Whether or not coverage applies will be a case-specific determination that will largely depend on factual and jurisdictional issues. In some instances, carriers may be able to rely upon the absolute pollution exclusion as to general liability. However, some of those exclusions do not apply to product liability claims, and there’s a body of case law that limits these exclusions to “traditional” pollution and not a recently identified hazard like PFAS. Further, how do the insurance industry and legal system come to grips with PFAS and their variants when they’re so universally systemic, often dissolved into industrial biproducts – including wastewater – for which causation will be difficult to establish?
To date, ISO (Insurance Services Office) has not created a PFAS-specific exclusion; however, work is underway on a draft exclusion that could be published in late 2022. In the interim, a number of PFAS-related exclusions are circulating, either as a modification to the well-known Total Pollution Exclusion or through creation of a stand-alone PFAS exclusion. Regardless of approach, these exclusions seek to bar coverage for cleanup costs and bodily injury where the location included the manufacture, storage, or processing of PFAS type chemicals, or alternatively, operations that included fire-retardant chemical manufacturing, such as AFFF.
How Should Insurers Respond?
As 2021 ends, the exact course of PFAS litigation remains far from certain. However, one can safely say that the future course will encompass litigation that may ensnare industries and businesses originally thought to be free from the PFAS hazard issue. Despite this uncertain picture, there are specific steps that carriers can take to assess and address their PFAS-related exposures, including:
- Take inventory of previously underwritten risks.
Do they include manufacturers that may have used PFAS? Or do they include locations in which PFAS were stored over an extended period? Has local media focused on PFAS-related exposure in a location where an insured may have been using and/or processing PFAS?
- Carefully consider new risks at submission.
Do you completely understand the submission? Does the underwriting application provide a complete picture of the prospective insured’s operations? Are there unforeseen and/or latent activities that may unexpectedly include PFAS?
- Keep abreast of PFAS, both as to scientific developments and the litigation that it spawns.
Better scientific data that links PFAS to adverse health consequences will accelerate the pace and cost of litigation. Conversely, the lack of such data may temper the litigation. Regardless, there will be growing societal pressure to remediate our water supplies. The cost to do that will be in the billions – and much like environmental and asbestos litigation, policyholders and plaintiffs will be looking to the insurance industry to pay for some of that.
This is an exposure that is likely to create additional litigation activity, and we will share important future developments. In the meantime, please reach out to me or your Gen Re representative with any questions.
- “Will Forever Chemicals, PFAS, Lead to Never-Ending Lawsuits?” Carrier Management, 18 Nov. 2021, https://www.carriermanagement.com/features/2021/11/18/229077.htm.
- “On High Alert: Rising Risks of PFAS Claims and Litigation Capture New Attention,” A.M. Best RSS News, https://news.ambest.com/ArticleContent.aspx?pc=1009&altsrc=158&refnum=306827.
- “PFAS Litigation Levels Already at Epic Proportions,” Carrier Management, 23 Aug. 2021, https://www.carriermanagement.com/features/2021/08/24/224937.htm.
- “Navigating the New Wave of PFAS Regulation and Litigation,” Law360, https://www.law360.com/articles/1441538/navigating-the-new-wave-of-pfas-regulation-and-litigation.