On High Alert: Rising Risks of PFAS Claims and Litigation Capture New Attention
Some industry experts are seeing parallels between PFAS risk and asbestos litigation that for years hit insurers hard. Insurers are now reacting by creating stand-alone products and adding PFAS-related policy exclusions for losses stemming from drinking water contamination, environmental remediation, and products liability and bodily injury claims related to the “forever chemicals.”
- Lori Chordas
- April 2021
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- Risky Business: PFAS, which for decades were used in the manufacturing of thousands of common household and commercial products, have been linked to various long-term environmental concerns and potential health risks.
- All Rise: Those risks already have spurred growing litigation alleging property, personal injury and other damages, and some companies are turning to insurers to help cover some of those costly losses.
- On the Horizon: Some states have enacted rules around the use and disposal of PFAS, but there is limited legislation at the federal level. However, that could change with the new administration and the anticipation of a maximum contaminant level in drinking water by the EPA.
The number of lawsuits surrounding the use and disposal of per- and polyfluoroalkyl substances, or PFAS, is a growing concern for insurers.
In addition, industry experts believe the products liability and personal injury cases are only beginning and costly payouts may become the next asbestos litigation threat for carriers.
In December 2020, 11 local water districts in California filed a lawsuit in Orange County Court alleging that four PFAS manufacturers—DuPont de Nemours, The Chemours Company, 3M and Corteva, along with roofing products manufacturer Decra Roofing Systems—were responsible for potentially more than $1 billion in cleanup and decontamination costs related to PFAS chemicals leaching into the districts' groundwater and water systems.
It wasn't the first time the companies have been brought into litigation over the use of the synthetic chemicals. In 2017, DuPont and its spinoff Chemours reached a $671 million settlement in roughly 3,550 personal injury lawsuits brought by citizens alleging they suffered health consequences from drinking water contaminated by chemical releases from a Parkersburg, West Virginia plant. The following year, 3M settled with Minnesota for $850 million for contaminating groundwater with chemicals used in its Scotchgard products.
PFAS, dubbed “forever chemicals” because of their pervasiveness and inability to break down in the environment for decades or even centuries, have long been used in many personal, household and commercial products. Along with environmental concerns, the man-made chemicals—of which there are more than 7,000 compounds—pose a potential threat to humans and have been linked to health risks such as reproductive and endocrine development disorders, certain types of cancer, and liver and immunological issues.
Much like in the early days of lawsuits targeting companies manufacturing or binding asbestos fibers and other products containing large quantities of the carcinogenic fibrous silicate mineral, and the staggering impact those claims had on liability insurance—a legacy that still haunts insurers today, “we're now seeing that once again with PFAS manufacturers,” said attorney and shareholder John Gardella of the law firm CMBG3 Law LLC.
U.S. property/casualty insurers have been hard hit by asbestos and environmental losses over the years, and in the past five years alone paid out $16.1 billion for claims while incurring $11.3 billion in losses, according to a 2020 Best's Market Segment Report, AM Best's A&E Loss Estimates Remain Unchanged.
So far, the wave of PFAS lawsuits—many of which have also resulted in costly losses and settlements—has largely centered on environmental cleanup and remediation. But Gardella said lurking on the not-so-distant horizon is the growing threat of PFAS-related products liability and personal injury cases that could also significantly impact insurers and their bottom lines.
PFAS were accidentally developed by chemists in the late-1930s, and over the years the oil- and moisture-resistant chemicals were widely used in the production of everyday products such as nonstick cookware, water-repellent clothing, cosmetics, stain-resistant fabrics and carpets, aqueous firefighting foam and food packaging.
While the manufacturing and use of two specific PFAS compounds—perfluorooctanesulfonic acid (PFOS) and perfluorooctanoic acid (PFOA)—were phased out of the U.S. nearly 20 years ago, PFAS still pose a significant threat in the nation due to their environmental persistence and continued use or import in many consumer-based products such as food wrappers and furniture protectants, said Jamie Langes, assistant vice president of Philadelphia Insurance Companies' Midwest territory environmental division.
Also, inconsistent legislation around drinking water standards and PFAS disposal limits in some states, along with the lack of federal rules, add another layer of complexity and concern, Gardella said.
But he believes the new administration will soon change that. During last year's presidential campaign, President Joseph Biden and Vice President Kamala Harris named environmental and PFAS-related issues two of their top priorities for the current term.
As litigation surrounding PFAS continues to unfold, settlements have so far posted some big numbers, at well over $1 billion just between 2018 and the end of last year.
Philadelphia Insurance Companies
As litigation surrounding PFAS continues to unfold, settlements have so far posted some big numbers, at well over $1 billion just between 2018 and the end of last year, Langes said. “With these large settlements occurring even before widespread regulation has been enacted in the United States, PFAS are posing many questions and casting uncertainty on the costs to insurers and clients alike regarding future costs for this pervasive group of compounds.”
The challenge for insurers now is trying to put a monetary value on the potential risk—something Gardella calls a difficult task with “results so far being all over the map.”
One certainty, he said, is that no one is immune to the problem, “and even companies of any size that think they don't have anything to worry about may very well be brought into a suit.
“Some of our clients are now receiving violation notice letters in the mail saying, 'Years ago we believe your business put PFAS in the water and you are now responsible for cleanup costs to rectify the problem.' Also, the EPA and state agencies are issuing fines and penalties to companies they feel are egregious polluters,” Gardella said.
Only recently has the U.S. Environmental Protection Agency identified PFAS as a known hazard, said Timothy Fletcher, vice president and senior emerging issues specialist at Gen Re, who also noted testing for PFAS contamination historically has not occurred “at locations where they're known to exist.”
But in recent years some states have begun taking regulatory action to help change those and other concerns by enacting remediation protocols and drinking water standards and banning firefighting foams and other PFAS products. Last August, California became the first state to ban certain chemicals, including 13 different kinds of PFAS, from cosmetics and personal care products manufactured and sold in the state. The following month, California regulators passed yet another law banning the manufacture, sale and use of PFAS firefighting foam in most applications beginning Jan. 1, 2022.
Gardella also soon expects some big changes at the federal level, including the possible issuance by the EPA of a maximum contaminant level and a National Primary Drinking Water Regulation for PFOS and PFOA to the Safe Drinking Water Act by year end.
But he's concerned such a rule could lead to even more costly violation and cleanup notices, business interruption headaches and PFAS-related litigation for, as he noted in a recent National Law Review article, “businesses of all types that fail to prepare and assess the multitude of ways that their practices (whether intentional/knowing or not) are contributing to PFAS pollution in drinking water sources.”
Those concerns also are signaling a red flag for insurers, which, Gardella said, could be on the hook for some of those potentially costly losses. As a result, he added, it's “starting the coverage cogs to turn to determine whether or not there will be coverage for violation notices and EPA issues.”
For years, companies have tried to trigger general liability policies for pollution-related losses. But in 1986, the insurance industry took some steps to protect itself against some of those risks by introducing an absolute pollution exclusion to general liability policies that “forecloses coverage for pollution-related incidents,” said Philadelphia Insurance's Langes. “With the advent, evolution and offering of a pollution-based insurance market over the last 30-plus years, and the prohibition of many claimants from accessing general liability programs for PFAS contamination, modern environmental programs potentially have significant exposure to claims arising from PFAS.”
The issue of coverage dates was the focus of cases such as the 2018 lawsuit, Continental Insurance Co. vs. Honeywell International, in which the New Jersey Supreme Court held that it was unfair to penalize the insured for not having insurance after 1986 when that coverage was not available, according to an article on the law firm Anderson Kill's website. As a result, the article said, the court held that the insurers from 1980 to 1986 “were liable for the entire exposure, with no allocation to the insured for the uninsured years.”
Recently, some carriers have been trying to get ahead of the impending wave of PFAS-related litigation by creating standalone products or, Gen Re's Fletcher noted, adding PFAS exclusions to new and renewal quotes for properties they suspect have PFAS or are adjacent to properties with known PFAS presence.
When it comes to pollution liability coverages, he said, some contain “wording unique to a specific industry or insured or exclusions such as the 'expected or intended' exclusion or those typically seen as to criminal fines and injunctive relief.” Fletcher expects that as those issues develop, “insurers will also likely look at other coverage issues, such as whether there is bodily injury as defined by a policy. That's significant since many suits include claims for medical monitoring. Other factors will be similar to that seen in prior environmental litigation, such as trigger and allocation, or determining when injury from PFAS took place.”
But making determinations like that, along with concluding when the chemicals were released into the environment or to whom the finger of blame should be pointed, continues to be a challenge for litigators and others because of the longevity of PFAS in the environment.
“That's something we've been doing a lot of work on,” said Adam Grossman, a senior scientist and vice president of modeling at science-based data analytics firm Praedicat. “We have a framework that classifies emerging risks into three phases—emerging interest, emerging damage and emerging litigation. PFAS falls into the latter. One thing we do for agents in that category is build scenarios.”
He said the scenarios estimate economy-wide and company-level losses related to PFAS water cleanup by assessing how PFAS were used over time, whether it was released directly from manufacturing or indirectly from products later in their lifecycles. “We also explore different ways that liability could be apportioned across companies and industries. These estimates also provide one possible way that those losses could be attributed to historical policy periods. For example, we've determined that around half of losses related to Teflon manufacturing are due to activities before 1986. For textiles, that number is closer to 20%.
“So if a carrier insured a company, let's say a sportswear company, from 1950 through the 1980s the insurer might still be responsible for some losses even if the pollution exclusion post-1986 holds,” Grossman said. “At the end of the day insurers and their insureds need to estimate the total potential cost of litigation, how its spread through the economy affects who might pay and how insurance may respond.”
The challenge for insurers now is trying to put a monetary value on the potential risk—a difficult task with “results so far being all over the map.”
CMBG3 Law LLC
While litigation surrounding drinking water contamination and environmental remediation continues to grab national headlines, Gardella raises an important question: What about the thousands of other everyday products that contain PFAS?
“It's only natural that once the plaintiffs bar realizes these chemicals were used in so many different types of products and have been linked to several types of serious health issues they'll start to target other downstream players for personal injury and products liability suits,” he said.
There's already been a number of those cases, including a recent class action lawsuit in Peshtigo, Wisconsin. In January, Johnson Controls' subsidiary Tyco Fire Products settled a lawsuit with more than 270 homeowners for $17.5 million over claims that their drinking water was contaminated by PFAS used by Tyco to test firefighting foam. According to reports, $15 million of the settlement will be allocated for class-wide claims such as property damage and the remainder will go to individuals diagnosed with health conditions such as thyroid disease, ulcerative colitis and testicular cancer.
In another case, reports cite that last year Martha's Vineyard Airport was in the process of finalizing a proposed $136,000 insurance settlement that would cover investigative costs related to the discovery of PFAS in firefighting foam used to extinguish jet fuel and other flammable liquid fires. In February 2020, the airport entered into a multidistrict lawsuit against aqueous film forming foam manufacturers to try to recoup remediation costs involved with testing wells in the affected area.
Gardella expects that within the next five years there will be more product liability and bodily injury cases against manufacturing companies that use PFAS as a component of their products, potentially submerging companies under a wave of costly financial burdens and business interruption issues.
Grossman agrees, “So far we've seen bodily injury lawsuits from highly exposed individuals like firefighters, but scientists are continually studying how our health is affected by PFAS. Evidence could accumulate showing that lower-dose but longer-term exposures also cause bodily injury. That scientific development would likely lead to lawsuits claiming bodily injury from a wide variety of exposures, including food packaging, cosmetics and building products.”
An Eerie Reminder
For some in the industry, the rise of PFAS litigation is an eerie reminder of another environmental concern that just a generation ago hard hit the industry in terms of claims and costs.
“In the 1980s, if you had asked any attorney doing asbestos litigation if they could envision a day when roofing and shingle manufacturers would be brought into litigation for personal injury they would have thought you were crazy,” Gardella of CMBG3 said. “But that's where we are today, and I see no reason why it will be any different for PFAS litigation.
“Personal injury claims now are trickling down to some of the higher exposure products like firefighting foam. But the next step is what happened in asbestos litigation where once insulation manufacturers went bankrupt or bowed out of litigation they moved onto other products that contained smaller percentages of asbestos components, and that's where litigation is today,” he said.
One of the biggest concerns now for insurers is the uncertainty that still surrounds PFAS, and Gardella expects it will take some time before many of those questions are answered.
One of those unknowns, he said, is what the Comprehensive Environmental Response, Compensation, and Liability Act will mean for future PFAS-related litigation.
“The EPA will tackle whether or not PFAS can be designated as a hazardous substance under the Superfund law. And if and when a designation passes, which could occur under the Biden administration, that's massive because it opens up many regulatory requirements for companies emitting PFAS into water, air or soil,” Gardella said. “Also it opens them up to regulatory investigations for contamination of any of those sources that can lead to fines, penalties and potential suits for remediation. That could be a huge trigger to many insurers and their insureds.”
As insurers gear up for what's to come, Philadelphia Insurance's Langes offers them a word of advice: Be cautious. “Strong underwriting will always be something that insurance carriers need in their toolbox. Without it, we cannot ensure fiscally viability to policyholders,” she said. “So as we move forward, not just with PFAS but in this overall litigious environment, insurers need to be cautious with their underwriting and disciplined for ensuring an understanding of client exposures.”
Langes added it's also important for insurers to remain on the cutting edge of change. “Historically, insurance has largely been reactionary, but lessons learned along the way show we need to be more proactive and understand what the next chemical concern will be so we can tailor risk management strategies and policies to accept some—but not all—of that risk as the regulatory and legal environments evolve,” she said.
While each new year brings a rash of new PFAS-related lawsuits, Gen Re's Fletcher said the industry is still in “the very early stages of a litigation saga that will take many years to play out.”
He anticipates that as “better” scientific data that links PFAS to adverse health consequences comes to the fore, it 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, and the cost to do that will be in the billions. And much like with environmental and asbestos litigation, policyholders and plaintiffs will be looking to the insurance industry to pay for some of that.”
That's why it's important, Fletcher said, for insurers to begin identifying which policyholders have used or had PFAS on site, the locations in which those activities took place and the coverages and policy years that may be triggered.
A Peek Inside PFAS
Look around. Per- and polyfluoroalkyl substances, commonly known as PFAS, are everywhere. In your carpet. In your stain- and water-repellent clothing. In your nonstick pans. In your microwave popcorn bags and fast-food wrappers. And even in many of your cosmetics, cleaning products and dental floss.
But what are these troublesome toxic chemicals that are increasingly grabbing headlines and spurring litigation surrounding the widespread contamination of drinking water sources, environmental remediation and a growing host of other issues?
According to the U.S. Environmental Protection Agency, PFAS are a group of man-made chemicals that includes PFOA, PFOS, GenX and other chemicals that have been manufactured and used in various global industries since the 1940s. Here are some other facts about PFAS:
- For decades the chemicals were widely used in the manufacturing of many everyday products, such as Teflon and Scotchgard, because of their ability to repel water, resist heat and protect surfaces.
- 3M began manufacturing two types of PFAS—PFOA and PFOS—in the 1950s for product applications. The following decade, the U.S. Navy, with support from 3M, developed firefighting foams using PFAS.
- PFAS are different from other chemicals because their strong carbon-fluoride bonds don't break down in nature and can accumulate over time, therefore potentially leading to adverse human health effects such as increased cholesterol levels, changes in liver enzymes, increased risk of kidney and testicular cancer, decreased vaccine response in children and increased risk of high blood pressure or pre-eclampsia in pregnant women.
- It's widely believed that nearly every American has PFAS in their body.
- In a recent article posted on Royal Society of Chemistry's website, toxicologists are concerned that exposure to PFAS can increase an individual's likelihood of developing severe COVID-19, and could diminish the effectiveness of the coronavirus vaccine.
- PFAS contamination is a widespread problem. As of March 2019, at least 610 locations in 43 states were known to be affected by PFAS contamination, including drinking water systems serving roughly 19 million people, according to data analyzed by the Environmental Working Group and Northeastern University.
- Earlier this year, the EPA took two preliminary actions toward regulating PFAS in U.S. tap water. Among those actions includes committing to set legal limits for the two most notorious PFAS compounds and to test public water systems for more than two dozen others, according to the nonprofit Environmental Working Group.
Sources: 3M and PFASfacts, Agency for Toxic Substances and Disease Registry, Centers for Disease Control and Prevention, U.S. Environmental Protection Agency, Environmental Working Group
Lori Chordas is a senior associate editor. She can be reached at firstname.lastname@example.org.