With the Environmental Protection Agency recently adding some variants of PFAS to its hazardous substance list, insureds have potential exposure for cleaning and reporting releases.
They're in your non-stick pans, the carpet in your home and, if you're like nearly every American, they're in your bloodstream too, according to the Centers for Disease Control and Prevention. These omnipresent entities are per- and polyfluoroalkyl substances, known as PFAS or simply—forebodingly—“forever chemicals."
PFAS are a group of chemicals used to make fluoropolymer coatings and products that resist heat, oil, stains, grease and water, appearing in “clothing, furniture, adhesives, food packaging, heat-resistant non-stick cooking surfaces, and the insulation of electrical wire," according to the CDC. Importantly, they don't break down. Instead, they move through soils, contaminate drinking water sources, and build up in fish and wildlife.
While more research must be done to determine the full impact of these forever chemicals, studies by the CDC on humans suggest that high levels of PFAS may lead to a slew of negative impacts, including increased cholesterol levels, changes in liver enzymes, increased risk of kidney or testicular cancer, increased risk of high blood pressure or pre-eclampsia in pregnant people, small decreases in infant birth weights, and decreased vaccine response in children.
While the jury is still out on the risks involved with PFAS exposure, the jury is very much in regarding PFAS lawsuits. More than 6,400 PFAS-related lawsuits have been filed between July 2005 and March 2022, according to Bloomberg Law.
The majority of lawsuits so far have been directed at manufacturers of PFAS, with Dupont and 3M—the original, accidental inventors of the first PFAS—the primary targets. 3M, which according to Bloomberg Law's analysis was named in more than three PFAS-related lawsuits a day in 2021 and is exposed to as much as $30 billion in liability, has announced it will stop making forever chemicals by the end of 2025.
In January 2021, the first settlement occurred for a PFAS personal injury lawsuit against a company that used PFAS as a component of its consumer product, potentially cracking open the floodgates for lawsuits to reach even beyond manufacturers. Tyco Fire Products, a subsidiary of Johnson Controls, agreed to pay $17.5 million to settle claims from 300 homeowners after Tyco's PFAS-containing aqueous film forming foam (AFFF), which is a fire suppressant, leached into drinking water, according to National Law Review. The homeowners alleged injuries that included kidney and testicular cancer.
AFFF manufacturers have claimed that they don't have exposure. “The majority of the foam at issue is specified and used by the U.S. government and military, and therefore, subject to the government contract of defense," George Oliver, CEO of Johnson Controls, said in a 2020 earnings call. However, in September 2022, a U.S. District Court for the District of South Carolina denied 3M's argument that it is immune from liability based on its status as a government contractor in its production of AFFF.
Regardless, emerging lawsuits will have “a huge impact" on the environmental liability market, says Chris Bunbury, president & CEO of Environmental Risk Managers Inc. “I tell people that PFAS are going to make asbestos and lead look like elementary environmental issues," he says.
“PFAS has been a hot topic for a few years," agrees Daniel Drennen, environmental practice leader at Amwins. “There are a couple thousand different variants, but the Environmental Protection Agency recently added a few of them to their hazardous substance list, which is going to open up insureds with potential exposure to the EPA enforcing cleanups and requiring insurers to report any releases of PFAS."
Currently, coverage connected to forever chemicals is like the Wild West. “We're very much where we were back in the early 2000s when mold first came out and every carrier was circling their own wagon figuring out how to deal with it," Bunbury says. “Some carriers are putting PFAS exclusions on everything. Others are realizing it will need to be cleaned up, and we'll need contractors to do that, so they're offering coverage for contractors for PFAS."
“There are still markets that will offer coverage, but they're going to underwrite each risk to see the exposure to that contaminant," Drennen adds. “If you can get meaningful coverage for PFAS right now, it's a good time to go ahead and get it."
While PFAS dominates headlines, any type of chemical's inadvertent escape can lead to a big bill for commercial insureds. “Even an HVAC contractor who installs an air conditioning unit and some lines leak that contain a chemical like glycol, they could be exposed to millions of dollars for the cleanup," Drennen says.
Bunbury shares a story of a small auto parts dealer that experienced a fire, which when the smoke cleared was left with thousands of gallons of AFFF-contaminated hazardous waste. “It cost them $80,000 to get that sucked up, transported and disposed of," he says. “We found out about it because the agent called us and said, 'They're suing us for errors & omissions for not completing our job when selling a fire policy—what can we do to avoid this in the future?'"
The answer to that lawsuit-beguiled agent's question: education.
“It starts with awareness of the effects of pollution, fungus, mold, bacteria and other named contaminants that get excluded on their customers' policies," says David Dybdahl, CEO of ARMR Specialty Holdings.
“Agents need to explain the effects of those exclusions, and they're probably not going to be able to do that without some outside expertise," Dybdahl recommends, noting that agents should seek out insurance underwriters or specialized wholesale insurance broker experts.
Once the agent and insured understand the impact of those coverage gaps, the agent should create demand for the environmental liability policy designed to fix that coverage gap. “Get it on record that you recommend those gaps be filled and offer to fill the gaps with a premium benchmark before you go and get quotes," Dybdahl says.
“Then come back and say, 'I can fix this gap in coverage for this much premium,'" he adds. “Your closing line is: 'What would you like to do?'"
AnneMarie McPherson Spears is IA news editor.