Forever Chemicals: The Next Wave of Exposures that Keep Insurers Up at Night
By: Brittany Negron, Consultant, RT’s Environmental & Construction Professional Practice
January 6, 2020
Throughout the industry, nation and even world, the health risks and liabilities surrounding per- and polyfluoroalkyl substances (“PFAS”) are rising at a fever pitch. In use since the 1940s, PFAS consisting of approximately 4,000 separate chemicals and compounds are everywhere since they’ve been used for decades in everything from non-stick cookware (Teflon), floor wax, fabrics, coatings and firefighting foams to soap, architectural resins, cosmetics, sandwich wrappers, and vast amounts of consumer products. Since the development and implementation of this ubiquitous compound, PFAS use has become more suspect as its negative effects increasingly come under the public spotlight.
Within the last decade, numerous health and environmental have raised their concerns about this highly-used chemical. Known as “forever chemicals” due to their ubiquitous nature, long-term resilience and resistance to breaking down naturally, PFAS are steadily rising from the ranks of “emerging contaminants” to the “emerged” category because of their prevalence and the growing awareness of their toxicity and potential hazards. For instance, the latest scientific research has linked these persistent, highly-toxic chemicals to numerous health concerns such as low-infant birth weight, immune system, cholesterol, cancer and thyroid problems. That’s because of their ability to bioaccumulate in the bodies of living things for years and consequently grow in concentration much like mercury in fish. In fact, these chemicals have been so immersed into the everyday world for decades that it’s likely “most people in the U.S. have one or more PFAS compounds in their blood” says Matt Burns, leader of contaminated land services at WSP USA.
One of the biggest problems facing today’s insurance carriers and property owners is that until recently the testing of PFAS, and related constituent contamination levels were not part of the required historical sampling at sites ranging from chemical industries, manufacturing facilities, airports and fire stations to the military bases closed during the Base Realignment and Closure (BRAC) process. This is mainly due to the EPA’s emphasis on known hazards and PFAS’s only recent emergence into this category over the past few years.
To further complicate the issue, the Environmental Protection Agency (EPA) has since demanded the retesting of these sites for PFOA contaminants, while issuing recommendations for maximum contaminant levels (MCL) that start at 70 parts per trillion (ppt). As a result of this directive and release of state guidelines electing even more stringent MCL’s, some as low as 12 ppt, many environmental insurance markets are now including PFAS exclusions in their policies as precautions against the eventual passage of established state and federal PFAS regulations.
As for the environment, the latest remediation techniques are repeatedly uncovering new PFAS exposures in both groundwater and soil to create a continuing flow of concerns. To provide clients, agents, brokers and the general insurance industry with an ongoing source for information on the topic, RT Specialty regularly posts stories through its corporate blog and daily email blasts. Some of the headlines over the past few weeks alone offered just a brief sample of the many stories currently exploring the topic and widespread negative effects. Headlines like “Unregulated toxin PFOA prevalent in NJ drinking water,” “Dupont transfers pollution liabilities for 171 Sites to New Company Chemours,” “Nearly 1,000 more wells must be tested for PFOA in Merrimack,” “Treatment plant discharging into Kennebec River processed runoff possibly laced with ‘forever chemicals’,” and “Concerns Persist Over PFAS in Farmington River” regularly populate the news. Consequently, many experts have been left to wonder if PFAS will become the next asbestos or if the proverbial shoe has already dropped.
There’s no hiding from what’s in plain sight
So, what now? What are the next steps for identifying and combatting the potential threats, health risks and environmental concerns? The truth is – and this is the really scary part – no one really knows. Nearly every industry, government agency and complex are still on the ground floor when it comes to figuring this whole thing out. That’s because no one will be immune to PFAS hazards, exposures and liability when the final results are tallied. Take a look around. Nearly every industrial or commercial site is likely contaminated in one way or another.
In addition to the environmental concerns and health problems, the legal implications are staggering since no one knows where the official liability will start and stop. Companies like 3M and DuPont are already defending product liability and environmental issues. Numerous utilities nationwide are facing claims surrounding the quality and contamination of local drinking water. High-budget, star-studded movies like Dark Waters are now exploring the damages and liability associated with companies that have negligently polluted the environment. Unfortunately, there’s no place to go but down since all the research is still in its infancy and Pandora’s Box isn’t even close to being open.
But that hasn’t stopped both state and federal regulating bodies from initiating the next wave of legislation. In early 2019, the U.S. EPA released a PFAS Action Plan that designated related constituents, Perfluorooctanoic acid (PFOA) and Perfluorooctanesulfonic acid (PFOS), as hazardous chemicals, while also issuing a drinking water health advisory that sets 70 parts per trillion as a maximum contamination level. Multiple bills concerning PFAS restrictions are also currently under evaluation in the U.S. Congress, but to date have not been adopted.
Dissatisfied with the present array of guidelines, 17 separate states are now moving to adopt stricter guidelines to cover everything from cleanup requirements to drinking water safety and/or use prohibitions/restrictions. As an example, Connecticut has established an Interagency PFAS Task Force charged with the development of guidelines that minimize health risks, future contamination issues and cleanup scenarios. The Vermont Agency of Natural Resources has also mandated the testing of all public and non-community water systems for PFAS by December 2019. Other states like California, New Jersey, New York, Minnesota, Maine, New Hampshire, and Michigan have joined the battle by setting MCLs for drinking water, limiting PFAS chemical use in packaging, and requiring fire departments to report the use of firefighting foam containing PFAS. As examples:
- New Jersey has a MCL for Perfluorononanoic Acid (PFNA) of 13 ppt and is proposing MCLs for PFOA and PFOS at 14 and 13 ppt, respectively
- In New York, an advisory council recommended a MCL for PFOS and PFOA at 10 ppt
Time to plan for the inevitable
As a result, risk management strategies and the proper planning procedures should be underway for everyone ranging from water treatment plants, refineries and airports to military bases and manufacturing operations. Any company, business or facility that either used or distributed these harmful chemicals are facing financial risk if found negligent in their actions. Plus, there’s nowhere to hide in a legal environment where state and federal governments cannot only enact PFAS regulations, but also revisit closed sites to test for these “new” contaminants.
PFAS coverage options.
Fortunately, the marketplace is currently responding to these conditions with policy forms that are evolving to protect the insureds of closed sites, many of whom have even received No Further Action (NFA) letters. This includes re-opener liability coverage for locations that are being required to retest by state environmental agencies for potential PFAS groundwater and soil contamination.
Under these conditions and as a key risk transfer tool, PLL coverages forms are becoming increasingly invaluable throughout the industry for their ability to financially manage the pollution liability risks associated with on- and off-site clean-up and remediation expenses; third-party bodily injury, property damage, defense expenses and known pollution conditions identified in contaminated property transfers. In addition, these terms have been further impacted in recent years by the combination of high-profile mold claims and natural disasters ranging from Hurricanes Harvey and Irma to the wildfires in California. Subsequently, the marketplace has responded with restrictive coverage terms that exclude PFAS, Force Majeure, climate change and Acts of God exposures.
In addition, with the threat of PFAS claims clearly rising beyond the horizon, environmental insurance carriers are also adding PFAS exclusions on all new and renewal quotes for properties that are suspected of using PFAS or might have been exposed to the PFAS from neighboring properties. In fact, RT Specialty’s National Environmental and Construction Professional practice (RT ECP) has successfully worked with carriers in recent months to secure PFAS coverage forms for bodily injury and property damage at sites that evidence the absence of PFAS and associated chemicals as well as the necessary data showing low PFAS levels. However, the terms and conditions that include the cleanup costs related to these locations are still unavailable to most insureds. Unfortunately, there are no known avenues to manage the PFAS risk for those without a PLL policy already in place.
Foreseeing the unknown is every carrier’s nightmare
An informal poll recently performed by RT Specialty found that brokers, agents and insurance companies are most concerned by the unknown. The truth is that many risks can be adequately addressed and handled as long as they’re predictable and foreseen. However, the greatest and most costly pitfalls from an insurance standpoint often surround the next array of unexpected threats, catastrophes and exposures. Is the next asbestos here and if so, who will be affected? How bad will it be? And what will it take to undo the damage?
Again, no one is quite sure where the PFAS issue is headed. Testing is still in the developmental stages. Many of the laws regulating their use, cleanup and the potential exposures are now being formed. The only sure thing is that the claims and liability issues are coming and sure to be costly. That’s the reality in an unsettled environment, where science is still defining the levels of harm and the next phase of testing is still in its infancy.
Other challenges surround the federal, state and local governments legislating this space. As of now, a clear-cut pathway for universal standards does not appear likely. Several states are presently developing guidelines that are demonstrably stricter than those proposed by Congress or even the EPA.
Where does that leave the industry? In the midst of an uncertain future that will take years to properly sort out. In the meantime, carriers will continue to work towards the “unknown” with an eye on the known. This means covering insureds who have done their due diligence by sampling sites for PFAS and excluding the locations that have not been previously tested and likely to suffer PFAS contamination levels. But even then, we’re still on the brink of figuring out the extent of the damage, harm, liability and costs from an extremely toxic exposure commonly thought by many to be “the next asbestos,” or worse.