Environmental officials announced in January 2022 that more than half a million residents of New Jersey had been exposed to dangerous PFAS chemicals through dozens of community water systems.
This breach of New Jersey’s drinking water standards - which were updated in 2020 with strict rules for two PFAS chemicals: PFOA and PFOS – is hardly surprising given the fact that many companies have used PFAS chemicals for decades in manufacturing everyday products like nonstick pans, polishes, waxes, paints, and cleaning products.
The United States Environmental Protection Agency (EPA) says: “PFAS are widely used, long lasting chemicals, components of which break down very slowly over time. Because of their widespread use and their persistence in the environment, many PFAS are found in the blood of people and animals all over the world and are present at low levels in a variety of food products and in the environment.
“Scientific studies have shown that exposure to some PFAS in the environment may be linked to harmful health effects in humans and animals. There are thousands of PFAS chemicals, and they are found in many different consumer, commercial, and industrial products. This makes it challenging to study and assess the potential human health and environmental risks.”
Joe Quarantello, national environmental practice leader with Risk Strategies, believes PFAS could soon be a potential game changer for environmental liability. He likened the current PFAS situation to asbestos in the 1970s/80s, when asbestos became widely recognized as a lethal contaminant. Before they understood the contaminant, insurance carriers suffered severe asbestos-related losses on general liability insurance policies, but, by the mid-1980s, many insurers (if not all) had introduced exclusions for claims arising from asbestos exposure.
“Environmental insurance products were created to address those needs, and, as time has gone on, the policies have become broader in scope and in coverage. But every once in a while, something new pops up,” Quarantello told Insurance Business. “A few years ago, it was Legionella; another time, it was mold – and in both of those situations, insurance carriers pulled back a little bit so they could figure out how to get their heads around the exposures, and what they needed to do to continue providing meaningful coverage. Now, we have PFAS, and I think it’s another game-changer, just like asbestos was.”
The EPA is currently working to establish an actionable threshold of PFAS contamination (potentially at 17 parts-per-trillion), and considering how prevalent these chemicals are, companies with any connection to PFAS should be cognizant of the evolving regulatory landscape and be prepared to defend against potential liability.
“What the EPA and local states are trying to do is set up a roadmap and set boundaries around what those limits are going to be,” said Quarantello. “But I think it will take them some time to get their heads around this. There are a lot of unknowns [and] I think more research needs to be done. I think they need to have a better understanding as to what the effects are to human health and safety, as [PFAS chemicals] have presented certain health issues.”
In some cases, there are not yet any viable alternatives to PFAS. Quarantello gave the example of airports, where the commonly-used firefighting foam is known to contain PFAS. At present, airports can continue to use this firefighting foam, but there’s a risk of liability issues arising in the future. Furthermore, insurance carriers are rather skittish about providing coverage for PFAS, with many issuing blanket exclusions, unless they’re convinced otherwise by a broker with a very strong submission and risk management plan.
Brokers need to know the risk better than the underwriters do, according to Quarantello. He said it’s important for brokers to take a strategic approach in how they present PFAS exposures to underwriters, making sure that they fully disclose everything they know.
“With airport clients, we looked at the risks and we said: ‘OK, we’re probably going to be confronted with PFAS. What’s the background of your operations? When did you take control of the airport? Were there any indemnities? Did you establish a baseline assessment? Have you performed any firefighting activities, or anything that would be related to PFAS?’
“You’ve got to flush out all of those details, so that when you go to the carrier, you’ve got the full story and you can present it so that if the underwriters are uncomfortable, you can make them comfortable, and if you can’t get them completely comfortable, you can find some middle ground. We ended up prevailing [and securing coverage] on one [airport account], and, on another, there was a PFAS cleanup exclusion, so we got coverage for bodily injury and property damage.
“Brokers should take that approach and put it into any industry practice, whether it be private equity, manufacturing, anything like that. You need to be prepared to answer those questions, and have your answers ready in advance of going to carriers, so that they know that you have a clear understanding of the risks that you’re presenting.”
Quarantello’s main message is that companies must be proactive, both from an operational standpoint and from a legal standpoint, to make sure that they’re at least looking at PFAS, understanding their exposure to it, and planning for it. As he pointed out, this so-called ‘forever chemical’ is “not going away any time soon”.