The acronym PFAS is not yet on everyone’s lips. But it soon will be, according to emerging risk experts. Put together with the more ominous term “toxic tort”, PFAS are set to strike fear into the heart of the insurance industry.
Such is the solvency-threatening potential of the group of controversial chemicals known collectively as per- and polyfluoroalkyl substances that they are widely tipped to be the next asbestos.
Some believe liability claims from PFAS threaten to dwarf the slo-mo asbestos crisis that has been sapping insurers’ reserves for more than half a century. Tellingly, PFAS have become known as “forever chemicals” because they don’t fully break down and instead persist in the environment.
To put that threat in perspective, in the past five years alone, US property/casualty insurers have paid out $16.1bn for asbestos claims while incurring $11.3bn in losses.
PFAS are ubiquitous says Natasha Lioubimova, senior associate at law firm Clyde & Co, and are used in manufacturing processes and incorporated into products directly. “The list of affected products includes everything – from paper and packaging to textiles, to medical implants – so the range of potential uses and exposures is very wide,” she says.
“However, for the purposes of litigation, it will be necessary to establish a clear link between exposure and the harmful effect, so exposures to compounds from specific sources over a significant period of time are more likely to give rise to litigation than sporadic exposures from a variety of sources.”
Mounting evidence
Future litigation could target human and environmental exposures that include the use of PFAS in cosmetics, according to Adam Grossman, vice-president and co-founder of emerging risk modelling firm Praedicat: “US Congress recently introduced a bill banning PFAS in cosmetics because a recent study showed that a large percentage of cosmetics contain PFAS as undeclared ingredients.
“PFAS are used in plastic food containers and pizza boxes, so the restaurants that buy and use food contact paper can be targets for both human exposure and PFAS getting into the environment. Then there’s apparel, footwear, textiles and carpet manufacturers, as well as those who make stain-proofing treatments. PFAS are also used in electronics and semiconductor manufacturing.”
But is there a scientific consensus that PFAS are harmful? The devil is in the detail, says Praedicat general counsel Stephen Jones: “There is a strong consensus that the two most well-studied PFAS compounds – PFOA (perfluorooctanoic acid, used in making Teflon) and PFOS (perfluorooctane sulfonic acid, used in stain-resisting fabric, firefighting foam and food packaging) – are harmful.
“The C8 Science Panel, created at the end of the first round of PFOA litigation in 2005, determined that PFOA was linked to thyroid disease, testicular cancer, kidney cancer, pregnancy-induced hypertension, and high cholesterol.
“Since then, scientists have also established that PFOA and PFOS (and probably many other PFAS) are endocrine disruptors. Endocrine disruption can lead to obesity, metabolic syndrome, type 2 diabetes, thyroid disorders, and infertility. In pregnancy, it can also lead to problems with the foetus,” Jones adds.
Regulators lean in
Insurers will see the number of claims relating to PFAS grow as regulatory awareness and proactivity increase. Recent regulatory actions in the US include the EPA adding PFAS as a class to the Candidate Contaminant List, which could be a precursor to regulating their presence in drinking water, Praedicat’s Grossman says. “Second, the US Congress has multiple bills under consideration to deal with PFAS. One would ban PFAS in cosmetics. Another, called the PFAS Action Act, would declare PFAS to be “hazardous substances” under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) – also known as the superfund law. The PFAS Action Act would also require some form of toxicity testing to be conducted on all PFAS.”
Claims around the use of aqueous firefighting foams (AFFF) are on the increase in the US, according to Clyde’s Lioubimova. One of the main allegations in these actions is that the use of the AFFF in question has resulted in the contamination of water supplies: “As regulators carry out more testing of water supplies, so more communities are likely to be alerted to a potential problem, and may be inclined to join the plaintiffs already looking to hold firefighting foam manufacturers to account.”
Maine event
There is a wide range of regulatory approaches covering the chemicals’ use in different US states, but earlier this summer Maine became the first state in the US to enact a broad prohibition on PFAS.
Although the Maine bill contains an exception for cases where companies can demonstrate there are no alternatives, the law requires manufacturers that intentionally add PFAS to products sold in Maine to report their use to the Maine department of environmental quality, starting in 2023.
Regulators elsewhere around the world are taking action on “forever chemicals”. The 152 signatories to the Stockholm Convention on Persistent Organic Pollutants (POPs) have committed to combating the negative effects of POPs (which include PFOS and PFOA) by eliminating their production, use and storage.
The EU, for example, has had in place for a number of years a general prohibition on the manufacturing, placing on the market and use of PFOS and PFOA, with a dwindling list of exceptions to the rule. It has also introduced ambitious plans to ban all non-essential uses of PFAS, and has recently issued a revised Drinking Water Directive (EU) 2020/2184, which sets a limit on permissible PFAS concentrations in European water supplies, Lioubimova says.
Insurer exposures
From an insurance perspective, the policies that could be exposed as litigation widens depend on what the litigation is alleging specifically and how the policies are worded, according to Praedicat’s Jones: “For example, what will and won’t be deemed to fall under the pollution exclusion. There’s also an issue that PFAS usage, and therefore exposure, has happened far in the past. Nearly 25% of PFAS use related to water contamination is from before 1986 and these policies do not generally have pollution exclusions,” he says.
“What is more, with 51 jurisdictions in the US and policies governed under Bermuda and UK law, there’s going to be a patchwork of decisions about what is covered. It ranges from general liability for property damage and bodily injury, to potentially product pollution.”
Clyde’s Lioubimova sees three types of cover in scope: product liability cover, which may be triggered if the allegations concern the direct use of a product manufactured by the insured; environmental liability cover, which may be triggered if there are allegations of the dispersal of the chemicals as part of the manufacturing process or the intended use of the product; and general liability policies, which are triggered by a legal liability to pay for property damage or personal injury.
Next big thing
Could PFAS really hit the insurance industry as hard as asbestos?
“The models tell us that they could, in a big way,” says Grossman. “We estimate the total burden of cleaning up drinking water from PFAS alone could be more than $400bn, and that’s just in the US. And that’s with no bodily injury. It absolutely rivals asbestos. Using Praedicat models, we have identified around 30 business activities implicated – and each of these activities implicates from a handful to several thousand businesses. Just as in the case of asbestos, insurers may believe they have a diverse portfolio –but in reality this may not be the case due to the wide use of it in multiple industries. PFAS are what Praedicat refers to as a ‘litagion agent’, the common denominator in mass litigation, meaning insurers may find a large portion of their portfolio exposed without even realising it.”
