The Next Asbestos
In January 2020, Leader’s Edge published a story about a class of human-made chemicals called perfluoroalkyl and polyfluoroalkyl substances, otherwise known as PFAS.
These chemicals allegedly cause a range of adverse health effects, including liver damage, kidney and testicular cancer, decreased fertility, weakened immune system, high cholesterol and pregnancy-related complications, among other conditions. The article introduced a disturbing liability scenario for insurers and reinsurers, with several experts offering opinions on what they called the “next asbestos.”
Thousands of lawsuits already filed against PFAS-related defendants suggest another nightmare scenario for the insurance industry.
Whether PFAS chemicals cause damage now or years from now is just one liability issue confronting insurers.
So ubiquitous are PFAS chemicals that they’ve been found among remote Inuit populations in the Arctic.
The reference to asbestos, a nonflammable natural mineral used in many fire-resistant products, is appropriate for two reasons. One, asbestos was the so-called “miracle material” that ultimately produced a litigation nightmare for insurers, with net losses exceeding $100 billion, according to ratings agency AM Best. And two, the fire-resistance, stain-resistance, heat-resistance and water-resistance of PFAS certainly mirror the miraculous properties of asbestos. The thousands of lawsuits filed so far against PFAS-related defendants suggest a nightmare scenario for the industry ahead similar to asbestos.
PFAS is a broad class of chemicals that includes roughly 5,000 substances found in products such as nonstick cooking utensils, pots and pans; waterproof clothing; stain-resistant food packaging, carpets and upholstered furniture; waterproof cosmetics; and fire-suppressing foam. Praedicat, an insurance risk-modeling firm, estimates 15,000 companies have used PFAS in a wide range of products.
The chemicals enter the human body primarily through drinking water. Water is contaminated by the release of PFAS compounds into the air or at disposal sites, where they percolate into the groundwater. Firefighting foam containing PFAS also gradually leaches into groundwater. Last June, the environmental research firm EWG estimated more than 200 million people in the U.S. regularly drink water contaminated with PFAS.
Whether these people are now coping with serious health problems or will incur a range of diseases in the future is just one of three liability issues, raised in personal injury lawsuits, confronting insurers. The other two are product liability and pollution liability, although there is also the potential for directors and officers (D&O) liability.
Aside from drinking water tainted with PFAS, people can also ingest the chemicals by breathing PFAS-contaminated air and eating PFAS-contaminated foods. Since livestock such as cows, pigs and chickens eat grains contaminated with PFAS, the chemicals are present in humans who eat these animals. Vegans and vegetarians may be consuming the chemicals from PFAS-tainted soil and natural fertilizer. So ubiquitous is PFAS that the chemicals have been discovered in the tissue of remote Inuit populations in the Arctic.
Like all things too good to be true, the fire-resistant, stain-resistant, heat-resistant and water-resistant attributes of PFAS are underwhelming when weighed against the purported health issues and longevity of the so-called “forever chemicals.” But how forever is PFAS, really?
Scientists have long claimed the chain of linked carbon and fluorine atoms within PFAS molecules is virtually indestructible. This formidable chemical bond makes it impossible for microorganisms such as bacteria and fungi to biodegrade PFAS. Studies suggest that some forms of PFAS can take more than a millennium to decompose, threatening the health of future generations.
Human ingenuity being what it is, efforts are underway to break the powerful bonds that hold PFAS together and destroy the chemicals. In August 2022, a team of chemists led by William Dichtel at Northwestern University announced a breakthrough, published in the journal Science. The team developed a process that causes the bond in PFAS compounds to break apart and disintegrate.
To understand their achievement, a brief primer on chemistry is required. The many carbon-fluorine bonds in PFAS are the strongest bonds in organic chemistry. Here’s why: fluorine, the most electronegative element in the periodic table, craves electrons. Carbon, it turns out, has what fluorine needs. The magnetic properties of the atoms, in addition to their proximate size, generate an inseparable bond.
Or so it was thought. While studying the compounds, Dichtel and his team detected a vulnerability. At the head of the long tail of carbon-fluorine bonds was a group of charged oxygen atoms connected to a carbon atom. By blending the head with a common solvent, dimethyl sulfoxide, and then heating up the mixture, a chemical reaction ensued, decapitating the head and setting off a chain reaction, “spitting out fluorine atoms…to form fluoride, which is the safest form of fluorine,” Dichtel stated in Northwestern Now.
Despite PFAS’s apparent indestructability, the charged head group turned out to be what Dichtel called its Achilles’ heel. The research team is now testing the effectiveness of their discovery on other types of PFAS molecules with different heads. It’s a formidable process, given that more than 12,000 PFAS compounds have been identified.
“There are other classes that don’t have the same Achilles’ heel, but each one will have its own weakness,” Dichtel said. “If we can identify it, then we know how to activate it to destroy it.”
Regulatory Rigor Ramps Up
Since our initial coverage of this topic nearly three years ago, much has happened from a regulatory perspective to make PFAS more concerning to the insurance industry.
In June 2021, the U.S. Environmental Protection Agency issued a first-ever PFAS chemicals reporting proposal. The proposed rule would require all manufacturers and importers to gather and report information to the agency, identifying the categories and use of PFAS chemicals, volumes manufactured and processed, byproducts, environmental and health effects, worker exposure, and disposal for every year since 2011.
The rule was expected to be finalized in early 2023. “Companies will have only one year from the effective date of the rule to submit the information to the EPA,” says attorney George Buermann, partner and leader of the environmental law practice group at Goldberg Segalla, a national law firm. “This is a big deal, as it will ultimately give the EPA information on potential companies to target not only for product safety reasons but also for environmental cleanups.”
In October 2021, the EPA released its much-awaited “PFAS Strategic Roadmap,” setting timelines by which it plans to take specific actions safeguarding public health, protecting the environment and holding companies accountable. The agency declared that it would leverage “the full range of statutory authorities” to confront the human health and ecological risks of PFAS. Following up on this declaration, last September the EPA issued a proposal designating two PFAS chemicals—perfluorooctanesulfonic acid (PFOS) and perfluorooctanoic acid (PFOA)—as hazardous substances under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). If finalized, this will be a critical step toward increasing transparency of PFAS being released and holding polluters accountable for cleaning up their contamination.
PFOA is used in making nonstick pan coatings like Teflon; PFOS is the primary ingredient in fire-suppressing foam used to contain liquid fires, such as those caused by petroleum at, say, a military base or an airport. Toxicologists consider PFOS and PFOA the most harmful PFAS chemicals.
Last November a 60-day public comment period on the EPA proposal ended. The agency hoped to issue a final rule by year-end, though as of press time no final rule had yet been published. Assuming the EPA’s final rulemaking does not veer far from its proposal, the hazardous substances designation would require “cleanup of contaminated sites [to] reduce human exposure to these ‘forever chemicals,’” the agency stated.
The proposal would require owners and operators of both existing and closed industrial sites and landfills to investigate if PFOA and PFOS are present. If so, the owners and operators would be required to conduct soil remediation to remove the chemicals. Buermann, who was interviewed by Leader’s Edge in 2019, says the proposal gives the federal government “an enforcement mechanism with sharp teeth to force compliance, something that did not exist the last time we talked.”
Other attorneys and even environmental insurers share Buermann’s view. “If you own a 10-acre parcel of land in Ohio where PFAS was used in significant quantities in an industrial process, previously the EPA had no jurisdiction to force cleanup,” says Peter Alpert, a partner in law firm Ropes & Gray’s global real estate group, who specializes in environmental and land use law. “Now they would.”
Moreover, Alpert says, the EPA “would have the power to reopen contaminated Superfund sites that were closed years, if not decades, ago, ordering the responsible parties back to the drawing board, what we in legal and compliance circles call a ‘reopener event’ for a new chemical.”
Toby Smith, president of Liberty Mutual’s environmental and excess and surplus casualty divisions, says the listing of PFAS compounds as hazardous substances under CERCLA “will certainly increase the EPA’s ability to seek cost recovery for contamination, increase their ability to require sampling and cleanups [and] increase reporting requirements for releases.”
Smith adds, “The designation will trickle down to state decision making, as many states automatically include the federal hazardous substances in their regulations. Even if the EPA proposal didn’t become law, there is still considerable liability as states pass their own standards and enforce cleanup obligations.”
Depending on the scale of an industrial site or landfill, these obligations could be severe. If the EPA perceives reasonable cause to reopen a closed site and requires the responsible party to investigate and remediate the presence of PFOA and PFOS, Albert says, many manufacturing industries, from textiles to metal finishing to paper mills, will be in the crosshairs.
“We fully expect EPA to pursue reopeners at any site where the agency has reason to suspect PFAS was released,” he says. “Given the ubiquity of PFAS and its first commercial applications in the 1940s, most sites are likely contaminated with the chemicals.”
The timeline is important for the insurance industry. General liability policies purchased before 1986, when the total pollution exclusion was introduced, could be on the hook for liability and payouts, should claims arise. That’s because the policies were underwritten on an occurrence basis, meaning they provided lifetime coverage for incidents that happened during the policy period, regardless of when a claim is reported.
Conversely, insurers of stand-alone site pollution policies, which are written on a claims-made basis—meaning they cover only incidents reported in the policy’s time frame—may or may not be on the hook. In the event the EPA’s final rulemaking mirrors its initial proposal in June, it’s possible the owner of a site with PFAS contamination could face costs for investigation and remediation.
“It is important for insureds to talk to their brokers about the possibility of insurance coverage if they are concerned about potential PFAS liability,” says Catherine O’Leary Smith, Aon’s chief broking officer for environmental claims. “If an insured receives a regulatory communication or other notification of potential PFAS liability, the insured should speak with its broker about the possibility of coverage.”
Lowering the Limits
Regulations governing PFAS emissions in the air also are forthcoming. “The ‘PFAS Strategic Roadmap’ suggests that the EPA plans to evaluate emissions and mitigation options, potentially classifying some PFAS compounds as hazardous pollutants under the Clean Air Act,” Buermann says. “They’re also in the process of establishing nationwide drinking-water limits for certain PFAS compounds, something several states have already done. The concern here is that the threshold limits the EPA is proposing at this time are so low that environmental consultants are struggling with how they can possibly be enforced.”
How low? In 2016, the EPA set a limit of 70 parts per trillion (PPT) for both PFOS and PFOA in drinking water. In June 2022, these limits were decreased by more than a thousandfold, to 0.02 PPT for PFOS and 0.004 PPT for PFOA. All those zeros suggest the agency seeks to impose limits as close as possible to zero, given research suggesting the powerful toxicity of PFAS. “In an environmental context, this equates to two grains of salt in a 10,000-gallon swimming pool,” says Michael Padula, head of U.S. environmental at Aspen Insurance, a specialty insurer and reinsurer.
Companies that have disposed of PFAS chemicals and byproducts in landfills and industrial sites would be required under the EPA proposal to stick to the new threshold in investigating the presence of PFAS, increasing the likelihood that pre-1986 occurrence-based general liability policies sold by many insurers could be triggered. “Insurers need to prepare now for the financial impacts they will incur down the road from these regulatory actions,” Buermann says.
Alpert agrees. “Insurers of mature industrial sites and other landfills, whether they were closed or remain open, that paid out on a claim that did not exhaust the policy limit are now subject to a reopener risk,” he says. “They should be very worried, as there’s a good chance it’s a PFAS-contaminated site.”
Is PFAS the “next asbestos”?
“That seems to be the direction this is headed,” says Dan Bailey, partner in law firm Bailey Cavalieri. “It’s taking on a lot of the characteristics we saw early on in asbestos, gradually broadening the net to pick up a broader group of manufacturers and other types of companies.”
What Does This Mean for Insurers?
Praedicat estimates that the cleanup costs for PFAS-contaminated water alone could exceed $400 billion for insurers. “That’s just in the U.S., and that’s with no bodily injury,” Adam Grossman, Praedicat co-founder and vice president, said in Insurance Insider. “It absolutely rivals asbestos.”
Obviously, the 2020 estimate of $100 billion in asbestos losses by AM Best is a comparative bargain. Asked what he thought of a $400 billion price tag for cleaning up PFAS, Brian O’Larte, a director in AM Best’s property/casualty ratings division, says, “It’s mind-blowing.”
As Grossman noted, $400 billion is just the cost of litigation for environmental cleanup. The amount does not consider the industry’s potential losses in product liability, personal injury and even D&O lawsuits continuing well into the future, since PFAS does not break down easily and can cause adverse health effects in people for decades—hence its “forever chemicals” label.
Providers of stand-alone pollution insurance policies that have not already excluded PFAS from coverage are expected to do so at renewal, limiting their liability going forward. “My expectation is that underwriters will be paying much closer attention to PFAS in the upcoming renewal cycle and adjusting coverage accordingly,” O’Leary Smith says. “This could entail policy modifications to exclude coverage for all PFAS-related chemicals or the adjustment of limits and attachment points or other changes that reduce potential volatility to PFAS-related claims.”
Padula has a similar perspective, stating that “some carriers, depending on the nature of the risk, may provide unmodified coverage, but this will likely be highly dependent on the quality and scope of the information in the underwriting submission around an applicant’s historical or current use of PFAS materials.”
Bailey anticipates that D&O insurers, which already exclude bodily injury exposures, will likely exclude PFAS-related exposures as well. “I don’t expect direct claims against directors and officers brought by injured parties like consumers, but the extent to which direct claims by consumers materially harm a company’s financial performance and strength—that could engender D&O claims,” he explains. “Securities class actions could be brought against a company for not adequately disclosing the exposure or providing timely information to investors.”
PFAS is pretty much everywhere—in the land, air, water, food and us. Even at low exposure levels, the chemicals are linked to an increased risk of liver damage, cancer, decreased fertility and reduced immunity. The challenge for plaintiff attorneys bringing bodily injury lawsuits against companies that made, used or sold PFAS chemicals is to prove this causal link.
A blood test can provide data on the volume of PFAS that exists in a person, but that’s about it. The clinical test does not indicate whether the individual’s health has been or will be compromised.
“Many health issues associated with PFAS, such as increased cholesterol and decreased thyroid hormone levels, commonly occur in the population as a whole, even when not associated with high levels of PFAS in the blood,” according to a report on PFAS testing by the Minnesota Department of Health. “These health issues can be caused by many factors.”
In other words, there is no way to conclusively predict if PFAS exposure has caused or will cause a specific health issue. Nevertheless, plaintiff and defense attorneys in environmental remediation cases will contest the health impact of PFAS.
“If a responsible party maintains that PFAS is not toxic or carcinogenic and that the EPA should not have listed it as such, EPA will say that ship has sailed, the rulemaking is done,” says Peter Alpert, a lawyer at global law firm Ropes & Gray who specializes in environmental and land use law.
“If the responsible party says it refuses to investigate for the presence of PFAS because the rulemaking is scientifically unsound, again they can’t challenge the EPA’s decision. If they perform the investigation and say they will not remediate the site because they don’t believe the conditions are harmful and provide a toxicological report in this regard, they still can’t challenge the rulemaking.”
Companies can sue the EPA after the remediation is completed to reimburse the related expenses. “The way CERCLA works is you have a choice as a regulated party to sue EPA after the fact to get your money back on the grounds that the agency’s decision was arbitrary and capricious and lacked scientific merit,” Alpert says. “That’s an extremely difficult burden of proof. I am not aware of any case where some party did a site remediation and was able to flip it in court.”
Obviously, EPA has the upper hand in environmental liability cases. With regard to bodily injury lawsuits, legal liability is complicated by the more than 12,000 PFAS compounds that have been identified, in addition to the vast number of products that have been manufactured over the past 80 years containing PFAS. In other words, which company is at fault for making or selling the specific PFAS product causing bodily harm?
Similar issues confronted plaintiffs suing the tobacco industry in the 1980s and 1990s. Makers of cigarettes argued that nicotine was just one factor causing lung cancer, emphysema and heart disease. Moreover, some lifetime smokers never contracted these diseases. Ultimately, the weight of evidence was against the industry, which finally capitulated in 1998, signing the Tobacco Master Settlement Agreement with the attorneys general of 46 states.
Asbestos litigation followed a different course. Unlike nicotine and PFAS, exposure to asbestos fibers is the only way to contract mesothelioma, a cancer of the lining of the lung. Other cancers like asbestosis and noncancers like COPD are harder to prove, as is the specific cause, such as occupational exposure or baby powder.
PFAS litigation is likely to follow its own course. “At one end, plaintiffs will cite studies indicating that PFAS exposure at a specific threshold causes certain ailments, while at the other
end, defendants will dispute these studies and cite scientific research suggesting otherwise,” says attorney George Buermann, a partner at law firm Goldberg Segalla and leader of the firm’s environmental law practice group. “This is not settled by any means.”
In the meantime, veteran D&O liability attorney Dan Bailey advises both defendant companies and their insurers to determine if they have a PFAS exposure. “Assuming this is the case, now is the time to assess and quantify the risk to know how big a problem it is to disclose the risk to the board and investors,” Bailey says. “If it looks pretty big, then put together your overall litigation exit strategy to…cut your losses by resolving the situation at an earlier date.”
Makers of PFAS like DuPont and 3M already have paid out hundreds of millions of dollars in multiple settlements across the world, and now they confront the prospect of additional costs. In 2017, DuPont and a spinoff of the giant chemical company, Chemours, settled a lawsuit with 3,500 residents in Ohio and West Virginia, agreeing to pay $671 million for polluting an area around a manufacturing plant in Parkersburg, West Virginia. The same year, DuPont merged with Dow Chemical to form DowDuPont. In early 2021, DuPont, Chemours, and Corteva announced a $4 billion cost-sharing plan to resolve legacy PFAS liability claims.
DuPont is far from alone in feeling the pinch of PFAS liability. Chemguard, 3M, Kidde Fenwal, National Foam, and Dynax are being sued at roughly the same rate as DuPont, according to a May 2022 analysis by Bloomberg Law. The legal research firm tallied 6,400 PFAS-related lawsuits filed in federal courts between July 2005 and March 2022. “If PFAS went into a company’s finished product, odds are it’s being sued,” Bloomberg Law states.
A recent report by ratings agency AM Best suggests a similar conclusion. “Litigation against PFAS manufacturers is likely to continue—going down the supply chain to industries that have used the chemicals in their products, such as paper mill companies,” the report states. “As federal regulations over PFAS tighten, related lawsuits will increase in the next few years.”
Environmental liability litigation is just one possible pathway to colossal losses for the insurance industry, given the uncertain outcomes of ongoing product liability, personal injury and other PFAS-related claims. In 2018, 75 PFAS cases involving the firefighting foam AFFF, made by 3M, were consolidated and transferred to the Federal Court District of South Carolina. At present, the number of cases under review has swelled to well over 2,000.
A recent ruling by federal judge Richard Gergel, who is overseeing the consolidated multidistrict litigation, does not bode well for 3M, whose AFFF foam was used in firefighting operations undertaken by the U.S. military. Gergel stated last September that 3M had knowingly withheld information about PFAS risks for decades. He subsequently denied the company’s request for a government contractor immunity defense, which would have relieved 3M of legal liability. The ruling is consequential because 3M and other defendants assert they manufactured firefighting foam to government specifications.
Gergel is overseeing other cases involving PFAS plaintiffs. According to Buermann, the cases include about 150 lawsuits filed by water-providing districts seeking money to upgrade their water filtration equipment to filter out PFAS.
“The next set of cases in the multidistrict litigation coming up for review involve more than 1,500 personal-injury lawsuits involving cancer, ulcerative colitis, thyroid issues, hypertension, high cholesterol and a few wrongful death cases,” Buermann says, adding that the plaintiffs in these lawsuits include people alleging they have been exposed to PFAS and seeking to receive money to monitor their health to detect early-onset conditions.
PFAS litigation is underway in other states as well. In July 2021, four towns in New Jersey sued 3M, DuPont and other makers of PFAS for hundreds of millions of dollars for damaging the state’s natural resources. More than a dozen other states have filed lawsuits for PFAS-contaminated drinking water, among them Florida, which sued more than a dozen companies last April, alleging they contaminated the state’s water supplies with PFAS.
Cosmetics companies that used PFAS in lotions, nail polish, lipstick, shaving cream, sunscreen, mascara and other products are targeted for what will reportedly be a wave of lawsuits against the companies. In June 2021, Congress introduced the No PFAS in Cosmetics Act, which banned the use of PFAS. Several states, including California, proposed similar bills. The same year, more than half the cosmetics products tested for PFAS by researchers at Notre Dame University were found to include PFAS, with the highest levels found in personal care products such as lipstick, mascara and foundation.
The EPA’s “PFAS Strategic Roadmap,” besides declaring two PFAS as hazardous substances under CERCLA, took three immediate measures designed to safeguard the public’s health against PFAS.
> Issued drinking water health advisories for four PFAS
> Required companies to conduct PFAS testing and nationwide sampling for 29 PFAS chemicals in drinking water starting in 2023
> Began distributing $10 billion in funding to address emerging contaminants under the Bipartisan Infrastructure Law
Big Numbers, Open Questions
If there is any good news for insurers, it’s that PFAS-related claims will emerge slowly. “There will be years and years of litigation, with insurers contesting rulings and findings, just like we saw back in the days when Superfund was enacted” in 1980, says Patricia Kwan, director at ratings agency S&P Global.
Nevertheless, plaintiff attorneys are sharpening their knives for a repast of great proportions. Companies that made products containing PFAS are potentially liable, followed by the retailers that sold their products. Chances are, Bailey says, most companies will settle lawsuits filed against them.
“As a practical matter, it comes down to the willingness of defendants to take a case to trial, as opposed to settling early,” Bailey adds. “History has shown that, when you have these kinds of systemic, potentially catastrophic exposures, companies typically settle rather than roll the dice. The problem, as the asbestos experience demonstrates, is that you don’t get peace of mind because you settled with one group of plaintiffs. Another group surfaces, which is why companies in asbestos litigation are still paying out settlements to this day.”
How these settlements will play out regarding future claims frequency and severity and related premiums is an open question. Regarding the potential price tag of $400 billion, as projected by Praedicat, we reached out to veteran industry observer Robert Hartwig for his take. “Frankly, when I read that figure, it made me chuckle, since it is a complete nonstarter,” says Hartwig, a professor of finance at the University of South Carolina. “The reason I say that is because $400 billion is beyond the entire financial resources of the property/casualty insurance industry.”
In other words, some sort of public-private solution may be sought to foot the bill. In the meantime, Hartwig is sanguine about the future. “If the current and expected surge in PFAS litigation is a function of the green light given by the EPA, which is ultimately a political agency, eventually we will wind up with a more conservative regulatory environment,” he says.
Given the long duration of PFAS litigation, “A more conservatively inclined EPA will be less amenable to this litigation, as will state EPAs,” Hartwig contends. “No one should reasonably expect a linear path towards hundreds of billions of dollars in PFAS settlements.”