P&C the Jan/Feb 2020 issue

You Are What You Eat

PFAS are chemicals widely used in consumer products. They’ve made their way into our bodies, and now they could be a triple-threat liability.
By Russ Banham Posted on January 21, 2020

These chemicals, grouped together as PFAS (perfluoroalkyl and polyfluoroalkyl substances) and widely used for decades in many consumer products, entered our bodies primarily through drinking water. Up to 110 million Americans may be contaminated with PFAS through drinking water alone, while others may have eaten PFAS-contaminated foods or breathed PFAS-contaminated air.

Experts liken the situation to an asbestos-type liability crisis in the making. For brokers and agents, it may be worth evaluating clients’ potential risk of PFAS contamination liability—which could appear in ways they may not have anticipated.

Up to 110 million Americans may be contaminated with PFAS through drinking water alone.

Manufacturers of the chemicals face regulatory actions and lawsuits alleging they knowingly contaminated drinking water.

Landfills, where so much industrial and consumer waste end up, are a major source of PFAS contamination.

Manufacturers of the chemicals, including 3M and DuPont, have been the subject of both state regulatory actions and class-action lawsuits filed by plaintiff’s attorneys alleging they knowingly contaminated drinking water across the country with PFAS.

But more than just the chemicals’ manufacturers may be on the hook for lawsuits involving PFAS compounds. Companies that made products with PFAS in them may be caught up in the next wave of litigation, followed by the retailers that sold these products.

“I liken PFAS to a triple threat, liability-wise,” says George Buermann, partner and co-leader of the national environmental practice at Goldberg Segalla, an international law firm headquartered in Buffalo. “Three types of litigation are possible and to be expected—product liability, environmental cleanup liability, and toxic tort claims,” a type of personal injury lawsuit in which the plaintiff claims PFAS chemicals caused disease. “We’re seeing all three areas about to explode at one time, ringing alarm bells.”

Those bells are resounding in the offices and boardrooms of liability insurers, given concerns over another asbestos-type liability crisis, a decades-old mass tort catastrophe that has cost insurers and reinsurers more than $40 billion to date—and counting, given the long-tail nature of the claims.

“Given all the industries that used PFAS in their products, seemingly benign products that have since been disposed in landfills, a potentially large number of companies could be held liable for environmental damage and bodily injuries attributed to PFAS contamination,” says Rebecca Gitig, senior vice president in the environmental unit at Aspen Insurance, a global specialty insurer and reinsurer.

Insurance policies from decades ago address what might be considered ‘continuous exposures,’ which may fit something like PFAS that seeps into a groundwater system and eventually into drinking water.
Robert Hartwig, clinical associate professor of finance, University of South Carolina

Buermann, who shares this opinion, says liability may be difficult to prove—for the time being. “I think PFAS certainly comes close to asbestos, but the difference is the lack of a signature disease marker like we had with mesothelioma with asbestos inhalation—absolute proof that, at and above a specific exposure level, PFAS definitively causes a particular disease like kidney cancer,” he explains. “However, multiple studies have been conducted or are under way, with some showing clearer causation.”

Widespread Contamination

PFAS is a family of between 4,000 and 5,000 synthetic man-made chemicals, of which two in particular—PFOS (perfluorooctanesulfonic acid) and PFOA (perfluorooctanoic acid)—are under the microscope for contaminating public drinking water. These so-called “forever chemicals” are extremely difficult to break down in the environment and in human beings, and they accumulate over time.

PFOA is used in making non-stick pan coatings like Teflon, whereas PFOS is the primary ingredient in firefighting foam used to contain liquid fires, such as those caused by petroleum that ignites at a military base or an airport. The chemical compounds’ main applications involve their fire-resistance, stain-resistance, heat-resistance and water-resistance—hence their wide use in such common products as cookware, fabrics, rain gear, paper, food packaging, paints, and textiles such as carpeting.

In addition to the three specific liabilities that PFAS in drinking water pose for manufacturers and retailers of the chemical compounds and products containing them, shareholders could bring derivative class-action lawsuits against boards of directors for an unexpected financial loss that occurs under their watch.

For such claims to be made against boards, plaintiff’s attorneys must prove that the directors were essentially asleep at the switch when the company derailed. One such scenario: a company that made a product containing PFAS chemical compounds is sued by plaintiffs who allege personal injuries and by states for cleanup costs, resulting in significant legal costs, reputational damage and revenue losses. These issues take an axe to the company’s value, inducing shareholders to sue board directors on the grounds they should have known about the potential liability and taken steps, such as buying environmental impairment insurance, to moderate the financial loss.

“Boards are expected to ask questions—about potential risks, the likelihood and magnitude of these financial exposures, the impact they will have on operations and the strategies being taken to minimize the threat,” says Dan Bailey, member at law firm Bailey/Cavalieri, which often represents insurer defendants in directors and officers liability litigation. “With regard to PFAS, questions would be asked about how prevalent these chemicals are in the company’s products. If the board doesn’t roll up its sleeves to dig into these exposures, it can be hit with an event-based derivative class action lawsuit, the ‘event’ in this case being the PFAS liability causing the financial turmoil.”

D&O Insurance Particulars

In addition to board directors, company officers also may be subject to shareholder class-action lawsuits for possible PFAS-related personal injuries. While both directors and officers can buy D&O liability insurance to protect their net worth against such lawsuits, the policies might not provide coverage for PFAS-related litigation, Bailey says. “There are pollution exclusions in virtually all D&O policies that eliminate coverage for claims arising out of or in any way related to pollutants,” he explains. “The question is whether or not PFAS would rise to the level of a pollutant for purposes of being excluded for coverage.”

On matters such as these, the insurance coverage determination would be made in the courtroom; however, disputing parties often reach a settlement beforehand. Nevertheless, Bailey advises corporate directors and officers to consider the purchase of “Side A” D&O insurance, which does not contain the pollution exclusion. “The intent of Side A policies is to provide maximum protection for directors and officers against non-indemnified claims; if worried about PFAS exposure, a little more Side A coverage might be a prudent decision,” he says.

Criminal Wrongdoing

The veteran D&O attorney points out another worrisome issue for directors and officers—compliance with the Responsible Corporate Officer Doctrine (RCOD). Considered a strict liability theory, RCOD may be interpreted by federal and state courts as permitting the prosecution of directors and officers for misdemeanor criminal offenses. “In situations where there are statutes protecting against dangerous public welfare situations, a corporate officer or director with the authority to prevent or remediate the violation leading to this situation—even though they had nothing to do with the acts that gave rise to the problem—can be prosecuted,” Bailey says.

Since PFAS water contamination is a problem that began decades ago in many instances, directors and officers who might not have been born at the time theoretically could be held liable for “wrongful conduct” in not mitigating the issue. The question, Bailey says, is whether PFAS would be considered dangerous to public welfare. “RCOD prosecutions to date have been focused on the pharmaceutical and medical device industries,” he says. “Nevertheless, this is yet another potential liability for directors and officers that should be on their radar screen.”

Landfills, where so much industrial and consumer waste ends up, are major sources of PFAS contamination. Additionally, wildfires like the ones regularly threatening California, and now Australia, are considered a more recent source of PFAS contamination, though not from the firefighting foam. Catastrophic wildfires like the 2018 Camp Fire in and around Paradise, California, for example, consumed more than 18,000 homes, businesses, and other structures and innumerable cars and consumer products that contained PFAS chemicals. When the rains came in the aftermath of the fire, the chemicals were flushed into the region’s rivers, creeks and, eventually, into groundwater. Since potable drinking water comes from these sources, the risk of contamination is concerning.

The U.S. Environmental Protection Agency has set drinking water health advisories for both PFOA and PFOS at 70 parts per trillion, equivalent to a single grain of salt in 1,000 gallons of water. The EPA’s sampling of water supply systems indicates that up to 15 million people currently live in regions of the country where concentrations of the chemical compounds exceed this limit.

Moreover, since California is the breadbasket of the country, many agricultural products also are contaminated by PFAS. In June 2019, the U.S. Food and Drug Administration confirmed that PFAS chemicals had made their way into the country’s food supply. In the agency’s analysis of 20 produce samples, such as lettuce and cabbage, 15 showed detectable levels of PFAS. The FDA subsequently launched a website to inform the public of ongoing PFAS-related health issues and concerns.

Since animals such as cows, pigs and chickens eat grains contaminated with PFAS, the chemicals are present in people who eat these animals. “Treated wastewater from a manufacturing process that involved PFAS may end up in the sludge that farmers use in growing certain crops,” says Richard Doran, senior environmental scientist at Hydro-Environmental Technologies Inc. (HETI), an environmental safety consulting firm. “The chemicals end up in the corn that cattle eat. Then we eat the cattle, the chemicals accumulating over time in our bodies.”

Although PFOA and PFOS are no longer manufactured in the United States (they were phased out in 2002), they’re still produced by other companies across the world and are imported for use in making many different products. But it’s the historical use of the chemicals that gives environmental health and safety experts like Doran the jitters.

“PFAS were developed for so many uses dating back to the 1940s and have a ubiquitous presence in and around heavily industrialized areas,” he says. “Once the chemicals enter groundwater systems, they don’t biodegrade. In ensuing years, they can move a great distance from the source, causing large areas of groundwater contamination.”

Landfills Top the List

Landfills are the major source of PFAS contamination, given that most manufacturing waste is disposed at these sites, along with consumer products and other forms of municipal waste. “If a company historically has disposed of waste materials that contain PFAS to its own or a third-party landfill, chances are the chemicals have found their way into groundwater systems,” Gitig says.

To evaluate these chances, the New York State Department of Environmental Conservation, among the more active state environmental regulators countrywide, sent letters in 2018 to owners of 53 inactive landfalls to conduct on-site testing for both PFOS and PFOA. The landfills are located in Greene and Columbia counties, nearby Hoosick Falls, where PFOA-contaminated drinking water was discovered in 2016 in a landfill that operated from 1930 to 1994. Testing of the 53 landfills is expected to conclude sometime this year.

However, the findings of a recent study of U.S. landfills may be instructive insofar as likely PFAS contamination. According to the study, the chemicals had leached into the groundwater of more than half the landfills. Other studies of PFAS leachate in landfills, especially those like Hoosick Falls that accepted industrial waste, confirm the presence of significant PFAS concentrations.

Lawsuits Allege Prior Knowledge

Two companies, Saint-Gobain and Honeywell, have been held responsible for the contamination of groundwater at Hoosick Falls and have put forward plans to remediate the adverse environmental conditions. Meanwhile, DuPont, 3M, the Chemours Company (a DuPont spinoff), Chemguard Inc., and a number of firefighting foam retailers have been sued by several states and/or in class-action lawsuits alleging they failed to warn the public of their products’ dangers. Among the states filing lawsuits are Colorado, Michigan, New Hampshire, New Jersey, New York, North Carolina and Pennsylvania.

The lawsuits allege that some companies knew the release of PFAS chemicals into the environment would make groundwater and surface water unsafe for drinking. A lawsuit filed in the state of Minnesota charges that 3M knew that PFAS chemicals were accumulating in people’s bloodstreams since the late 1970s.

Companies for the most part are settling these claims before they end up in a courtroom, where a legal precedent can prove problematic. In 2017, DuPont and 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. And the state of North Carolina recently settled its lawsuit with Chemours for a reported $13 million.

The liability scenario for companies may worsen soon across the country. California, for example, is in the process of issuing orders to owners and operators of more than 1,000 facilities to sample groundwater for evidence of PFAS contamination. The facilities include 252 landfills, 353 drinking water wells, and 31 airports believed to have used firefighting foam. That’s just Phase I. Phase II sampling will affect refineries, bulk terminals and non-airport training areas, and Phase III will focus on secondary manufacturers that used PFAS in their products or processes.

In light of these varied PFAS lawsuits and ongoing investigations, it is clear why alarm bells are ringing. “Product liability lawsuits against the companies like DuPont and 3M that made PFAS chemicals is low-hanging fruit for the plaintiff’s bar,” Buermann says. “Where things really get interesting is the companies that didn’t make this stuff but used it in their products and sold it in their stores. That’s the next wave of litigation.”

And it could be a big wave. The range of companies that used PFAS chemicals in their products is wide. A quick “tick-box” exercise of products that contain PFAS chemicals illustrates this breadth: Fast food wrappers? Yes. Pizza boxes? Yes. Dental floss? Yes. Teflon pans? Yes. Stain-resistant carpets? Yes. Waterproof outdoor gear? Yes. Camping tents? Yes. Popcorn bags? Yes. Insulated wires? Yes. Non-stick aerospace, medical and automotive applications? Yes, yes, yes.

Brokers: Look to Older Policies

For insurance brokers whose clients are potentially on the hook for personal injury liability, product liability and environmental cleanup liability, consultations about the status quo are strongly encouraged. “Depending on how widespread this is, businesses could be looking at billions of dollars in damages associated with these chemicals,” says Toby Smith, president of Ironshore Environmental, a subsidiary of insurer Liberty Mutual, where he also leads the environmental group. “But as an industry, we can handle it.”

Smith believes the global insurance and reinsurance industries have the financial capacity to absorb these emerging environmental liability exposures. “My message to risk managers is that this is an exposure that can blow up tomorrow,” he says, “meaning now is the time to think in terms of coverage.”

Timing is everything, agrees Catherine O’Leary Smith, managing director and northeast regional manager for Aon’s environmental services group. “Right now, most environmental policies are written on terms of three to five years, giving companies the ability to stretch the financial limits of protection over a longer period of time to address future PFAS liabilities,” she explains.

Unfortunately, many clients are passing on the coverage. O’Leary Smith estimates that less than 20% of insurance buyers purchase environmental risk transfer products. Alternatively, however, underwriters are showing interest in the topic. “In the last 12 months, we’ve noticed that underwriters are asking risk managers about their company’s PFAS exposures—and not just those companies with landfills,” O’Leary Smith says. 

Just because PFAS-driven litigation is filed against potentially liable parties doesn’t mean plaintiff’s attorneys will win their cases. To conclusively prove a causal relationship between PFAS exposure and a specific disease, the attorneys will need to provide a jury with epidemiological studies correlating a specific level of PFAS in the blood to a particular adverse health outcome.

One such epidemiological study by the so-called C8 Science Panel (PFOA also is known as C8) is compelling, although not exactly a slam dunk. The health exposure research was undertaken from 2005 through 2013 in the Mid-Ohio Valley region affected by the release of PFOA at the Washington Works plant in West Virginia since the 1950s. The study found “probable links” to high cholesterol, thyroid disease, testicular and kidney cancers, and ulcerative colitis but no probable links to high blood pressure, coronary artery disease, Parkinson’s disease, liver disease, and chronic kidney disease.

Other epidemiological studies dispute these findings, says Adam Love, vice president and principal scientist at environmental consulting firm Roux Associates. “Although the C8 study was the largest conducted so far, in terms of PFAS exposure and specific health outcomes, there remains quite a bit of uncertainty around the levels at which PFOA and PFOS cause toxicity,” says Love, who has a Ph.D. in environmental engineering from the University of California, Berkeley. “Moreover, there may be other causes of a particular medical condition. For instance, although the C8 study links PFAS to high cholesterol, other compounding factors for high cholesterol muddy the water.”

Muddy waters are nothing new when it comes to proving liability. Asbestos manufacturers initially insisted the fiber presented no health risks and blamed affected parties’ respiratory diseases on other factors. So did tobacco manufacturers when confronted with evidence linking cigarette smoking to lung cancer and emphysema.

However, she notes, brokers can tip the scales by evaluating clients’ existing pollution insurance protections and digging into decades-old property and liability insurance policies to discern evidence of possible coverage. “There is a chance that these older policies may absorb PFAS exposures, if the insurance was purchased before 1985, [at which point] the industry broadly excluded pollution risks,” O’Leary Smith says.

Longtime industry observers concur that pre-pollution-exclusion policies may be a hidden treasure, providing financial recourse for older landfills requiring PFAS remediation. “Insurance policies from decades ago address what might be considered ‘continuous exposures,’ which may fit something like PFAS that seeps into a groundwater system and eventually into drinking water,” says Robert Hartwig, clinical associate professor of finance at the University of South Carolina’s Darla Moore School of Business.

That’s potentially good news for companies like DuPont with obvious PFAS exposures that may find it challenging to purchase environmental cleanup insurance on an ongoing basis. Businesses like retailers tangentially liable for PFAS exposures can still find affordable environmental insurance—for the time being.

“What we learned from the asbestos liability crisis was that, when manufacturers went bankrupt, the plaintiff attorneys went after the contractors that installed asbestos roofing tiles, and then, when they ran out of money, they went after the retailers that sold the products,” says Hartwig, the former president and chief economist at the Insurance Information Institute. “It would be reasonable for insurance brokers to educate today’s younger risk managers, for whom the asbestos crisis is forgotten history.”

Complacency is not a solution. “My biggest piece of advice to potentially liable parties is don’t stick your head in the sand,” Buermann says. “Know what is going on with PFAS at the regulatory levels, dig into past real estate transactions, engage a competent environmental consultant to review your waste disposal processes, and scrutinize older insurance policies. PFAS is a true cause for concern. We can expect more regulations at the federal and state levels, lower ‘margin of protection’ threshold levels, and an uptick in litigation. This isn’t going away any time soon.”

The Environmental Protection Agency is not taking lightly possible PFAS-related health outcomes—the federal agency set drinking water health exposure levels for both PFOS and PFOA at 70 parts per trillion. The level offers a “margin of protection” for people from adverse health effects like cancer and developmental effects to fetuses during pregnancy, according to the EPA.

Unfortunately, the margin of protection already has been breached by 2% of the population, according to a 2016 study by researchers at Harvard University, who posited that at least six million Americans were drinking water with PFAS levels higher than 70 parts per trillion. Meanwhile, more than a dozen states have issued lower levels aimed at widening the margin for adverse health impacts.

“New Jersey’s standard is 13 parts per trillion for PFOS and 14 parts per trillion for PFOA, and New York has proposed 10 parts per trillion for both chemicals,” says Richard Doran, senior environmental scientist at Hydro-Environmental Technologies Inc., an environmental safety consulting firm. “Bills are moving slowly through Congress that may have the effect of also lowering the EPA’s health advisory levels.”

He’s referring to the PFAS Action Act of 2019 in the U.S. Senate. The bipartisan bill would require the EPA to designate PFOA and PFOS as “hazardous substances,” easing the way for PFAS-affected sites like landfills to receive cleanup funds under the federal government’s Superfund program, formally known as the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA).

In introducing the bill, Senator Tom Carper (D-Delaware) said, “Designating these chemicals as hazardous substances will, at a minimum, start the process to ensuring contaminated sites across the country are cleaned up and Americans are safer from the threat posed by these emerging contaminants.” His colleague Senator Cory Gardner (R-Colorado) concurred: “This bipartisan legislation will allow EPA to pursue polluters responsible for PFAS contamination and provide the communities remediation options through Superfund.”

If approved, the legislation would give the EPA more enforcement leverage to pressure companies to clean up landfills and invest in water treatment facilities preventing contaminated water from migrating offsite and sullying public drinking water. The costs of such actions for businesses can be substantial. “A manufacturer operating for more than 100 years at a site could be looking at $100 million in cleanup and water treatment costs,” says Rebecca Gitig, senior vice president in the environmental unit at Aspen Insurance.

The reason for such eye-popping remediation costs is the mobility and speed of travel of PFAS, spreading their presence with their nearly nil biological degradation. The compounds’ unique chemical properties and pathways make them difficult to test and treat. “PFAS are very resistant to destructive treatment technologies and can be expensive to remove using existing technologies,” stated the Interstate Technology Regulatory Council, a state-led coalition engaged in environmental remediation.

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