PFAS Exposure Concerns Rising Across Industries

In June 2023, multinational industrial conglomerate 3M, reached a historic settlement with public water suppliers over the presence of polyfluoroalkyl and perfluoroalkyl substances (PFAS) in drinking water. The settlement concluded multiple classaction suits against the company. Under the settlement, 3M will pay $10.3 billion to plaintiffs over a 13-year period.¹

The massive lawsuit against 3M may be one of the largest involving PFAS, but it's not the only one. PFAS exposure now extends beyond the world of Fortune 100 or Fortune 500 companies to reach manufacturers, distributors, waste water facilities or testing firms, construction companies, and others. Businesses of all sizes and across diverse industries face litigation over PFAS, which have been historically utilized in various industrial and consumer-goods products and applications. Heightened awareness over the dangers of PFAS has led to a wave of litigation and a focus on regulation.

What began with the Environmental Protection Agency (EPA) taking regulatory action over the last few years, has evolved into state agencies taking action, which means a greater number of defendants are finding their way into the courtroom. The risk for PFAS cleanup costs increased substantially on April 19, 2024, when the EPA finalized a rule listing PFAS as "hazardous substances" under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), also known as Superfund. The ruling means greater cleanup liability exists at the federal level. Individual states will likely not be far behind in regulating PFAS similarly.¹⁷

Any company that has used, sold, or disposed of PFAS materials could eventually be the target of litigation.¹⁷

WHAT ARE PFAS?

Polyfluoroalkyl and perfluoroalkyl substances (PFAS), commonly known as PFOA and PFOS were developed in the 1940s and initially used by NASA to protect equipment from atmospheric heat and the corrosive effects of water.⁵ Today, thousands of PFAS chemicals exist and can be found in many consumer, commercial, and industrial products. This makes it challenging to study and assess the potential human health and environmental risks. PFAS have been used in various industrial and consumer products, including stain-resistant carpet, non-stick cookware, automobiles, food packaging, beauty and health products, and more.⁵ They're also frequently found in fire suppression systems and many building products like flashing, protective coatings for roofs, floor materials, insulation, and textiles.

PFAS are known as "forever chemicals" because they are bio-accumulative and can build up and persist in the environment, accumulating in wildlife and humans. When products and materials that contain PFAS are disposed of, the PFAS remain in the surrounding environment, which means they can now be found in soil and water - contaminating both food and water supplies. Remediating PFAS contamination can be very difficult and highly expensive. That is made even more difficult by the fact that there is no current national cleanup standard, yet some states have set very strict, and in some cases unrealistic, cleanup thresholds.

Humans can be exposed to PFAS by drinking contaminated water, working in a facility that uses PFAS, eating contaminated food, swallowing contaminated soil or dust, or through other means. Research into the health effects of PFAS is ongoing, but the EPA states that PFAS exposure can lead to the following health conditions:

• Decreased fertility and pregnancy complications
• Developmental delays in children
• Increased risk of some types of cancer
• Immune system deficiencies
• Hormonal imbalances
• Increased cholesterol and risk of obesity5

RECENT PFAS CLAIMS

The spotlight on PFAS contamination is widening in scope to have a significant impact on public health, the environment, and corporate liability.

Manufacturing: In July 2024, the Southern Environmental Law Center filed a federal lawsuit against Shaw Industries, a global flooring manufacturer, due to the company's alleged illegal discharges of PFAS chemicals into the Lower Saluda River. The case alleges that Shaw is discharging PFAS into the river without a permit as required by the federal Clean Water Act, contaminating groundwater and the river.³

Manufacturing: A Baltimore County company, Synagro, which manufactures fertilizer using residual material from wastewater treatment plants, is being sued by several Texas residents alleging that the company's products have contaminated their farmland with PFAS. The lawsuit argues that high levels of PFAS were found in drinking water wells, soil, and surface water, which they suspect is linked to a neighboring farmer's use of Synagro Granulite fertilizer.⁸

Distribution: Costco's Kirkland baby wipes are now at the center of a class action lawsuit. The lawsuit was filed against Costco Wholesale Corp. and Nice-Pak Products Inc., the manufacturer of the wipes, alleging that Costco marketed and sold the fragrance-free baby wipes despite them containing unsafe levels of PFAS.

An independent assessment by a U.S. Department of Defense laboratory found significant levels of toxic PFAS chemicals in the wipes. The lawsuit claims that the defendants falsely marketed the product as safe and beneficial for health and use, while in reality, it contained harmful PFAS levels. The plaintiffs accuse the companies of reckless misrepresentation, deceptive concealment, fraud, undue enrichment, and breach of express warranty.¹⁶

Real Estate: Industrial and commercial properties are also seeing challenges in the marketplace. Lenders are now questioning historical and current property use related to operations that may be impacted by PFAS. Some lenders are also requiring intrusive phase 2 testing for PFAS prior to loan approval.

PFAS IMPACT ON INSURANCE

It has long been suggested that PFAS could be the next asbestos for property/casualty and environmental insurers.⁴ Even though asbestos was banned in the 1970s, defendants and insurers paid out more than $70 billion in asbestos-related damages through 2005.⁹ The insurance industry paid out over $16 billion in claims and suffered $11 billion in losses related to asbestos and environmental damages from 2015 to 2020. As recently as 2023, companies are still paying multi-million-dollar settlements for past asbestos contamination.

This means it is critical to add PFAS to the list of items that you should proactively look for when identifying risks on a project, in a transaction, or within a supply chain. It is also wise to consider materials used in construction or other products and whether there are adequate non-PFAS substitutes for those materials. There is a fast-growing industry developing PFAS substitutes, but adequate substitutes are still in their infancy and are not widely available for all scenarios. If PFAS is present in building materials set to be demolished, property owners, contractors, and others must consider where such materials or wastes will be taken and how they will be managed. It's important to know if the acceptance criteria at the targeted disposal or recycling facility allows for PFAS and how that facility manages such materials. For example, if sending material to a landfill, it's crucial to confirm there are sound leachate collection systems in place.¹⁷ Aside from materials used and installed, PFAS is also a workers' compensation issue for employees. As a long-tail exposure, PFAS must be addressed by documenting if any personal protective equipment (PPE) used includes or contains PFAS moving forward or historically, if available.

Some carriers are attempting to get ahead of PFAS litigation in similar fashion by adding PFAS exclusions to new policies and renewal quotes. Many general liability policies include exceptions for pollution exclusions, but it's possible insureds could soon face other types of PFAS-related damages, like property damage or personal injury. A separate environmental policy may be necessary to achieve protection against PFAS damages.

A recent ISO PFAS exclusion is also changing the dynamic, primarily impacting manufacturers and distributors. As a new exclusion, it's highlighting the growing exposure and need that may have previously been unknown as more claims trickle down to manufacturers and distributors. There is also a push to put indemnity agreements in place up and down the materials chain. Because many materials are imported from overseas, this can be challenging.

Buyers of manufacturing facilities, warehouses, or other properties where PFAS was used in fire suppression systems or manufacturing processes could be liable for the waste created by that property in the past. Buildings that have had a significant historical fire event or hosted fire-fighting drills using foams containing PFAS could also be vulnerable to fines or litigation. This includes industrial facilities, military facilities, airports, municipal fire-fighting installations, and properties adjacent to these facilities.

Potential purchasers of such sites should consider an environmental investigation to determine if there is any PFAS impact depending on the historical use and occupancy. An "All Appropriate Inquiry" performed by a prospective purchaser can help establish the purchaser as an "Innocent Purchaser" and provide certain safe harbors from EPA actions. The findings of the investigation are also helpful for underwriting the placement of environmental insurance on the site.

BOTTOM LINE

PFAS are so pervasive and so long-lasting in the environment that they've been found in food, soil and water, even in the most far-flung corners of our planet.¹³ PFAS claims can be crippling for a business of any size. 3M is one of the largest companies in the world, but its PFAS lawsuits were viewed as an "existential" threat to the company's survival. Knowing where PFAS typically are found, how they can be handled in compliance with federal or state regulations, and whether there are adequate substitutes for PFAS containing materials must now be part of business considerations across many sectors including construction, demolition, manufacturing, real estate, and distribution.¹⁷

It's wise for agents to work with their commercial clients now to understand the scope of their potential PFAS liability and evaluate their insurance coverage needs. As carriers expand exclusions for PFAS damages, it may be helpful to consider standalone environmental policies that provide coverage for PFAS and other environmental liabilities. The regulations and research surrounding PFAS are rapidly evolving. A knowledgeable and experienced broker can help agents and insureds achieve protection against potential lawsuits and damages. Contact your CRC Group Producer today to learn more about how you can help your clients protect themselves against PFAS risk.

CONTRIBUTORS

END NOTES

1. 3M settles $10.3bn in 'forever chemical' water lawsuits, Retail Insight Network, June 27, 2023.
2. Chemical-makers settle PFAS-related claims for $1.19 billion, Reuters, June 2, 2023.
3. Groups sue Columbia carpet manufacturer for "forever chemical" pollution, WIS 10, July 3, 2024.
4. On High Alert: Rising Risks of PFAS Claims and Litigation Capture New Attention, Best's Review, April 2021.
5. Our Current Understanding of the Human Health and Environmental Risks of PFAS, Environmental Protection Agency, June 7, 2023.
6. Per- and Polyfluorinated Substances (PFAS) Factsheet, Centers for Disease Control and Prevention, May 2, 2022.
7. 3M Heads to Trial in 'Existential' $143 Billion PFAS Litigation, Bloomberg Law, June 2, 2023.
8. Baltimore County company sued over PFAS in its fertilizer sold in Texas, Baltimore Sun, March 2024.
9. Asbestos Litigation Costs, Compensation, and Alternatives, Rand Corporation, 2005.
10. Judge approves $54M Wolverine, 3M PFAS lawsuit settlement, M Live, March 30, 2023.
11. Saint-Gobain, Honeywell, 3M PFOA Pollution Case Settles for $64 Million, Environment and Energy Leader, February 8, 2022.
12. Historic settlement reached to clean up toxic PFAS contamination in South Jersey, WHYY, June 28, 2023.