Corporates and their insurers face a threat from growing liability related to so-called ‘forever chemicals’, amid mounting regulation and a rising tide of litigation over their use.
Perfluoroalkyl and polyfluoroalkyl substances (PFAS), also known as forever chemicals, are a group of 4,700 man-made chemicals used to make fluoropolymer coatings and products that resist heat, oil, stains, grease and water. Initially developed and manufactured by chemical manufacturers DuPont and 3M, PFAS were used to make non-stick coatings like Teflon and stain resistant treatments like Scotchguard. They have since found their way into a wide range of products, including firefighting foams, food packaging, clothing, cosmetics, plastics and electronics.
PFAS should be a concern to businesses and insurers, according to Duncan Strachan, partner at law firm DAC Beachcroft, because they do not break down easily and are increasingly being linked to human health concerns.
“Even though there is much we do not know about the specific effect of PFAS on human health and the environment, they certainly pose a lot of risks. There has been a growing wave of litigation over water contamination and therefore rising concerns among insurers that the PFAS could expose them to the same kind of expensive, unanticipated claims similar to the ones caused by the asbestos crisis,” he said.
According to the US Centers for Disease Control and Prevention (CDC), the human health effects from exposure to low environmental levels of PFAS are uncertain. However, studies have linked PFAS to increased risk of certain cancers, as well as increased risk of high blood pressure and cholesterol. Animal studies have found that PFAS can cause damage to the liver and the immune system, as well as cause birth defects and delayed development. The European Chemicals Agency (ECA) has said certain PFAS accumulate in the bodies of living things and cause toxic effects, including cancer.
In production since the 1940s, PFAS are highly persistent in the environment and accumulate over time in humans. The CDC found some PFAS in in the blood of 98% of Americans. The chemicals have been found in rivers and lakes, fish, animals and the human food chain, such as meat, dairy and vegetables. Even if all releases of PFAS were to cease tomorrow, they would continue to be present in the environment and humans for generations to come, the ECA said.
Recent years have seen a wave of PFAS-related litigation. The first real test of PFAS came in a pollution case brought against 3M in Minnesota for negligently discharging the chemicals into sources of drinking water. The lawsuit was eventually settled in 2018 for $850m. Other US states have since sued a number of chemical companies involved in the manufacture of PFAS, mostly for environmental pollution and cleanup.
Manufacturers have also faced personal injury claims, with DuPont eventually settling a class action for $670m in 2017 following a landmark case brought by Attorney Rob Bilott on behalf of citizens in Parkersburg, West Virginia. In January, DuPont and its spinoffs Chemours and Corteva, reached a $4bn agreement to fund future PFAS litigation.
“At first glance, the numbers seem staggering. However, a closer look reveals that the settlements may in fact be more important as a harbinger of potential litigation against companies completely unrelated to PFAS manufacturing,” said Mr Strachan.
The US has so far been the centre of litigation, where public and regulatory attention on the ubiquitous PFAS is growing.
“In the US, the PFAS litigation has so far centred on lawsuits filed against PFAS manufacturers –primarily, Dupont and 3M – for environmental cleanup and remediation, with some lawsuits against these companies for personal injury claims. Of course, there is a chance that similar damages could be awarded to downstream companies that simply use PFAS in their products,” said Mr Strachan.
Litigation is, however, happening worldwide, according to the legal expert. For example, in April 2021 a Swedish municipal water company agreed to pay damages to residents of Kallinge, after firefighting foam used in fire drills contaminated drinking water. A district court ruled that the municipal water company was responsible for compensating the plaintiffs for personal injury from elevated levels of perfluorinated alkyl substances in their blood, causing increased health risks and physical changes.
A new wave of litigation may now be emerging as cases expand beyond the big manufacturers of PFAS. In January 2021, residents in Peshtigo, Wisconsin reached a $17.5m settlement with manufacturers of firefighting foam. The class action arose after dozens of privately-owned drinking water wells were contaminated by PFAS from a nearby testing and research site leading to property damage, personal injury and medical monitoring expenses.
According to Mr Strachan, concerns are rising among insurers that PFAS could expose them to the same kind of expensive and unanticipated claims similar to those caused by the asbestos crisis. However, identifying liability and analysing coverage in relation to PFAS contamination is not straightforward, he said.
Insurers will be keeping an eye on PFAS litigation and liability, according to Mr Strachan. “Typically, a general liability would include an exclusion for pollution, unless such pollution arises from a sudden and accidental event. The precise wording of this exclusion and write-back language has been the subject of 100s of cases in the US and PFAS-related litigation also seems set to test such language,” he said.
Public and products liability insurance, as well as environmental insurance, may start to express exclusions or carve-outs for liability relating to the supply of PFAS, according to Mr Strachan. “There might be a trend of adding specific PFAS exclusions for properties that are suspected of using PFAS or might have been exposed to the PFAS from neighbouring properties. Typical pollution exclusion clauses will need to be closely analysed, dependent on the specific facts of a matter, to see if they will apply to preclude coverage for PFAS claims,” he said.
Corporate liability is also rising as PFAS come under going scrutiny from governments and regulators.
In the US, regulatory action on PFAS has been slow. Without federal action by the US Environmental Protection Agency (EPA), many individual US states have adopted their own standards. However, the regulatory landscape in the US appears poised to change, according to Mr Strachan. “President Biden has repeatedly indicated, starting during his campaign for presidency, that PFAS regulation is a top priority. In April, he announced the creation of a new council to accelerate and coordinate efforts aimed at reducing and remediating this class of chemicals,” he said.
President Biden campaigned on the promise to tighten regulation of PFAS. On 13 April 2021, House representatives introduced the PFAS Action Act 2021, which would limit the use of PFAS and declare them a hazardous substances. The Act was passed by the US House of Representatives in July.
The 2020 European Chemicals Strategy is set to phase out the use of non-essential PFAS, including those used in firefighting. The strategy singled out forever chemicals for special treatment, given the “large number” of cases of contamination, health risks and economic costs. Costs from exposure to PFAS in Europe have been estimated at between €52bn and €84bn per year.
Separately, Denmark, Germany, the Netherlands, Sweden and Norway are calling for new restrictions on PFAS uses. Last year, the European Food Safety Authority set a new safety threshold for the main perfluoroalkyl substances that accumulate in the body.