Litigation likely to flow from US ‘forever chemicals’ regulation

The US Environmental Protection Agency’s (EPA) recent establishment of safe levels of so-called forever chemicals in drinking water will likely lead to litigation between organisations and their insurers to potentially recover costs for updating municipal water supplies, experts say. Lawsuits alleging personal injury and property damage caused by PFAS are also likely to increase, they say. PFAS, or perfluoroalkyl and polyfluoroalkyl substances, are potentially harmful substances that have been found in numerous commercial and household products ranging from firefighting foam to non-stick cookware. They have also been found in drinking water and soil. Under the EPA’s drinking water regulation, finalised last week, the agency restricted PFAS to four parts per trillion in drinking water – “the lowest levels that are feasible for effective implementation”, according to the agency. While municipal utilities will be most affected by the regulation, it will have a “trickle-down” effect that reaches wastewater treatment facilities and companies that are permitted to discharge wastewater containing forever chemicals, said Susanne Deegan, vice-president of environmental services at Marsh McLennan Agency. Although the federal Bipartisan Infrastructure Law, passed in 2021, made $9bn available to help communities affected by forever chemicals in drinking water and $12bn available for general drinking water improvements, the costs some municipalities face to remediate water systems could be three to four times more than what they can access through the law, she said. “What’s going to happen is these utilities are going to look for responsible parties to help share the cost to remediate their systems and correct the infrastructure. They’re going to start looking for those polluters who introduced PFAS into the drinking water supply,” she said. Although the EPA’s regulation ostensibly only applies to public drinking water suppliers, it will also affect agricultural companies, farmers, airports, private waste companies and any entity that is either actively putting PFAS in the water or has disposed of PFAS historically, said Lydia Zaharia, an environmental marketing director at Marsh McLennan Agency. Companies could face risks of reputational harm as well as potential liability for contamination, she said. The regulation had been anticipated for some time, but the four-parts-per-trillion safety level is “momentous” and will have an “enormous” financial impact for insurers, said Glynis Priester, national environmental practice leader at USI Insurance Services. The regulation “will create a major uptick in litigation,” she said. “Our greatest concern for many of our clients is the litigation risk, and while they may have limited or little exposure, the costs of defence could be very material. The defence risk is a real financial consequence of this EPA regulation for many firms in the chain,” Priester said. The costs of settling lawsuits related to PFAS-related liabilities can reach billions of dollars. On 1 April, 3M Co announced that final approval of its $10.3bn settlement with US public water suppliers by a federal judge in South Carolina. Johnson Controls International PLC also recently disclosed a $750m settlement between its subsidiary Tyco Fire Products and some US public water organisations over PFAS. The settlement is expected to get preliminary approval in May. The EPA’s announcement may later affect potential liability for companies because it increases awareness to the public and plaintiff’s bar of PFAS-related risks, said Michael Hamilton, insurance coverage attorney and a partner at Goldberg Segalla LLP. Although commercial general liability policies routinely exclude pollution claims, some jurisdictions restrict the application of pollution exclusions to traditional environmental pollution, said John Ewell, insurance coverage counsel at Cozen O’Connor. “Whether there has been a ‘discharge, dispersal, release or escape’ of PFAS will be litigated. This question in particular will be germane in suits against manufacturers using PFAS in their products,” he said. Ewell also said a threshold question will arise on what level of exposure to PFAs will result in a “bodily injury” triggering coverage. “While the EPA regulation addresses unsafe PFAS levels in drinking water, it does not expressly set a safe threshold or even address what blood levels are considered unsafe. We will need to hear from the medical community as to when exposure actually caused ‘bodily injury,’” he said. Zaharia said some insurers had created manuscript exclusions to carve out coverage for PFAS, and in May 2023, the Insurance Services Office officially introduced forms and endorsements carving out coverage for forever chemicals in commercial general liability, umbrella liability and business owners policies and policies for auto dealers. This article first appeared on our sister website Business Insurance. For further news from Business Insurance, please click here.

Litigation likely to flow from US ‘forever chemicals’ regulation

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