As regulations for controlling the use of ‘forever chemicals’ become increasingly stringent, insurers need to be aware of their potential exposure to the costs of cleaning up PFAS contamination.
The insurance sector is fond of referring to emerging risks with the potential for catastrophic long-tail liabilities as ‘the new asbestos’. In the case of PFAS, however, the comparison is one that keeps gaining currency
The acronym PFAS refers to a group of more than 4,000 chemicals called ‘per- and polyfluoroalkyl substances’. These substances are also known as ‘forever chemicals’ because they are persistent organic pollutants that have been found to accumulate in soil, drinking water, livestock and, ultimately, the human body.
Their ubiquity is part of the problem. PFAS have widespread applications in everything from water and stain-resistant treatments for textiles, to cosmetics, non-stick cookware and, notably, the foam used in fire-fighting.
This means their presence in the natural and human environment has been increasing - whether through everyday usage of products that contain them, industrial accidents, deliberate dumping of industrial waste, or seepage from landfill sites – exacerbating fears about the growing impact these chemicals could have on public health.
Just last week, the White House Briefing Room issued a statement from the US government, in which it announced initiatives to prevent the release of PFAS into the environment and to step up remediation measures for removing existing pollution.
Indeed, many governments have taken steps to prevent their applications in new products and manufacturers have also reined in PFAS use.
However, the issue remains of what to do about existing PFAS usage and cleaning up urban and natural environments where contamination had occurred.
The US government announcement included the launch of a three-year roadmap from the Environmental Protection Agency (EPA) which included “steps to control PFAS at its sources [and] hold polluters accountable”. The statement also referenced initiatives to monitor and control PFA usage across a wide spectrum of government agencies - from the Department of Defence, to the Food and Drug Administration, the Department of Agriculture, the Department of Homeland Security and the Federal Aviation Administration.
In Australia, moves are also afoot to tackle the issue of PFAS contamination. The Commonwealth Government set up a panel in 2017 to review the available science on the health impacts of exposure to PFAS, and drafted a guidance document to help various agencies to assess and deal with instances of PFAS contamination, before issuing a re-drafted National Environmental Management Plan for PFAS in 2019.
Previous research on the issue found that one of the largest sources of concentrated emissions of PFAS in the country came from historical use of fire-fighting foams, leading to significant reductions and discontinued use of these foams by firefighters across the country, including at civilian airports and Department of Defence (DoD) sites.
In addition, the Environmental Protection Authorities (EPAs) of individual Australian states have been legislating on the use of PFAS. In March this year, the New South Wales EPA announced that firefighting foam containing the chemicals would be banned for use in the State “except in catastrophic circumstances or where there are special circumstances” – including, from September 2022, its use in portable fire extinguishers.
The state governments of Queensland and South Australia have previously instituted similar bans on PFAS in firefighting foams.
As with other forms of environmental pollution, litigation seeking to assign liability in the case of PFAS contamination follows the ‘polluter pays’ principle in Australia, with clean-up costs likely to run into the many millions of dollars.
In February last year, a class action alleging PFAS contamination by the Australian Department of Defence (DoD) resulted in a AUD212.5mn settlement, after it was argued that the chemicals used in firefighting foam had seeped into groundwater and affected nearby residential properties, impacting land values. A more recent case, brought this summer, also alleged ‘cultural loss’ in addition to the impact on property, as the Aboriginal community filing the action said PFAS contamination from a DoD site had affected their ancestral fishing practices.
In the corporate realm, the discovery of PFAS contamination by the builders of Melbourne’s West Gate Tunnel toll road triggered an attempt to terminate the contract over the issue. The construction firms involved argued that the difficulty of disposing of contaminated soil from the former industrial site constituted a ‘force majeure’ event.
Toll road operator and project owner Transurban disagreed, and Transport Infrastructure Minister Jacinta Allan said the problem needed to be resolved between the builders and Transurban. A report by the Herald Sun later put the likely cost of removing contaminated soil at AUD750mn.
The implications for insurers of land and property contaminated by PFAS contamination are more complex than it might appear therefore.
Environmental impairment liability (EIL) coverage can cover firms either for their own operations on property they own or that of previous occupiers of that property, as well as covering contractors for operations on third party sites. It can also cover third-party costs for contamination of neighbouring property, and potentially loss of business for those on neighbouring property.
If carriers are to avoid lengthy court cases and substantial liability payments for environmental clean ups, therefore, they will need to do extensive due diligence on prospective clients’ property and/or construction projects to assess the risk of PFAS contamination before deciding whether to exclude PFAS contamination risk entirely or price it into the coverage.
In addition, existing property and construction portfolios may require additional scrutiny ahead of renewals to ensure that PFAS contamination isn’t implicitly covered – whether within standalone EIL policies or as part of a broader property coverage - for any exposure to PFAS liabilities. Coverage will then either need to be re-priced to include this risk where exposure seems likely, or specific exclusions introduced.
This is an issue that insurers need to take seriously and examine their wordings carefully going forward.
This article by Jacinta Studdert appeared first in Insurance Day on 28 October and has been reproduced with permission.