Chemicals commonly used in fire-fighting foams and a wide range of household items, from non-stick cookware to stain-resistant carpet, are turning up more often as exclusions on insurance policies. That’s due to a growing wave of litigation over water contamination and rising concerns among insurers that the chemicals per-and polyfluoroalkyl substances, or PFAS, could expose them to the same kind of expensive, unanticipated claims as asbestos did a generation ago. While property owners may see more scrutiny over PFAS, environmental insurance can still provide effective risk transfer in many cases.
Also known as PFOA and PFOS, the chemicals are bioaccumulative and can build up and persist in the environment, accumulating in wildlife and humans. Towns, public utilities and states are suing makers of PFAS to recover cleanup costs for groundwater contamination. Some individual lawsuits alleging personal injury have also arisen. Major chemical companies that manufactured PFAS have already reached settlements in the hundreds of millions of dollars.
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While the asbestos crisis, in part, led insurers to add absolute pollution exclusion endorsements to general liability policies, an unendorsed ISO CGL policy does not necessarily exclude products pollution. Now, some carriers are adding PFAS exclusions to GL as well as Environmental policies involving occupancies where PFAS contamination is more likely, such as municipalities, airports, chemical manufacturers/distributors, and industrial facilities, including but not limited to carpet manufacturers, clothing manufacturers, household goods manufacturers and plastic products manufacturers.
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 very unrealistic, cleanup thresholds.
Concerns about potential PFAS contamination are becoming more frequent in real estate transactions involving sites that have had a significant historical fire event or hosted fire-fighting drills using foams containing PFAS. That 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. In some cases lenders may require such an investigation as a condition to obtaining a loan. An “All Appropriate Inquiry” performed by a prospective purchaser can help establish the purchaser as an “Innocent Purchaser” and provide certain safe harbors from US EPA actions. The findings of the investigation are also helpful for underwriting the placement of Environmental Insurance on the site.
Those who have acquired properties that have been subject to PFAS contamination from adjacent sites may want to notify the appropriate regulatory authorities to establish on the record that the contamination was due to PFAS migrating from another site and trespassing onto their own. That is to establish that the contamination was not their fault. In such cases, environmental insurance may still be available provided the investigation has successfully shown that the contamination has migrated from an off-site source.
PFAS contamination is a growing concern for insurers, which are adding exclusions to limit their own risk. Remediating contamination can be highly challenging and expensive. The chemicals are most often found at sites such as industrial/manufacturing facilities, airports, fire-fighting and military facilities and adjoining properties. Owners and potential purchasers of such sites should identify and quantify any potential contamination. They should also consider environmental insurance that can provide effective risk transfer in many cases.
Contact your CRC Group Producer for more information.
- Jim Hamilton is a Vice President, Senior Broker in CRC’s Denver, CO office. He is also the National Environmental Practice Leader, and member of the Casualty Practice Advisory Committee.