Insurers shy away from PFAS amid “Superstorm” of litigation, regulations

As litigation and regulations increase around per- and polyfluoroalkyl substances (PFAS), insurance underwriting is tightening across the board. Insurance professionals who specialize in PFAS say insurers are imposing coverage exclusions and, in some cases, refusing to write liability policies in PFAS-exposed industries.

Robin Kelliher, environmental solutions group advisor at USI, described the current insurance landscape as being hit by a “superstorm” of PFAS-related factors.

“Insurance underwriters just see lawsuits, lawsuits, lawsuits,” she said, and they don’t know how those lawsuits will play out.

Industrial manufacturing company 3M reached a more than $10 billion settlement in June 2023 with a collection of US public water systems to resolve claims of PFAS water contamination. Around the same time, Dupont reached an estimated $1.19 billion settlement with a collection of US public drinking water systems.

A new EPA rule and recent changes by the Office of Insurance Services are also shaping how insurers perceive risk. Just a few months ago, the EPA set a limit on the amount of PFAS in drinking water. And last year, ISO published approvals that largely exclude PFAS claims for insurers to use in CGL policies.

“It touches everything,” Kelliher said of PFAS. “And the carriers see the lawsuits. Their insureds are being sued and filing them as claims. That’s why carriers react the way they are. Because it comes from all different ways.”

The EPA reports that PFAS are widely used, long-lived chemicals whose components break down very slowly over time. Studies have shown that exposure to chemicals can be linked to harmful effects on humans and animals.

PFAS can be found in drinking water, firefighting foam, food, personal care products, and more. According to the EPA, it can be found in air and soil. On its website, the EPA said current peer-reviewed studies link certain levels of exposure to reproductive and developmental effects, as well as an increased risk of some cancers and reduced immune system capacity.

Lisa Williams, global head of casualty at Zurich Insurance Group, explained that PFAS exposure tends to fall predominantly into two major categories: premises exposure and product liability exposure.

A recent USI report said litigation is prompting re-evaluation of approaches to PFAS underwriting, coverage, risk management and claims management. The report says most insurers impose exclusions on general liability and products liability policies for all renewal accounts, regardless of industry or loss exposure, but especially manufacturing, hospitality, retail and homeowners.

USI anticipates that finding PFAS coverage in the environmental insurance market will be more difficult for product exposures, including supply chain and distribution risks and site-specific risks.

Kelliher said PFAS appeared on the radar of pollution liability insurers around 2018 — and as coastal state regulations began to surface, carriers began to pay attention. Insurers used to be more willing to write the exposure, she said, but that has changed in the past year because of liability stemming from the Comprehensive Environmental Response, Compensation, and Liability Act.

“When the EPA started talking about adding PFAS as a hazardous substance under CERCLA, then all of a sudden the underwriting scrutiny became tenfold,” Kelliher said. “And we’re starting to see PFAS exclusions being added to our pollution policies.” The increase in litigation is also creating what she described as a “reactive” market.

Kelliher has seen exclusions expand beyond the pollution liability line and into contracting operations, product liability and more. She sees a link between this and ISO’s endorsement of PFAS-specific exclusions for commercial general liability and umbrella policies.

“So this year, all of our customers are starting to see, in their standard lines of business, like their GL policies, a PFAS exclusion,” she said. This “really wreaks a lot more havoc on the market.”

Kelliher said he doesn’t know if carriers add carte blanche PFAS exclusions to standard policies, “but if you’re a manufacturer, you see a PFAS exclusion. And it’s for your products, so that becomes really problematic for our policyholders.”

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Processes Legislation Underwriting