Coverage Corner

FOREVER CHEMICALS – PFAS & INSURANCE

By Cathy Trischan, CPCU, CRM, CIC, ARM, AU, AAI, CRIS, MLIS, TRIP

What do pizza boxes, firefighting foam and nail polish have in common? All may contain perfluoroalkyl and polyfluoroalkyl substances (PFAS), commonly referred to as “forever chemicals.” Thousands of compounds fit into this broad category, and while PFAS have been around since the 1940s, it wasn’t until 1999 that the first lawsuit involving them was filed. A farmer in West Virginia sued DuPont for contaminating water that affected his cattle. Litigation has expanded since, and there has been increased regulatory activity against those businesses with PFAS exposures. The costs of these claims, and the costs to defend them, can be staggering. 3M recently settled claims involving drinking water contaminated with PFAS for $10.3 billion.

PFAS are manmade chemicals that contain fluorine and carbon atoms and which are used in a variety of products, making them resistant to oil, heat, stains, or water. PFAS don’t degrade naturally over time and move readily through the environment, hence the term “forever chemicals.” PFAS can be found in drinking water, soil, the food supply, and the bloodstream of humans. The effect of PFAS on the body is still being researched, but studies have shown that these chemicals can cause harm in various ways.

Most commercial insureds, when faced with a liability claim turn to their Commercial General Liability Policy (CGL). Will the CGL respond? Unfortunately, the answer is – it depends. There are two primary exposures for most insureds – the PFAS could be released from the insured’s premises or the PFAS could be in the insured’s products.

The CGL and its predecessor, the Comprehensive General Liability Policy, include pollution exclusions. The exclusion added in 1973 excluded pollution unless the release was sudden and accidental. A broader pollution exclusion, often referred to as an absolute pollution exclusion, was added in 1986, and coverage for sudden and accidental releases was removed. Under both the CGL and the Comprehensive General Liability Policy, though, coverage remained for most products liability claims. These general points apply, though, to unendorsed policies. It is not uncommon for insurers to add Total Pollution exclusions which remove coverage for all pollution exposures, including products liability.

Another question to consider is whether PFAS are the types of substances to which a pollution exclusion should apply. The definition of pollutants in most CGL policies is broad, but courts in some states have ruled that pollution exclusions apply only to traditional environmental pollution such as hazardous waste or industrial pollution. In other states, the exclusion might apply to many other types of hazardous substances.

Keep in mind, too, that claims involving pollutants often trigger multiple policies. Claims could involve decades of policies, each with differing language concerning pollutants. For an insured who has been manufacturing products with PFAS since the 1950s, having information on older liability policies could make a tremendous difference when a lawsuit is filed. It is more likely that older policies won’t have the same exclusions seen in more current ones.

In 2023, Insurance Services Office (ISO) introduced a number of endorsements to specifically exclude coverage for losses involving PFAS. Examples include Exclusion – Perfluoroalkyl and Polyfluoroalkyl Substances (PFAS) CG 40 32 for the CGL policy and a similar exclusion, Exclusion –Perfluoroalkyl and Polyfluoroalkyl Substances (PFAS) CU 34 54, for use on a Commercial Umbrella. The endorsements remove bodily injury, property damage and personal and advertising injury liability coverage for any losses involving PFAs. Also excluded is any loss, cost, or expense arising out of abating, testing for, monitoring, cleaning up, removing, containing, treating, detoxifying, neutralizing, remediating, disposing of, or responding to or assessing the effects of PFAS. The endorsements contain a detailed definition of “perfluoroalkyl or polyfluoroalkyl substances” which includes goods or products that contain PFAS. The definition is broad enough to exclude not just named substances, but those with a similar composition. Addition of this exclusion will be problematic for insureds with PFAS on site or whose products contain PFAS.

If the CGL policy doesn’t provide coverage, what other policies might be triggered in a claim involving PFAS? Pollution liability policies and standalone products liability policies may be of help to some insureds. Terms vary widely, though, so language must be carefully reviewed. And while a Directors and Officers Liability Policy doesn’t respond directly to bodily injury and property damage claims, these policies could come into play if claims are made against company executives for their management decisions involving PFAS.

Now is the time to begin talking to insureds about their exposures in this area and what, if any, coverage may be available. The problem of “forever chemicals” is not going away anytime soon. Til next time!

Cathy Trischan, CPCU, CRM, CIC, ARM, AU, AAI, CRIS, MLIS, TRIP is IA&B’s commercial lines education consultant. She works with our CIC and CISR programs, as well as our live CE webinars. Catch her at one of our upcoming courses: IABforME.com/education