PFAS: Causal link to personal injury could open litigation floodgates
The Insurer explores the industry’s approach towards managing exposure to PFAS liabilities.
As carriers look to manage potential liabilities associated with per- and polyfluoroalkyl substances (PFAS), brokers and buyers alike are drawing comfort from the fact that reinsurers are not yet introducing broad exclusions for the chemicals.
Speaking to The Insurer, Casey Petersen, head of US casualty at McGill and Partners, explained that PFAS exposures are more likely to be underwritten on an individual account basis rather than being slapped with broad-brush exclusions.
“In most cases, (re)insurers are not excluding coverage across the board,” he said. “They are looking to underwrite each account individually, which is what buyers and brokers prefer.”
For example, a carpet manufacturer using a water- or stain-repellent coating known to contain PFAS will likely have an exclusion in their policy going forward, whereas original manufacturers of the compounds will struggle to find coverage at all.
Petersen affirmed: “We need insurance for PFAS to cover for the unknowns. The insurance industry has a lot of surplus right now, so we should be able to get coverage on a recurring basis as long as capacity remains and carriers are willing to write new business.”
Adam Grossman, vice president of emerging risk and modelling and senior scientist at Praedicat, noted that in terms of insurability, this stratification of insureds based on where they sit in the PFAS chain of commerce is a simple way to address different exposures.
“Risk stratification is something that we know resonates in the insurance industry as a reasonable approach,” he said.
“But we also know some insurers are trying to get broadly worded exclusions. That’s obviously a way to go, but it’s not necessarily a way that maximises the insurance industry’s value to its clients. The more you exclude from the insurance contract, the less valuable that contract is.”
The need to provide coverage for PFAS to some degree is derived from the fact that there is still a significant amount of uncertainty over just how many substances belong to the chemical family.
And while the US Environmental Protection Agency (EPA) has developed methods for testing known chemicals in groundwater and drinking water, the national testing strategy is often updated with new methods and sample sites.
In addition to uncertainty over the number of chemical compounds classified as PFAS, the absence of a ‘signatory’ disease linked to exposure challenges the often-touted suggestion that PFAS could be the next asbestos for the insurance industry.
Tom Lee, a partner at law firm Bryan Cave Leighton Paisner who serves as a member of the energy, environment and infrastructure practice group and founder of its PFAS team, noted that although this is a popular comparison owing to the wide-ranging industrial footprint of both exposures, there is currently no causal link between PFAS exposure and a disease.
“Whereas with asbestos they were able to develop a clear causal link between exposure and mesothelioma, we don’t have that same causal link for PFAS yet. That’s something that I anticipate will be extensively litigated and it’s going to be tested in the bellwether trials,” said Lee.
With the EPA website prefixing any suggestion of reproductive impact, endocrine disruption and increased risk of cancers with “may”, this lack of causation leads Petersen to reject the comparison to asbestos, as he believes the risk is still emerging.
“PFAS is a complex and evolving risk. We have known about it for 20+ years and while we have made some progress in understanding it, there are still many unknowns. We don't know how widespread it is, what’s being tested, or how to best manage it. This makes it a challenging risk to address, and it is likely to be a problem for years to come.”
Lessons from asbestos
The good news, according to Petersen, is that the industry now is much more sophisticated than when it faced asbestos claims in the 1970s.
“The 70s were very rudimentary – data aggregation was slow and there wasn’t as much information-sharing across the industry as there is today. Now, monitoring the aggregation of exposure is more sophisticated, as are treaty contracts, facultative purchasing and the spread of risk across many carriers.”
Praedicat’s Grossman added that, from a risk modelling perspective, a key lesson from the asbestos crisis is to be more proactive.
“It seems like it’s not clear that the insurance industry has taken that lesson. There’s a lot of reactionary actions going on right now, such as trying to introduce exclusions in response to litigation.”
Grossman also rejects the label of PFAS as an evolving risk, arguing that the advent of litigation demonstrates that the risk has already passed that stage.
“Another lesson from asbestos is looking for early warning signs in places like scientific literature,” he said. “That’s where the risk starts emerging – it doesn’t start to emerge once people file lawsuits in court.
“By the time the case has emerged and the claim is already in an insurer’s system, they’re reduced to arguing about coverage, how much they’re going to pay, and working with the insured to help them find a settlement.”
Owing to the volume of PFAS-related cases and a lack of precedent, several thousand cases based on exposure to aqueous film-forming foam (AFFF) – a type of fire suppressant – have been consolidated into multi-district litigation (MDL).
As part of the MDL, manufacturer 3M in June reached a $10.3bn settlement for claims relating to public water systems contaminated by AFFF. However, Petersen noted that this eye-watering figure is highly unlikely to be borne by the insurance industry.
“Pure manufacturers may not have had insurance for PFAS for a while because general liability policies typically exclude coverage for pollution, and in many cases, products,” he said.
But drinking water contamination is only one area of AFFF-related litigation, with the next scheduled set of bellwether trials focused on personal injury.
“These are personal injury claims based on the consumption of drinking water allegedly contaminated with PFAS from AFFF. It’s the first and broadest test of personal injury and causation claims, so that’ll be very interesting,” said Lee.
If causal link is established between exposure to PFAS and personal injury, this may well open the floodgates for further sectors to be subject to litigation, such as cosmetics, textiles, cookware and other consumer goods.
“We know this is a potential risk to a number of industries, but at this point it’s still hard to clearly define what that risk is going to look like until the legal theories are more established,” said Lee.
Grossman takes a more concise view: “If an insurer is waiting for the bellwether trial to adjust their underwriting approach to PFAS, they’re looking way too far back in the rear-view mirror.
“For any company already involved in PFAS litigation, you should assume their entire tower is at risk. Changing underwriting approach for companies like that is way too late.”
Grossman concluded: “Insurers need to be thinking about this from the basis of exposure to these latent risks. Understand what past risks are in your book now, how that relates to ongoing premiums and reserves, and then figure out what pricing you need to make those contracts sustainable. It’s not necessarily uninsurable full stop.”