PFAS Litigation Begins ‘Tip of the Iceberg’ Turn Toward Insurers

Insurance companies say they fear that PFAS is on the cusp of becoming a major issue for the industry, with the specter of health and environmental damage claims dragging them into court battles that, until now, they’ve managed to avoid.

Historically, insurers have argued that they’re not liable for pollution from the laboratory-created substances dubbed “forever chemicals"—some of which didn’t exist when older policies were written. But businesses are starting to push back after finding it impossible to secure coverage for PFAS contamination.

“There’s going to be a huge variety of fights about insurance related to the PFAS litigation,” said John Ellison, a partner at Reed Smith who represents policyholders. “We are at the tip of the iceberg.”

Insurers have largely avoided being embroiled in most litigation so far. Ten PFAS-related insurance cases have been pending in courts across eight states, though some have recently been settled, according to Bloomberg Law data.

By comparison, virtually all of the more than 6,400 PFAS-related lawsuits filed in federal court between July 2005 and March 2022 targeted the makers or users of the synthetic chemicals.

“There are a lot of PFAS coverage claims, but not all that many coverage lawsuits yet,” said Scott Seaman, a Hinshaw & Culbertson partner who represents insurers. “We’re going to be inundated with a lot more cases.”

Forever Chemicals

Only three federal courts have ruled that insurers must pay for companies’ legal bills in PFAS lawsuits. But insurance professionals say they fear that PFAS lawsuits could soon mimic what happened to the industry in the big asbestos court battles of the past 40 years, a development that could bankrupt manufacturers and companies down the supply chain.

Businesses already have been paying huge court-approved settlements for PFAS liabilities, while many PFAS insurance disputes have been settled outside of the courthouse, attorneys say.

PFAS refers to perfluoroalkyl and polyfluoroalkyl substances, the thousands of man-made chemicals developed and used in consumer products since the 1950s.

Some PFAS help firefighting foam smother the hottest fuel blazes. The chemicals’ oil-, heat-, and corrosion-resistant properties make them ideal to produce semiconductors, communications technologies, nonstick pans, water-repellent fabrics, and even disposable pizza boxes and takeout food containers.

But it takes extraordinary means to break down some PFAS chemicals once they’re released into the air, water, and land—which is why they’re called “forever chemicals"—and traces are thought to be in the bloodstream of nearly every American. The health concerns have become public only in recent years, with some PFAS linked to cancer, liver damage, and low birth weight.

States and the federal government are moving to restrict or ban the most problematic of the chemicals, including perfluorooctanoic acid (PFOA) and perfluorooctanesulfonic acid (PFOS). But federal regulation is slow, and hundreds of the chemicals remain in production and use.

Most insurers have wanted no part of the PFAS debate.

“More and more carriers are not even willing to entertain coverage for PFAS,” said Jim Hamilton, vice president of insurance broker CRC Group. “It is becoming increasingly difficult to get coverage.”

‘It’s Too Late’

Still, multiple kinds of insurance policies, including general liability, property, and environmental, can be involved in underlying PFAS claims.

Some PFAS claims have been presented under directors and officers insurance when a company and its board failed to disclose the chemicals were included in their product or on their site, said Seaman.

“Many insurers would say that they never provided coverage for these claims,” Seaman said. But policyholders are demanding some kind of insurance protection.

“There’s been heightened awareness of PFAS liability and an increase in clients seeking coverage, but it’s difficult to obtain,” said Hamilton. “If a site is already impacted by PFAS, it’s too late.”

Insurers charge a higher rate for certain industries that are more likely to be impacted by PFAS contamination on a large scale—such as airports, municipalities, and industrial facilities.

“I insure quite a few airports, and it’s difficult, if not impossible, to get coverage for PFAS,” Hamilton said.

Among the few PFAS insurance rulings, Michigan, North Carolina, and Texas said insurers have a duty to defend PFAS lawsuits against policyholders, while New York said the opposite. An Ohio federal court refused to decide on the issue, saying the PFAS insurance question is a novel matter that needs state high court guidance.

All of the five rulings focus on general liability coverage with insurers and policyholders fighting over the meaning of different policy restrictions or exclusions.

Pollution Exclusions

Some insurance policies have language specifying that there is no coverage for losses caused by a “pollutant.”

Policyholders argue that some liability policies issued in the 1970s and 1980s never listed PFAS as a traditional pollutant barred by such exclusions. However, a New York appeals court ruled that PFAS doesn’t have to be specifically included as a contaminant in the exclusion.

The pollution exclusion terms have changed throughout the years, said Jodi Green of Feldman Legal Advisors. It depends on which version of the exclusion applies and when the PFAS-related damage happened, she explained.

Insurers have also relied on intended-act exclusions to deny coverage when underlying suits allege manufacturers knew that their products contain the harmful chemicals.

The Northern District of Ohio recently refused to decide whether an employment disease exclusion applies to contract workers over PFAS-related injuries. Contract firefighters and their spouses had sued a firefighting gear company, alleging they had developed cancer after being exposed to PFAS. The company’s insurer then sued its policyholder, seeking to dodge defense duty.

The Ohio federal court asked the state high court to weigh in, saying the PFAS insurance issue presented a novel state law question.

“The fact that the Ohio court declined jurisdiction highlights how difficult these PFAS coverage questions really are,” Green said.

Product or Pollutant

“The battle line between insurance companies and policyholders is also on whether PFAS is a product or is PFAS a pollutant,” said Ellison from Reed Smith.

Pollution exclusion terms require “discharge of pollutants,” insurance attorneys say. So whether the exclusion bars coverage depends on if the underlying plaintiffs allege PFAS in a product is being discharged.

“A company that faces a lawsuit based on PFAS in a consumer product such as lipstick or in nonstick cookware may be better positioned in some states to evade pollution exclusions than a company seeking coverage for claims based on the release of PFAS from its factory into a nearby stream,” said Summer Craig, a Simpson Thacher & Bartlett LLP attorney.

Policyholders have argued that allegations that PFAS were included in products like nonstick pans, paper plates, or firefighting foams, are product liability claims instead of pollution claims.

“At the time most of these products were made, PFAS wasn’t considered a pollutant at all,” Ellison said. “It was just part of the ingredients that were used in the manufacturing process to create a whole variety of products.”

Most general liability policies provide product liability coverage, he said.

PFAS-Specific Exclusion

Carriers are adding PFAS-specific exclusions into general liability and director and officer insurance policies, insurance attorneys and brokers say.

“Insurers are excluding PFAS as a whole category,” said Ellison, who noted that he has seen newer policies with specific PFAS coverage restrictions.

David Novich, a spokesperson from Verisk Analytics who works with carriers on risk modeling, said Verisk “has introduced PFAS exclusions that insurers can use with their commercial policies.”

“PFAS-specific exclusion showed up in the last decade,” said Hamilton, adding that the exclusion is prevalent in environmental insurance that cover chemical pollutants.

The specific exclusion will help policyholders argue that earlier policies without it covers PFAS-related damage—and other exclusions don’t apply.

“If insurers had to draft an exclusion to say that PFAS is not covered, then it must have been covered under these old policies,” Ellison said.

Fred Myatt, a technical underwriter at Zurich North America, said Zurich has been asking food manufacturers and restaurants facing PFAS liabilities about their food packaging materials and risk evaluation process.

Next Asbestos?

Some insurance professionals say they fear that PFAS could hit the industry in a way they liken to asbestos, bringing years of legal bills and exposure. Credit rating Agency AM Best estimates the insurance industry had $100 billion in losses from asbestos liabilities in 2022.

In fact, some PFAS lawsuits are following the path of asbestos: Underlying claims first were brought against manufacturers, then flowed down the supply chain, including to product packaging companies.

The chemicals are hard to remediate and more prevalent than asbestos, which is a group of naturally occurring minerals made up of heat-resistant fibers that was used for decades in building materials.

However, the plaintiff bar hasn’t targeted a specific disease associated with PFAS, as in the case of mesothelioma with asbestos. Without it, trial lawyers will have a harder time assembling underlying plaintiffs to create the litigation process that has bankrupted so many companies as they did with asbestos, said Simpson Thacher’s Craig.

“Causation is an important issue in PFAS liability litigation,” said John Vales, a Dentons product liability attorney who represents manufacturers. “Epidemiological studies have not established that exposure to PFAS causes specific diseases.”

Trial lawyers are investing heavily to allege a targeted medical condition caused by PFAS, said Ellison.

It may be too soon to say that there is absolutely no coverage for PFAS, and some insurers are actively working with customers on risk management.

Zurich evaluates an organization’s PFAS exposure during the underwriting of property, pollution, and D&O insurance, said Myatt from Zurich North America. The insurer also works with current policyholders on projects to remove the chemicals from their manufacturing process, he said.

“We review with a customer their commerce and work practice,” said Chris Garrabrant, senior principal engineer at Zurich. “We would point to certain things like O rings, or certain paints and polymers and plastics that may contain [PFAS].”

If a policyholder uses stain-protection, wrinkle-resistant, or heat-resistant materials, Zurich will ask them to produce a safety data sheet required by OSHA, he said.

“We want to make certain that we help them eliminate it,” Garrabrant said.