PFAS Contamination: Rising Costs for Insurers Amid a Regulatory Tsunami

The insurance industry faces a new wave of financial exposure as federal and state regulations surrounding per- and polyfluoroalkyl substances become more stringent.

Once hailed as miracle compounds for their water-repellent, non-stick, and heat-resistant properties, PFAS are now viewed with growing alarm due to their widespread contamination in soil, water, and air, and links to serious health issues.

Earlier this year, the U.S. Environmental Protection Agency set enforceable standards called Maximum Contaminant Levels (MCLs) for several PFAS chemicals in drinking water. Additionally, two widely used PFAS compounds, PFOA and PFOS, have been labeled as hazardous substances under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA). This law, known as the “Superfund” law, allows the EPA to seek cleanup costs from responsible parties. Together, these regulatory actions mark a significant turning point for the insurance industry, introducing new risks and financial responsibilities for insurers covering businesses and entities impacted by PFAS contamination.

In response to these regulatory challenges, technologies like in situ remediation, which treats contamination directly in the subsurface, are gaining traction as a more cost-effective and efficient alternative to traditional methods. In situ remediation using a patented colloidal activated carbon (CAC) technology significantly lowers costs and reduces downstream liabilities compared to cleanup methods like pump-and-treat systems, which generate PFAS-laden waste that requires further management.

Beyond offering cost savings—at less than one-third the expense of pump-and-treat—in situ remediation with CAC helps prevent future liabilities by eliminating the need to handle and dispose of PFAS-laden waste, thus minimizing the risk of reintroducing contaminants into the environment. This approach is particularly relevant for insurers, as it helps mitigate potential exposures associated with Non-Owned Disposal Sites coverage, which can arise when PFAS-laden waste is transported off-site for disposal.

Financial Exposure Amplified

An estimated 57,000 sites across the U.S. are contaminated with PFAS, impacting soil, groundwater, surface water, and air wherever anyone has bothered to look. A recent Stockholm University PFAS study even found PFAS at unsafe levels in rainwater from remote regions like Antarctica and Tibet.

According to the CDC, these chemicals are present in the bloodstreams of almost all Americans due to widespread environmental exposure. Additionally, recent publicly available data, compiled by the Environmental Working Group, reveals that over 2,000 systems already exceed the newly established MCLs, further burdening both public and private sector resources as they retrofit or relocate these systems to comply with the law.

For insurers, PFAS-contaminated properties present a looming financial challenge. The sheer number of sites with known or potential PFAS contamination are expected to intensify the influx of claims, with policyholders seeking coverage for cleanup costs, bodily injury, and other legal liabilities.

The key challenge facing the insurance industry is this: How can insurers navigate this evolving landscape and mitigate their financial exposure? Part of the solution lies in leveraging advanced technologies, such as CAC – commercially available as PlumeStop – to effectively filter PFAS contaminants out of the groundwater below the surface. This approach prevents potential risks associated with above-ground remediation methods, which can open a Pandora’s Box of potential exposures, impacting surrounding communities.

New Liabilities

The EPA’s crackdown on PFAS in the environment is particularly impactful because of the CERCLA hazardous substance designation for PFOA and PFOS. CERCLA is often called the “Superfund” law, designed to facilitate the cleanup of contaminated sites by holding parties responsible for pollution. Under this framework, third-party claims can lead to significant costs for responsible parties—and their insurers.

Insurance policies that were underwritten before PFAS contamination became a high-profile environmental issue may not have explicitly excluded PFAS-related claims. As a result, insurers are finding that older general liability and environmental policies are suddenly exposed to claims related to PFAS contamination, which could lead to protracted legal disputes over policy language, coverage limits, and potential exclusions. More than 6,400 PFAS-related lawsuits were filed in federal court through March 2022.

Given the staggering costs associated with PFAS cleanup, and the growing number of third-party claims, insurers face a significant risk of exposure from policyholders across wide-ranging industries, including manufacturing, waste disposal, municipalities, and even real estate.

The financial implications for insurers stemming from PFAS contamination are multifaceted and potentially very steep.

Cleanup Costs

The cleanup of PFAS contamination is notoriously difficult and expensive due to the persistent nature of these chemicals in the environment. Traditional remediation methods often involve extracting contaminated groundwater, followed by treatment or disposal—a process that can take many years, with costs often running into the millions of dollars annually for some impacted sites. A typical pump-and-treat system requires decades of operation, with ongoing expenses for long-term maintenance and monitoring, resulting in potentially extremely costly claims.

At a manufacturing site in Michigan, the projected cost for a pump-and-treat system to control a migrating PFAS plume in groundwater was estimated at $20 million over its operational lifecycle. However, an alternative, more cost-effective in situ remediation approach using CAC was ultimately chosen, reducing the overall costs by 80%.

Health-Related Claims

PFAS exposure has been linked to a variety of health issues, including cancer, immune system disorders, developmental delays, and hormonal disruptions. Insurers may be required to cover policyholders’ claims related to personal injury, medical monitoring, or property damage as communities become more aware of the potential health impacts. The difficulty for insurers: health-related claims can span decades, as PFAS-related illnesses may not manifest until years after exposure.

Downstream and Third-Party Liabilities

One of the most significant risks for insurers is the potential for third-party legal action. Because PFOA and PFOS are now designated as hazardous substances, the EPA can now hold any party that contributed to the contamination—whether through production, use, or improper disposal—liable for cleanup costs. This can lead to potential lawsuits against a wide range of stakeholders, from manufacturers of PFAS-laden products to companies that have used PFAS in industrial processes, creating further downstream liabilities for insurers who provided coverage.

To protect against the rising tide of PFAS-related claims, insurers should take a proactive approach to risk management. Below are some best practices to help mitigate financial exposure:

Conduct Comprehensive Risk Assessments

Insurers must assess their current policy portfolios to identify potential PFAS-related risks. High-risk policyholders may include those in sectors such as chemical manufacturing, waste disposal, firefighting, and water treatment. Understanding where potential liabilities lie is a crucial first step to managing them effectively.

Clarify Policy Language and Coverage Terms

Given the ambiguity surrounding environmental liability, it is essential for insurers to clearly define their coverage terms related to PFAS. New policies should consider excluding PFAS-related claims or, at a minimum, include precise language to define coverage limits and exclusions. Doing so will help avoid costly legal disputes and limit exposure.

Work with Environmental and Legal Experts

Collaborating with environmental consultants and legal counsel who are familiar and specialize in PFAS remediation can help insurers identify best practices for claims management. These partnerships can assist insurers in assessing risks accurately and building stronger cases when contesting or negotiating claims.

Encourage Policyholders to Adopt Best Practices for PFAS Management

Insurers can work with policyholders to minimize PFAS exposure through best management practices. This might include substituting PFAS with safer alternatives in industrial processes, ensuring proper disposal of PFAS-containing waste, and regularly monitoring environmental contamination.

In Situ Remediation

One emerging opportunity for insurers to mitigate risk is by supporting zero-waste, low-cost remediation methods when cleanup is necessary. In situ remediation with colloidal activated carbon (CAC) transforms the subsurface into a filter that immobilizes PFAS in place, preventing its migration through groundwater and protecting water systems, private wells, surface water, and other sensitive receptors downstream. This approach not only reduces immediate contamination risks but also lowers long-term costs and liabilities related to waste management. Additionally, it is significantly more cost-effective—at less than one-third the expense of pump-and-treat systems. By encouraging policyholders to adopt in situ remediation, insurers can decrease their exposure to costly claims while promoting a sustainable, forward-thinking solution.

The PFAS regulatory landscape is rapidly changing, and with it comes a heightened need for insurers to adapt their risk management strategies. The widespread nature of PFAS contamination, combined with evolving regulations, means insurers must be prepared to address significant claims related to environmental cleanup, health damages, and third-party liabilities. However, by implementing proactive strategies, clarifying policy language, and promoting zero-waste remediation methods, insurers can effectively manage these risks and reduce their exposure to the rising tide of PFAS-related claims.

Dooley is vice president, industrial sector at Regenesis, an environmental remediation company. She has more than years of experience in the environmental industry. Over the past several years, she has been focused on PFAS and chlorinated hydrocarbon sites working with commercial manufacturing clients and property developers to mitigate risk and liabilities.

Was this article valuable?