Decoding PFAS’ Impact: Expert Insights from Philadelphia Insurance Companies

Navigating the complexities of PFAS contamination and its impact on drinking water, Jon Peeples of Philadelphia Insurance Companies discusses the challenges faced by water treatment plants, potential litigation and the insurance industry’s response.
By: | May 29, 2024

Dan Reynolds, editor-in-chief of Risk & Insurance, recently sat down with Jon Peeples, vice president and director of environmental underwriting at Philadelphia Insurance Companies. They discussed the pressing issue of contamination by PFAS (per- and polyfluoroalkyl substances), its impact on drinking water, potential litigation and claims, and the role of the insurance industry in managing this risk.

What follows is a transcript of that conversation, edited for length and clarity.

Risk & Insurance: What are the main sources of PFAS contamination and their impacts on drinking water?

Jon Peeples: PFAS contamination has had a significant impact on drinking water because of four main release factors. The first is PFAS-contaminated wastewater effluent (waste that pours into water or air) where treatment plants did not have the technology to treat PFAS.

Second, PFAS releases from manufacturing facilities and municipal landfills have impacted groundwater and surface water.

A third major source derives from firefighting foam, particularly in areas with frequent firefighting training, such as Department of Defense spaces like the former Willow Grove Air Force base outside of Philadelphia.

The fourth notable impact comes from agriculture, as biosolids from wastewater treatment plants are often dried and used as fertilizer. These biosolids can contain PFAS, which went unanalyzed, unlike other contaminants, such as metals. As a result, PFAS contamination has been entering the environment and, unfortunately, humans for an extended period of time.

R&I: Have certain entities faced substantial settlements or class action lawsuits related to PFAS contamination?

JP: To date, mainly PFAS manufacturers have faced significant legal action, however we are now seeing that the next tier of potential targets includes companies that have used PFAS in their operations, such as paper mills and textile mills. These companies have likely dealt with on-site disposal, off-site disposal and contamination of their effluent.

Jon Peeples, vice president and director of environmental underwriting, Philadelphia Insurance Companies

We expect a greater impact on the environmental insurance market to arise from the government’s implementation of PFAS regulations under the Safe Drinking Water Act. These regulations, announced in 2024 and set to be implemented over the next three to five years, will require water treatment plants to treat for PFAS. This increases the potential for lawsuits as people become more aware of their potential exposure to PFAS-tainted water.

Municipalities, water services and distributors, and both private and public companies could all face potential lawsuits. Municipalities may face a double hit, as they also operate wastewater treatment plants that accept PFAS-containing effluents. Consequently, they may seek to take action against the parties responsible for the contaminated effluent.

While the full chain of liability has not yet played out, it may follow this pattern: manufacturers, companies using PFAS, and entities treating effluent from these facilities. The EPA’s website provides a detailed outline of its agenda regarding PFAS, which can serve as a valuable resource for understanding the situation.

R&I: Please share your perspective on the potential for future litigation and claims related to PFAS.

JP: We anticipate a significant amount of litigation and claims on this topic in the future. While some rush to label it as the next asbestos, the issue is too broad for that comparison.

The government is likely to step in and regulate PFAS as much as possible. We expect to see substantial federal funding directed towards helping municipalities and other entities treat contamination.

The primary concern with PFAS is its potential to cause cancer and various other health issues. However, the specific exposure levels and the extent of the impact are not well understood at this time.

Studies are ongoing to determine the effects of PFAS on cancer risk, immune system function, child development and reproductive health. Establishing safe exposure levels and understanding the full scope of the problem will take time.

R&I: How significant are the challenges water treatment plants face in successfully eliminating PFAS, and how can they overcome these challenges? 

JP: The main challenge for water treatment plants is that their current equipment and processes are not designed to eliminate PFAS. Upgrading their facilities to effectively treat PFAS contamination requires significant financial investment.

Some private companies may have the resources to make the necessary changes, and they will likely do so to mitigate their liability. However, municipalities and public water treatment plants will probably need to seek federal or state funding to support the upgrades required to successfully remove PFAS from the water supply.

R&I: Can you provide detail on the insurance industry’s response to the risk and losses associated with PFAS, particularly in terms of appetite and coverage? 

JP: The response from the insurance industry as a whole has been mixed, with the reinsurance industry playing a significant role in limiting the exposure to insurers. Reinsurers, who support multiple carriers and processes, are concerned about the cumulative effect of PFAS-related losses on their portfolios.

Mainstream commercial carriers are addressing PFAS either through outright exclusions or by relying on the strength of the pollution exclusion in their liability policies. They are making declarations that their policies do not cover PFAS-related losses.

In the environmental marketplace, the response is varied. Some carriers believe they can underwrite the issue. At Philadelphia Insurance Companies, we have taken a proactive approach, excluding coverage for PFAS since early 2021.

We recognize that certain industry types, such as construction, may not have a significant tie-in to PFAS, as they typically do not use these substances in their operations. However, when it comes to facilities like condominium complexes, there is a potential chain of liability if PFAS contamination is discovered in the water supply.

As a result, a small group within the environmental marketplace, including ourselves, are implementing PFAS exclusions to manage this potential risk.

R&I: Might we expect further actions from the EPA regarding PFAS, and how do you see this developing? 

JP: The EPA is currently following a plan it calls the PFAS roadmap, which focuses on a few key areas. It is working to identify the toxicity of PFAS, conducting research to determine the levels at which PFAS exposure causes harmful effects.

Next, it is exploring ways to treat the current flow of PFAS into the environment, such as working with water suppliers to prevent PFAS from entering drinking water systems.

Third, the EPA is focusing on remediation, targeting trouble spots such as contaminated facilities and landfills. In the future, it may also remove contaminated soils from farms.

While the EPA’s current goal is likely to address the main sources of PFAS contamination, we could see them start tracking and following the trail of PFAS more extensively in the future.

R&I: How are you advising your clients at Philadelphia Insurance Companies regarding PFAS contamination risks? 

JP: We’re fielding questions from concerned agents and clients because of PFAS. We are emphasizing the need for awareness. We are publishing blogs and encouraging agents and clients to visit the EPA website for more detailed information.

R&I: How would you describe your company’s approach to PFAS exclusions in your environmental insurance policies, and how do you advise clients on this exposure? 

JP: We are up-front about the fact that we have an exclusion in our policies for PFAS exposure. We worked with our reinsurers and made a clear decision that we won’t take on this risk.

We drew a line in the sand because of the unknown scope of PFAS usage, which ranges from nonstick pans to firefighting foam. PFAS is great for its fire-resistant and nonstick properties, but the biggest issue is its persistence in the environment, as it doesn’t disappear quickly; it stays for a long time.

R&I: What role can the distribution community, particularly brokers, play in communicating the message about PFAS coverage and its associated risks? 

JP: Currently, brokers are requesting PFAS coverage for their clients when available. However, they would be prudent to take a more proactive approach by addressing the issue with their clientele to determine their clients’ potential exposure.

Many companies have used PFAS for various purposes in the past and have since stopped. Nevertheless, there is a tail risk associated with its historical use. For instance, products containing PFAS that were distributed 10 years ago could still be in circulation, potentially causing ongoing impacts.

The difficulty lies in determining the extent of the liability. The EPA is still assessing whether PFAS-coated pans pose a significant risk, investigating factors such as the rate at which PFAS comes off during use and its overall impact. This uncertainty complicates the process of ascertaining the “attachment point” where liability is likely to begin for these products.

R&I: Can you list the key challenges facing the environmental insurance market in addressing PFAS contamination? 

JP: One of the main challenges in the environmental insurance market is the lack of continuity in addressing PFAS contamination. The impact of PFAS will likely be staggered, with affected parties addressing the issue as they start seeing its effects.

The environmental marketplace has been perennially soft due to new entrants every year. These new players, often without any claims history, tend to be aggressive in their approach, pushing established markets to follow suit to retain their accounts. This lack of cohesiveness in the market makes it difficult to address PFAS contamination consistently.

While the casualty marketplace is starting to see more cohesiveness, with larger companies taking the lead and others following, the environmental market still needs time to shake out. The property market has been relatively safe, as it requires causation of risk, although concerns about the use of firefighting foam persist.

A prime example is a claim involving a distillery warehouse fire near a river. The decision was made to let the fire burn to avoid using PFAS-containing foam, which could have led to worse contamination in the river. Instead, aerators were used to manage the sugar content and bacteria levels in the water to prevent a massive fish kill.

Awareness about the use and containment of firefighting foam is crucial. Businesses need to assess whether they have these foams in their systems and how they plan to contain them, as the impact of PFAS contamination will continue to be a concern moving forward.

R&I: What are the key considerations for public sector organizations when it comes to PFAS contamination and potential liability? 

JP: There are a number of consultants in the risk management field trying to raise awareness about PFAS contamination. They are encouraging public sector organizations to carefully consider the issue and its potential implications.

However, the main challenge we face is that research is still ongoing to determine the toxicity levels and the extent to which we should be concerned. The most significant issue is that PFAS has been present in the environment and in people for years, leading to bioaccumulation.

While not as toxic as mercury, PFAS is still a concern. According to the EPA website, an estimated 90% of Americans now have PFAS in their bodies.

R&I: Are new entrants in the environmental insurance market having an impact on the industry, particularly regarding PFAS exposure? 

JP: The entry of new players in the environmental insurance market does complicate matters to some extent because, as mentioned previously, without legacy, these new markets may be aggressive in accepting PFAS exposure.

The sensitivity around PFAS and the involvement of various players, including reinsurers, necessitates a thorough process of explanation and understanding of the potential impacts. Unfortunately, we do not have enough data to adequately determine the long-term threat that PFAS poses.

However, the EPA has done a good job providing information on its website, and it’s important to promote this info as widely as possible. My advice is to visit the EPA website and carefully review the information. This will provide important context for understanding the PFAS situation. &

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected].

More from Risk & Insurance