As litigation and regulation increase around per- and polyfluoroalkyl substances (PFAS), insurance underwriting is tightening across lines. Insurance professionals who specialize in PFAS say insurers are mandating coverage exclusions and, in some cases, declining to write liability policies at all in PFAS-exposed industries.

Robin Kelliher, environmental solutions group counsel at USI, described the current insurance landscape as being hit by a “superstorm” of factors related to PFAS.

“The insurance underwriters are just seeing lawsuits, lawsuits, lawsuits,” she said, and they don’t know how those lawsuits are going to play out.

Industrial manufacturing company 3M reached a $10-plus billion settlement in June 2023 with a collection of U.S. public water systems to resolve PFAS water pollution claims. Around the same time, Dupont reached an estimated $1.19 billion settlement with a collection of U.S. public drinking water systems.

A new EPA rule and recent Insurance Services Office changes are also shaping how underwriters view the risk. Just a few months ago, the EPA set a limit on how much PFAS can be in drinking water. And, last year, ISO published endorsements broadly excluding PFAS-related claims for insurers to use in CGL policies.

“It touches everything,” Kelliher said of PFAS. “And the carriers are seeing the lawsuits. Their insureds are being sued, and they’re submitting them as claims. That’s why the carriers are reacting the way they are. Because it’s coming from all different avenues.”

PFAS Background

The EPA reports that PFAS are widely used, long-lasting chemicals, the components of which break down very slowly over time. Studies have shown that exposure to the chemicals may be linked to harmful effects in humans and animals.

PFAS can be found in drinking water, fire extinguishing foam, food, personal care products and more. Per the EPA, it can be found in the air and soil. On its website, the EPA said current peer-reviewed studies link certain levels of exposure to reproductive and developmental effects, as well as an increased risk of some cancers and reduced immune system ability.

“Insurance carriers do not like to write coverage for a burning building. And right now, these PFAS claims are like a burning building.”

Robin Kelliher, USI

“Current scientific research suggests that exposure to certain PFAS may lead to adverse health outcomes,” the EPA reports. “However, research is still ongoing to determine how different levels of exposure to different PFAS can lead to a variety of health effects. Research is also underway to better understand the health effects associated with low levels of exposure to PFAS over long periods of time, especially in children.”

Lisa Williams, global head of casualty at Zurich Insurance Group, explained that PFAS exposure predominantly tends to fall in two major categories: premises exposure and products liability exposure.

Premises exposure occurs where PFAS is present on site, either through the products and raw materials associated with the occupation or from sources like fire-fighting foams. The escape of these PFAS into the nearby environment can cause pollution damage.

Products liability exposure occurs when a product contains PFAS, and people are exposed to it, potentially suffering injury because of PFAS in that product.

Increasing Underwriting Exclusions

A recent USI report shares that litigation is prompting the reassessment of approaches to PFAS underwriting, coverage, risk management and claim handling. The report says that most insurers are mandating exclusions on general liability and products liability policies on all renewal accounts, regardless of industry or exposure to loss, but especially manufacturing, hospitality, retail and owners of real estate.

USI anticipates that finding PFAS coverage in the environmental insurance marketplace will be more difficult for product exposure, including supply chain and distribution risks and site-specific risks.

“Domestic carriers tend to be slower in addressing PFAS exposures compared to multinational insurers, who can leverage their presence across multiple jurisdictions to gain insight.”

Lisa Williams, Zurich Insurance Group

Kelliher said that PFAS surfaced on pollution liability underwriters’ radar around 2018—and as state regulations on the coasts began to surface, carriers began to pay attention. Underwriters used to be more willing to write the exposure, she said, but that has changed in the past year because of the liability that stems from the Comprehensive Environmental Response, Compensation, and Liability Act.

“When the EPA started talking about adding PFAS as a hazardous substance under CERCLA, then, all of a sudden, the underwriting scrutiny became tenfold more,” Kelliher said. “And we started seeing PFAS exclusions being added to our pollution policies.” Increased litigation is also creating what she described as a “reactive” market.

Kelliher has seen exclusions extend beyond the pollution liability line and into contracting operations, product liability and more. She sees a connection between this and ISO’s approval of PFAS-specific exclusions for commercial general liability and umbrella policies.

“So, this year, all of our clients are starting to see, on their standard lines of business like their GL policies, a PFAS exclusion,” she said. That “is really causing a lot more havoc in the marketplace.”

Kelliher said she doesn’t know if carriers are adding PFAS exclusions carte blanche to standard policies, “but if you’re a manufacturer, you’re seeing a PFAS exclusion. And it’s for your products, so that becomes really problematic for our insureds.”

In email correspondence, Mike Jackman, head of governance, sustainability and standards for QBE’s North America Chief Underwriting Office, explained that to the extent that there are classes of business within appetite that may have PFAS exposure, “we’re likely to see exclusions.” The higher the risk of exposure, the more likely it is that the carrier will mandate the exclusion, he said.

“Across QBE, we ask underwriters to ensure that they remain up to date with the evolution of PFAS litigation and regulation in their regions, familiarizing themselves with industries, sectors, and products where PFAS could be an issue,” he added.

Jackman expects that industry exclusions will be most common with insureds seeking general liability, products liability or pollution liability coverage. Insureds operating in chemical manufacturing, food packaging, cosmetics and waste management are among those more likely to see exclusions.

’15 Times More Expensive’

Brownyard Group, a program administrator that provides specialized liability insurance to the domestic cosmetics industry, including manufacturers and distributors, has seen carriers become more strident with exclusions.

Teri Pereira, account manager of the Brownyard Group’s foundation program, said that “from what we have experienced with our own carriers and with others, most carriers are adding the PFAS exclusion form to policies.”

When it comes to Brownyard’s pest program, “our carrier is adding an Insurance Services Office exclusion to our policies with no buyback option available at this time,” explained John Culotta, the program’s manager.

Meanwhile, Kathy Lopez, account manager of the group’s Salon & Spa Specialty Insurance program, said the SASSI program is excluding PFAS from policies. “From my experience, most other carriers are also adding PFAS exclusions,” she added.

“Since PFAS exclusions are becoming more normal, I feel that a policy without an exclusion will become more difficult to obtain and will become significantly more expensive,” Lopez said. “For example, I had one client who took issue with our PFAS exclusion and went elsewhere for coverage. The quote for their new policy under a different carrier was 15 times more expensive than the minimum premium SASSI had offered them for 14 years.”

Culotta said that since the PFAS EPA standard was announced in April, his team has not seen any real changes to the liability insurance and pollution liability insurance markets themselves. “That said, we have seen more carriers adding the PFAS exclusion to comply with official requirements,” he noted.

Brownyard Group has adopted ISO’s June 2023 PFAS exclusion for all policies. Insureds looking for such coverage will likely need to try and acquire coverage through a surplus lines carrier or perhaps a specialty market, Culotta said.

‘Differing Stages of Response’

Zurich’s Williams said in an email that for risks located in the U.S., insurers have been consistently making an assessment as to whether an insured could have exposure to PFAS. What varies by carrier is how they react in their coverage responses, she said.

Some insurers are adopting a blanket exclusion approach, for example, while others are applying a risk-based approach—only applying an exclusion where exposure exists. Such exclusions might take the form of a total pollution exclusion, a PFAS exclusion, or a combination of both, depending on the specific exposure.

Williams explained that risks located in the rest of the world, carriers have been slower to react, until recently believing that exposure was isolated to the U.S.

“Insurers are at differing stages of response,” she added. “Domestic carriers tend to be slower in addressing PFAS exposures compared to multinational insurers, who can leverage their presence across multiple jurisdictions to gain insight. In contrast, insurers focused solely on their domestic environment may lack this perspective.”

It is only in the past few years, and more so recently, that reinsurers are starting to focus on this exposure, she added.

She later shared that broadly, the market either remains silent on PFAS or aims to fully exclude it. Carriers differ from one another, she said, adding that some include a PFAS exclusion under their standard coverage, others apply exclusions selectively, and in some cases, insurers may choose not to participate at all in the risk that would necessitate an exclusion.

‘You Have to Have a Story’

While speaking about certain industries with difficult significant PFAS exposures, Kelliher added, “it’s certainly not a premium issue. It’s a coverage availability [issue]. You really can’t buy PFAS coverage if there’s a serious PFAS exposure. And that’s because there’s a lot of uncertainty on how the lawsuits are going to play out.”

Manufacturers are settling. But what about the downstream players and distributors? Kelliher said we haven’t yet seen how those bodily injury lawsuits will play out. Once it’s seen how courts evaluate causation, “then things might change in the marketplace,” she said. “But until then, there’s a lot of uncertainty.”

What is certain is that regulation and litigation abound.

“For brokers, we need to create a narrative for the carriers that demonstrates that the insured understands its PFAS exposure,” Kelliher said. Proper due diligence is the key to obtaining PFAS coverage.

Under the right circumstances, she said carriers are willing to do “some things,” by way of crafting some coverage—particularly if an insured doesn’t have exposure. She said that some carriers won’t include a PFAS exclusion at all “if it’s not relevant,” and it can be demonstrated that there is no exposure at the site.

In some circumstances, carriers are willing to limit exclusions, particularly in situations where there may be indemnifications between parties that can offset some of the exposure. She has seen sublimits and higher deductibles come into play, too.

“You have to have a story,” Kelliher said. “You have to be able to demonstrate that your insured is insurable for PFAS. It just puts an onus on the brokers to really understand what their insured’s footprint has been involving PFAS.”

Sean McLaughlin, environmental broker at CRC Group, explained in an email that when he and his team are able to push back and get the exclusion removed for industrial, manufacturing or distribution risks, they have been tasked with proving there is adequate risk transfer in place.

“We have done this by evidencing our insured contracts have environmental indemnity agreements in place, limitation of liability or hold-harmless language,” he said. “In cases of environmental indemnity, a more heightened underwriting review of the financials of either our insured, their client, or supplier is performed depending on which way the indemnity agreement is offered.”

McLaughlin noted that he has seen “a broad brush” applied, in that exclusions are included when there is little to no exposure of the insured or their operations, both presently and historically.

But he added that he has seen “in some cases that carriers are willing to offer coverage for an insured that has a PFAS exposure, but only offering terms on a claims-made basis with a newer retroactive date, policy inception, as an example.”

Kelliher summarized the coverage landscape: “Insurance carriers do not like to write coverage for a burning building,” she said. “And right now, these PFAS claims are like a burning building.”