We’ve reached a turning point. Per- and polyfluoroalkyl substances (PFAS), once hailed for their industrial applications and water-resistant properties, are now a widespread health concern.
Business leaders, environmentalists, and regulators have been talking about the dangers of PFAS for years without taking formal action. That changed in April 2024. The Environmental Protection Agency (EPA) ruled to address PFAS in drinking water. This is likely only the beginning of anti-PFAS regulations. Congress has introduced a non-essential PFAS elimination bill that would give 10 years to phase out the use of these “forever chemicals.”
The proposed new regulatory standards are unlike anything seen before, with levels measured in parts per trillion. The message is clear — even in very small doses, PFAS exposure carries potential risk, and companies must address it immediately.
This public awakening around PFAS echoes the shifting perceptions surrounding asbestos decades ago. When the public understood the potentially devastating health effects of asbestos exposure, it led to a wave of environmental liability cases, holding companies accountable for the harm caused and forcing stricter regulations. This is where we’re heading with PFAS, but probably on a larger scale.
Every organization involved in the production and use of PFAS, from schools to major manufacturers, needs to be prepared to navigate this evolving landscape.
What is the latest PFAS ruling from the EPA?
In April 2024, the EPA took significant steps to address PFAS in drinking water. These regulations primarily target public water systems (both community and non-community water systems). The ruling will have a ripple effect on businesses across sectors, leading to increased scrutiny, cleanup costs, and potential liability. Here’s what you need to know:
- Enforceable standards: The EPA established the first-ever national drinking water standard for PFAS. This sets a maximum contaminant level (MCL) for six specific PFAS chemicals, aiming to reduce exposure for roughly 100 million Americans.
- Focus on PFOA and PFOS: The strictest standards are for PFOA and PFOS, two widely used PFAS linked to health problems. These call for an MCL of 4 parts per trillion (ppt), which is incredibly low, reflecting the seriousness of potential health risks.
- PFAS mixtures: Recognizing that PFAS often occur together, the EPA also established an MCL for a combined group of four other PFAS (PFNA, PFHxS, PFBS, and GenX Chemicals) at 10 ppt.
- Accountability: The EPA designated PFOA and PFOS as hazardous substances under the Superfund program, which allows it to hold polluters accountable for cleanup costs.
- Timeline: The implementation of new standards will unfold from 2024 to 2027, with full compliance expected by 2029. At that time, your organization (and all public water systems) will need to meet the maximum contaminant levels or notify authorities of any violations.
While the Environmental Protection Agency (EPA) sets a national baseline, individual states can enact even stricter regulations and/or choose to implement the EPA regulations sooner, potentially requiring faster action from water systems and businesses within their jurisdiction.
Though this ruling focuses on drinking water, the EPA could expand PFAS regulations and scrutiny in the near future. Congress could also pass PFAS phaseout legislation.
Stay informed about rulings and legislation and their potential impact on your industry. It’s best to assume you have risk related to PFAS and take proactive measures to mitigate hazards and eliminate PFAS from your production and supply chain.
PFAS remediation: costs and considerations
Compliance with the EPA ruling is non-negotiable. Many companies may be wondering about the best ways to clean up water systems and mitigate PFAS contamination. Unfortunately, there are no universal best practices. The EPA offers flexibility in how you treat any contaminated systems. The most effective method will depend on your specific business and circumstances. Additionally, technology for remediation and treatment is still evolving and will likely advance by the time full implementation is required.
The cost of mitigating PFAS contamination is substantial, potentially reaching billions of dollars. Through President Biden’s 2021 infrastructure law, funding was allocated to support states, communities, and territories in implementing PFAS testing and treatment solutions. Though the EPA does not offer a direct funding program to help businesses with remediation, some states might offer grants or financial assistance programs to help small businesses address environmental concerns and defray costs.
Larger private-sector businesses will have to cover the hefty costs of cleanup, remediation, and liability on their own. While environmental insurance might cover some aspects, many policies now exclude PFAS-related risks. This makes due diligence during mergers and acquisitions more important than ever.
Due diligence and risk management
Even if you know your company does not produce anything using forever chemicals, you unknowingly may be connected to a company that does. Thorough due diligence is essential, especially for those involved in acquisitions. Assess whether the target company has used PFAS or other compounds associated with environmental liability. This often involves environmental testing, which can be a double-edged sword. Sellers may be reluctant to allow testing due to potential contamination discovery, which could derail the sale and/or bring unwanted regulatory action.
Evaluate the risks, then weigh them against the reward of the acquisition or partnership. In special cases, you may decide the risk is worth taking, even if it means you may be pulled into litigation or need to pay for cleanup expenses.
During acquisitions, involve environmental attorneys early in the process. They can protect your interests and minimize risk, suggesting ways to structure the deal to limit potential liability.
Also, understand your supply chain's role in PFAS contamination. Scrutinize your suppliers and partners to ensure they are not indirectly exposing your business to PFAS liabilities.
To mitigate risks and potentially shield yourself from cleanup costs and environmental liability, include strong indemnities in all contracts, making sure to shift financial responsibility away from your business.
Environmental liability and potential litigation related to PFAS
Given that PFAS have been linked to serious health risks, including cancer, any company that uses or sells products containing PFAS could be the target of litigation. According to the New York Times, lawyers are predicting “astronomical” PFAS lawsuits. They are just beginning and could easily become the most sprawling corporate liability battle in U.S. history.
PFAS exist in products we use daily, from food packaging to water-repellent clothing and gear, plastics to non-stick cookware, and much more. The list of potential plaintiffs is broad, and the EPA ruling requiring polluters to cover cleanup will escalate legal battles.
The results of the litigation will hinge on evidence. The more time passes, the more we’ll know about PFAS’s health effects (which could be less serious than anticipated, but likely not). With social inflation driving up the size of jury awards and the warnings coming from defense lawyers, it would be smart for any at-risk company to prepare for costly litigation.
Do everything you can to understand your potential exposures and mitigate risk where possible. What do you do with products containing PFAS you already have? Unfortunately, there is no clear answer. Both dumping and reselling involve risks and liabilities, and you are responsible for your waste streams. Consult with environmental attorneys and insurance experts to confirm the best path for your specific situation.
Environmental liability insurance: PFAS considerations
Environmental liability insurance is an essential part of doing business — especially if you end up in a lawsuit regarding PFAS or other chemical compounds. This coverage potentially can save a business millions of dollars in cleanup costs from pre-existing or new contamination, bodily injury, property damage, legal defense, regulatory changes, third-party diminution of value, non-owned disposal sites, transportation, emergency response, and more.
Unfortunately, many insurance carriers now exclude PFAS coverage from environmental policies and deny or limit coverage if you have an environmental condition. PFAS exclusions are also becoming commonplace in general liability and casualty policies, with few exceptions. This is why due diligence is so important when selecting suppliers or vetting acquisition targets.
If you conduct thorough due diligence and can prove you do not use PFAS chemicals in your process or products, insurers may be willing to underwrite PFAS coverage for your business.
If you are acquiring operations at a site where you don’t know about predecessor PFAS activity, insist on PFAS indemnity clauses in contracts related to the transaction. An indemnity clause can protect you from a PFAS claim, and in some cases, it may help you secure limited insurance coverage for PFAS-related bodily injury or property damage.
Combining an environmental policy with general liability, professional liability, and management liability helps protect your organization against a wide range of potential lawsuits and liabilities that could threaten your company's stability. But with PFAS exclusions, how can you cover the remediation costs? Here are a couple of non-traditional alternatives:
- Some businesses with PFAS in their operations are examining whether a properly structured captive could serve as a viable alternative for financing PFAS risk.
- Companies that began operating before 1986 may have decades-old insurance policies that could help with certain PFAS expenses. (Prior to 1986, general liability policies did not have exclusions for pollution conditions.) An insurance archeology service can help you find old “occurrence” policies that may be in force.
The tip of the PFAS regulation and litigation iceberg
The EPA's PFAS ruling is likely just the beginning. Stricter regulations may follow, along with expensive legal battles. This undoubtedly will impact a wide swath of organizations across sectors.
Don't get caught off guard. Take action now by budgeting for potential PFAS testing, treatment solutions, and any legal battles that may arise. Talk to your insurance broker to assess your unique risk profile and explore environmental liability options that can help protect you. Prioritize proactive risk management and prepare to weather the storm.
Want to learn more?
Find Joe Quarantello on LinkedIn.
Connect with the Risk Strategies Environmental Team at environmental@risk‐strategies.com.
