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Growing toxic risks catch insurers’ eyes

Growing toxic risks catch insurers’ eyes

Insurers are monitoring the evolving regulatory and litigation landscape for a group of potentially harmful chemicals long used in products ranging from nonstick cookware to microwave popcorn bags, pizza boxes and candy wrappers.

Concerns about the scope of potential exposure — which some observers liken to asbestos, given the widespread use of the chemicals — and the difficulty in managing the risks associated with them has led some environmental insurers to exclude coverage, brokers say.

Per- and polyfluoroalkyl substances, known as PFAS, are chemicals manufactured and used in various industries since the 1940s, according to the U.S. Environmental Protection Agency. Perfluorooctanoic acid, or PFOA, and perfluorooctanesulfonic acid, or PFOS, have been the most extensively produced and studied of the chemicals and are very persistent in the environment and in the human body, meaning they don’t break down and can accumulate over time. They have been found in drinking water supplies, and epidemiological studies have uncovered associations between PFOA exposure and health conditions such as cancers, thyroid disorders and pregnancy-induced hypertension and pre-eclampsia, although these connections are still being examined.

“We just don’t have a thorough understanding, so we don’t know if all of them should be banned or if some may be appropriate for certain uses,” said AnnMarie Sanford, Detroit-based senior attorney in the environment and energy practice group at Pepper Hamilton L.L.P.

Maplewood, Minnesota-based 3M Co., the sole U.S. manufacturer of PFOS, primarily completed a voluntary phase-out by the end of 2002, while eight major companies in the PFAS industry agreed to phase out production of PFOA and PFOA-related chemicals by 2015. But the EPA is concerned about ongoing uses of PFOA-related chemicals, which are available in existing stocks and from companies not voluntarily phasing them out.

Some states are taking more concrete actions than the federal government to address the risks posed by the chemicals, experts say. For example, Washington state adopted a bill on March 21 to ban the manufacture, sale or distribution of food packaging to which PFAS chemicals have been intentionally added beginning Jan. 1, 2022, and once safer alternatives have been identified and assessed.

“I think carriers are going to be watching for any movement in that regulatory environment that could result in increased exposures,” said Christopher Smy, Atlanta-based global practice leader for Marsh L.L.C.’s environmental practice.

Litigation involving the chemicals is rising as states, nonprofit organizations, private citizens and other businesses sue over such pollution, leading to major claims.

In February 2017, Wilmington, Delaware-based DuPont Co. settled multidistrict litigation in the U.S. District Court for the Southern District of Ohio involving about 3,550 lawsuits related to personal injury claims arising from environmental releases of PFOA from the Washington Works plant in West Virginia, according to the company’s securities filings. The total settlement amount was $670.7 million.

Robert Horkovich, a New York-based managing shareholder with Anderson Kill P.C., has not yet seen policyholder litigation related to the chemicals, but called the prospect “terrifying” given the widespread use of products containing these chemicals in the home. “If they’re facing adverse health effects, it could be a ginormous exposure,” he said. “We’re talking about a potential range like asbestos.”

Policyholders with policies featuring pollution exclusions will find it more difficult to make claims, but the “big risk” is policies issued before these exclusions were introduced, Ms. Sanford said. “It’s just like the first wave of Superfund,” she said. “When they wrote those policies, nobody was contemplating (the Comprehensive Environmental Response, Compensation, and Liability Act).”

Insurers are reacting to the increasing litigation exposure, brokers say.

“For markets today, that is an emerging issue that they’re focused on and where there could be restrictions or cost increases,” said Glynis Priester, USI Insurance Services L.L.C.’s national environmental practice leader based in Washington.

“What makes PFOAs and PFOS of particular concern to the insurers is not just the existence of an unknown scope of exposure, it’s that there have been claims that have been very catastrophic in nature,” said Tony Sandfrey, Atlanta-based environmental practice leader of Integro Insurance Brokers. “The insurers have to stop the bleeding.”

Mandatory exclusions are emerging for properties where there is a known or historical exposure, but some underwriters are excluding coverage when there is a potential contamination risk, meaning there “doesn’t have to be a definitive or conclusive risk,” he said. But risk managers whose operations have no known exposure can still find insurers willing to cover the risk, given the competitiveness of the environmental insurance market, he said.

Risk management is challenging because of detection and cross-contamination issues, Ms. Sanford said. Supply chains could also be problematic, as exposure could occur via goods imported from countries where the chemicals are still used and unregulated, especially China, and it may be difficult to trace the original source.

But the risk “can’t be actively managed,” which will make it “a focal point for insurers for years to come,” Mr. Sandfrey said.






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