When you think about the risks per- and polyfluoroalkyl substances (PFAS) present to companies, regulatory penalties due to non-compliance are most likely what come to mind. It may seem like a simple risk calculation on whether or not you’ll face fines or other regulator-driven consequences. However, there’s another risk factor emerging as a result of this PFAS elimination movement: insurance.
As PFAS-related lawsuits abound, insurers are growing more wary of the risks to their business. They don’t want to pay out millions of dollars for PFAS claims due to lawsuits or other expensive remediation activities.
PFAS Lawsuits: A Growing Risk to Insurers
Since 2005, there have been approximately 6,400 PFAS-related lawsuits. Historically, the lawsuits have targeted chemical manufacturers. However, that trend is shifting; more lawsuits are targeting companies that use PFAS chemicals in their processes, products, or both.
Lately, companies that produce consumer products marketed as “healthy,” “all-natural,” or “sustainable” have been sued for making false claims (akin to “greenwashing”) when their products contain PFAS, even if not intentionally. This trend is growing every year. Since the beginning of 2023, there have already been several lawsuits filed against major companies, including:
- Bolthouse Farms — Tests revealed that Bolthouse Farm’s Green Goodness smoothie, touted as “100% fruit juice,” contains PFAS at levels far above federal advisory limits. Consumers launched a class-action suit against the beverage manufacturer in February 2023.
- Colgate-Palmolive — Consumers filed a suit against the consumer goods manufacturer in March 2023 after testing showed its Tom’s of Maine “natural” Wicked Fresh! Mouthwash contains multiple PFAS chemicals.
- BioSteel — Plaintiff Laura Bedson sued sports drink manufacturer Biosteel in February 2023 after tests revealed its blue raspberry-flavored sports drink, marketed as “healthy,” contained PFAS.
- POM Wonderful — Although the label on the company’s 100% Pomegranate Juice says it contains only all-natural pomegranate juice, testing revealed the presence of PFAS.
Until this point, insurers have largely managed to avoid liability for PFAS claims. However, that may change as more PFAS lawsuits are brought to court driven by both remediation costs for PFAS contamination as well as claims of personal injury or fraud. Insurance company executives worry PFAS claims could become the new asbestos lawsuits, which will result in astronomical legal bills and risk exposure for years to come.
What Steps Are Insurers Taking?
Swiss Re Group, one of the largest reinsurance companies in the world, advised other insurers to “consider utilizing PFAS exclusions wherever possible” in 2021.
Some insurance companies have already taken that to heart. Grange Mutual Casualty Company, an Ohio-based insurer, has a Total Pollution Exclusion (TPE) that would preclude coverage for class-action PFAS lawsuits against their clients. Cycle-Tex Inc., a thermoplastics manufacturer, tried to challenge the exclusion in court, but lost its case in 2022.
Granite State Insurance and New Hampshire Insurance have also successfully defended the use of an Absolute Pollution Exclusion (APE) and Qualified Pollution Exclusion (QPE). A court ruled that PFAS are unambiguously pollutants under both exclusions.
Some insurers haven’t gone so far as to exclude PFAS from their policy coverage, although they’re carefully investigating their customers’ use of PFAS. Zurich North America evaluates its clients’ PFAS exposure when they underwrite property, pollution, and directors and officers’ liability insurance. The insurer is also working with current policyholders to remove those chemicals from their manufacturing processes.
Want to learn more about your PFAS risks? Read How to Prepare for PFAS Risks for actionable advice on protecting your market access and reputation.
The Impact on Manufacturers
Insurers’ policies regarding PFAS will have two huge impacts on manufacturers:
- They won’t be able to obtain insurance coverage
- Their current policies might not cover PFAS-related claims
Either of those situations is quite dire. A lack of insurance coverage creates an enormous liability for manufacturers, while the denial of a claim could lead to massive financial losses.
What Can Complex Manufacturers Do?
Operating without insurance isn’t an option, and you can’t be certain you’ll win a court case against your insurer if they don’t cover PFAS claims. What steps can you take to prevent these risks?
First, understand where PFAS are in the supply chain — for materials you use in your products as well as those required for manufacturing processes, maintaining equipment, or even employee personal protective equipment (PPE).
If you’re not sure where PFAS chemicals are used in your supply chain, start by identifying where PFAS properties could be found (e.g., waterproof or non-stick characteristics). Many regulations already restrict certain members of the PFAS family, such as perfluorooctanoic acid (PFOA) and perfluorooctane sulfonate (PFOS). A robust supply chain sustainability management program means you’ll already have data on these substances, so you’ll be in better shape to identify your risks and in the future provide reporting on PFAS usage.
We covered some common PFAS properties in our PFAS Regulatory Update Webinar and discussed some materials that frequently use PFAS. We also talked about a roadmap for identifying these substances in the supply chain.
Second, prepare yourself for questions from insurers about how you use PFAS in the supply chain. Here are some of the inquiries you can expect, based on guidance from Swiss Re:
- Are there PFAS involved in your product line or raw or packaged products?
- At any point in the production process was there PFAS chemical storage, waste disposal, fire suppression, or PFAS utilized in the manufacturing process?
You can also expect insurers to:
- Hire environmental experts to conduct a forensic review of sites when you purchase site-specific coverage
- Review their portfolios for industries currently and potentially impacted by PFAS restrictions
- Develop coverage maps of clients potentially affected by PFAS restrictions
- Exclude coverage for PFAS-related claims and cleanup
- Engage in contribution/subrogation actions when there are multiple contributors, causes, or responsible parties
Now Is the Time to Act
Insurance companies don’t want the risks of PFAS-related claims and costs due to cleanup and remediation. We’ll see more insurers exclude PFAS from coverage, and more clients lose court cases when their insurers won’t cover them.
As PFAS lawsuits increase in the coming years, the situation will only become more difficult for manufacturers. It’s essential you understand the risk posed by PFAS, both in products and processes, to reduce business disruption.
Listen to Neil Smith, Regulatory & Sustainability Expert, Product Sustainability discuss how manufacturers can get ahead of their PFAS risks.
