The Environmental Protection Agency (EPA) has asked the White House Office of Management and Budget (OMB) to review proposed rules addressing per-and poly fluoroalkyl substances (PFAS). PFAS are a broad class of synthetic compounds that show persistent environmental presence. Exposure can lead to a host of adverse health effects, including endocrine disruption and cancer.
PFAS are ubiquitous in manufacturing, agribusiness, construction, and consumer goods. PFAS regulation under existing statutes—such as the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), the Resource Conservation and Recovery Act (RCRA), and the Clean Water Act—presents new and significant liability to a wide range of industries.
Regulations Under CERCLA
On Jan. 10, 2022, the EPA sent a proposed rule for review by OMB to designate two of the most studied PFAS compounds as hazardous substances under CERCLA. The EPA is expected to issue a final rule in 2023.
CERCLA imposes strict liability for environmental remediation costs for “hazardous substances.” Its broad policy goal is to hold parties responsible for past environmental contamination. To be held liable under CERCLA, a party must be a potentially responsible party (PRP), which is defined as:
• The present owner and/or operator of a facility from which there has been a release of a hazardous substance.
• The owner and/or operator of the facility at the time of disposal or release.
• Anyone who arranges for the disposal or treatment of hazardous substances or who arranges with a transporter for disposal of hazardous substances.
• Any transporter of hazardous substances.
• An owner of a facility with knowledge of a spill or release of hazardous substances who sells or transfers without disclosing.
CERCLA liability is retroactive and joint and several. This means it is nearly impossible to avoid once it attaches to a PRP.
PFAS presents a unique situation for CERCLA liability, however. PFAS pollution has been ongoing for decades and is widespread. In addition, PFAS compounds are resistant to environmental degradation. This creates issues for CERCLA sites that have existing PFAS pollution. Superfund sites subject to ongoing remediation or litigation now have a new set of PRPs, adding complexity to determine responsibility for remediation costs. PFAS pollution could also reopen closed Superfund sites to address new remediation measures. PFAS pollution could also create new Superfund sites.
Regulations Under RCRA
In October 2021, the EPA started rulemaking to designate four PFAS chemicals under Subpart C of the RCRA. This statute imposes cradle-to-grave liability for waste that presents “imminent and substantial” endangerment. RCRA imposes a proactive management of the generation, transportation, treatment, storage, and disposal of hazardous and solid waste. It also imposes recordkeeping, reporting, labeling, exporting, and container requirements for generators; transporters; and treatment, storage, and disposal facilities.
RCRA’s corrective action program requires facilities that treat, store, or dispose of hazardous wastes to investigate and clean up contaminated soil, groundwater, and surface water. Facilities are generally brought into the corrective action process when there is an identified release of hazardous waste or hazardous constituents, or when the EPA is considering whether to issue a RCRA operating permit for a treatment, storage, and disposal facility.
Regulations Under the CWA
In April 2022, the EPA announced three clean water actions to proactively use the Clean Water Act permitting authorities to reduce discharges of PFAS at the source and to get more comprehensive monitoring information on potential sources. The EPA intends to reduce surface and groundwater pollution while it works toward setting effluent discharge limits. This means that certain PFAS compounds will be subject to the National Pollutant Discharge Elimination System (NPDES) permitting requirements. Those subject to NPDES regulations must seek a permit authorizing the discharge of water pollution under extremely strict standards and in specifically limited amounts. Failure to comply with the terms of an NPDES permit, or any other Clean Water Act requirement, can give rise to civil or criminal liability. Any violation of the Clean Water Act can result in penalties of up to $32,500 per violation, per day.
Any potential regulation of PFAS programs will require new manufacturing sites to monitor point source pollution of PFAS runoff. In addition, sites that have PFAS soil contamination will need to take more precautions to prevent stormwater runoff.
Coverage Issues
Insurance will play a significant role in environmental remediation for PFAS. First, RCRA requires some form of financial assurance in case of a corrective action. This can come in the form of bond, surety, or insurance. Second, the industries that will be affected by PFAS regulation already have extensive insurance policies. Third, PFAS contamination spans decades and may implicate multiple policies for each affected insured.
Insureds may first turn to a commercial general liability policy (CGL) to offset some of the costs of PFAS regulation and litigation. However, most CGL policies will not cover environmental harms if they contain an absolute pollution exclusion, which most (if not all) CGLs have. The absolute pollution exclusion was first adopted in 1986. CGL policies in the 1970s and early 1980s provided a qualified pollution exclusion for “sudden and accidental” pollution events. CGL policies before the 1970s, therefore, had no reason to exclude pollution.
The ongoing nature of PFAS contamination makes these three timeframes important for deciding coverage issues. CGL policies are occurrence based. In many courts, this means that an insurance policy in effect during the occurrence of the loss (i.e., pollution event) will provide coverage. It also means that very early CGL policies, or “sudden and accidental” CGL policies, could provide coverage for PFAS pollution that occurred during the policy period. Because PFAS pollution spans decades, it is conceivable that three different forms of CGL policies could be in effect.
Insurance carriers began offering pollution legal liability (PLL) policies in the 1990s to fill the gap in environmental risk and CGL coverage. Unlike CGLs, these policies are specially designed to provide coverage for pollution related events. Coverage issues will play a significant role in PFAS cleanup, regulation, and litigation. In addition, different insurance policies will create related litigation over coverage issues.
Tonoga Inc., d/b/a Taconic, v. New Hampshire Insurance Co. and Granite State Insurance Co. in the New York State Court of Appeals is believed to be the first case analyzing pollution exclusions for PFAS releases. In a declaratory judgment action against two separate carriers, a New York trial court agreed that two different pollution exclusions barred Tonoga’s claim that the carriers had to defend the private lawsuits. While this the first case involving these issues, as PFAS regulation continues to evolve, there will be an increased amount of litigation regarding the application of different coverages.
PFAS are the emerging environmental pollution problem of the 21st century. The new and expanding legal exposure to PFAS pollution will have an impact on the insurance industry as the regulated community seeks coverage under a number of different coverage policies.