A proposal by the US Environmental Protection Agency to impose federal limits on a group of chemicals known as PFAS in drinking water under the Safe Drinking Water Act would bring additional liability and regulatory risks to companies and municipalities.
Operators of public water systems and other potentially affected organizations, including industries that discharge wastewater, should review their insurance coverage and take steps to reduce risks, experts say.
The proposed regulation, which the EPA announced on March 14 and expects to be finalized by the end of the year, would establish legally enforceable maximum contaminant levels for six perfluoroalkyl and polyfluoroalkyl substances, including an MCL of 4 parts per trillion for perfluorooctanoic acid, or PFOA, and perfluorooctanesulfonic acid, or PFOS. The deadline for public comments on the draft regulation expires on May 30.
Interim advisory levels published by the EPA last summer updated the health guidance for PFOA and PFOS to even lower levels of 4 parts per quadrillion and 20 parts per quadrillion, respectively.
Exposure to PFAs, also known as “forever chemicals,”
; has been linked to various health conditions such as cancer, thyroid disease, fertility problems, and liver damage. The substances were used in a variety of manufacturing processes but have been phased out in several countries due to health concerns.The PFA contamination limit proposal is a significant change from the 70 parts per trillion health advisory levels for PFA that the EPA issued in 2016, said Cameron Douglass, Denver-based regional environmental director at Arthur J. Gallagher & Co.
Several states, including California, Vermont and New Hampshire, have implemented testing requirements for PFAs in drinking water, Mr. Douglass.
“As this develops on a national scale, a number of municipalities will need to address not only the reporting of PFA found in drinking water, but also appropriate measures to treat the drinking water appropriately, whether that’s finding new sources or implementing some form of of purification technology.” he said.
If the rule becomes final, operators of public water systems could face statutory penalties under the Safe Drinking Water Act if the concentration of PFAS in drinking water exceeds the maximum contaminant levels, said Reza Zarghamee, a Washington-based partner at Pillsbury Winthrop Shaw Pittman LLP.
“They would have to take steps to address and clean up the PFAS contamination to achieve acceptable levels, which could be very costly,” Zarghamee said.
The proposed regulation also opens “the potential floodgates” for public water operators and owners to face third-party toxic liability if consumer confidence reports they issue indicate contamination above the limits enforced by the EPA, he said.
Not only is this “a low level that’s difficult to achieve if you’re in a situation where you have to clean up, but the technology for cleanup and even disposal of these chemicals is still evolving,” he says. Zarghamee said.
Coverage for PFAS
Historic commercial general liability policies that have either no pollution exclusions or limited exclusions can be a source of damages, says Tamara Bruno, Houston-based partner at Pillsbury Winthrop Shaw Pittman.
“If you’re talking about water utilities, a lot of these infrastructure and water projects have been around for a while, so they can have historical guidelines,” Bruno said.
But if there have been liability or other cleanup claims at specific sites — Superfund sites, for example — some policyholders may have already used or dropped or sold some of the historic policies, she said.
“It can be challenging, either for insurers who thought this claim was over or for insureds who have emptied their policy in the previous mediation,” she said.
In 1986, the insurance industry introduced an absolute pollution exclusion in commercial general liability policies, and court decisions have been mixed, Bruno said. “Defense coverage may be available for certain PFAS-related claims even under a CGL policy,” she said.
Establishing a national MCL for PFAS chemicals would potentially add risk under event-based policies, said Michael Miguel, Los Angeles-based principal at McKool Smith PC
“Most historical environmental disputes have involved activities that were perfectly legal at the time and during the insurance period, but were later found to be harmful to the environment,” Miguel said.
However, the addition of PFOA and PFOS to the list of hazardous substances means the pollution exemption would likely apply, he said.
Also, the widespread use of claims-made policies rather than occurrence-based policies means fewer applicants will look to historical policies for coverage, he said.
Current environmental liability policies may also provide coverage, even if PFAS exclusions are introduced, experts said.
Given the increased regulatory attention on PFAS and the potential for litigation, more companies are buying pollution liability policies, or seeking pollution policies for coverage, said Adrian Azer, a Washington-based partner at Haynes & Boone LLP.
Some entities may decide to self-insure and many may decide to purchase pollution liability insurance to manage the exposures, but PFAS exclusions are increasing, Douglass said.
Before the 2014 drinking water crisis in Flint, Michigan, it was fairly common for municipalities to buy pollution liability coverage that covered product pollution not only for drinking water but also for biosolids, he said.
Since then, insurers have withdrawn the availability of coverage or introduced exclusions for lead in potable coverage, he said.
“If product contaminant coverage is provided for drinking water, I would expect PFAS exclusions to be implemented where necessary,” and those exclusions would also apply to biosolids, Douglass said.
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