Vol: 43 Issue: 3 | Oct 2020
First manufactured in the 1940s, per- and poly-fluoroalkyl substances — or PFAS — were heralded for having unique and versatile properties that made them attractive to a wide range of industries.
Eighty years on, however, the use of these man-made chemicals has become a contentious environmental and health issue, with important implications for insurers and policyholders.
Already PFAS have been the subject of some of the biggest class actions ever seen in Australia and New Zealand and are now becoming an emerging issue across Asia.
Much of the focus to date has revolved around firefighting training and defence base locations, with allegations that products containing PFAS have contaminated land, water and local environments.
One of the products in question, aqueous film forming foam, is used to suppress fires and has been phased out in Australia over the past decade.
WHAT IS PFAS?There are, in fact, more than 4,000 different types of PFAS, with the best-known and most extensively produced being perfluorooctanoic acid (PFOA) and perfluorooctane sulfonate (PFOS).
‘These chemicals have properties that make them great for consumer and industrial applications — for instance, they are highly soluble and resistant to water, dirt and heat,’ says Cami Mok, client manager, Environmental Services Group, at Aon.
‘But it is also these properties that have made PFAS problematic. It is an extremely mobile contaminant and does not break down in the environment. Simply put, PFAS stay around a long time and accumulate in the human body and in the environment.’
IS PFAS DANGEROUS?There is conjecture, however, about what this means for human health.
In 2018, the Australian Government set up an expert health panel to undertake a review of existing scientific reports on the potential health impacts from PFAS exposure.
The panel concluded there was only limited evidence of any link with human disease but noted that ‘important health effects for individuals exposed to PFAS cannot be ruled out based on the current evidence’.
Environmental lawyer and Norton Rose Fulbright partner Elizabeth Wild points to cases in the United States ‘where they’ve accepted that there may be certain categories of health impacts to reproductive hormones, cholesterol and kidney function’.
‘These effects have not been conclusively determined and nobody knows the levels of exposure required to feel those impacts. Is it just direct exposure? Is it eating fish or other animals that might have absorbed PFAS? The jury’s out,’ she says.
The US Environmental Protection Authority has issued strong guidance about possible exposure to PFAS.
It has said these chemicals can cause tumours in animals and increased cholesterol levels among exposed populations.
It has also indicated PFAS could possibly be a factor in low infant birth weight and could have an influence on the immune system, cancer and thyroid hormone disruption.
Across South-East Asia, studies in Indonesia, Malaysia and Vietnam have found PFAS contamination in breast milk.
THE PROBLEM OF PFAS CONTAMINATIONWhen it comes to land contamination issues, the soluble nature of PFAS means they can travel a long way in groundwater, thereby impacting other regions.
Jacinta Studdert, a partner at law firm Clyde & Co, notes that PFAS have been commonly used at airports, firefighting training facilities and to combat fires without the benefit of the knowledge we now have about their potential dangers.
‘There are some real issues and risks, including legal risks, associated with that use,’ she says.
In terms of the scope of the problem, Wild points to a number of different areas.
‘The use of PFAS is far more prevalent than just firefighting products,’ she says.
‘They’re in the Scotchgard you protect your couch with and in non-stick fry pans. They can also create an issue for landfills. Because PFAS get into groundwater, they may end up in rivers and lakes, where they can really become a challenge.’
The question is what to do with PFAS contamination once it has been identified. ‘Do you really need to do anything about it, or can you just leave it there? That depends where the PFAS may end up,’ says Wild.
INSURERS TAKE A PRECAUTIONARY APPROACHStuddert says that, in Australia, regulators are taking a precautionary approach to policies and regulation concerning PFAS.
‘A lot of work is being carried out across the country at a state and federal level in identifying how big a problem the impact is and the appropriate response,’ she says.
As well as a PFAS National Environmental Management Plan, the Australian Government has released a draft Commonwealth Environmental Management Guidance document to help agencies assess and manage PFOS and PFOA contamination.
‘The federal government, along with many scientists and environmental experts, are continuing to work on the appropriate response,’ says Studdert.
RISING LITIGATION: PFAS CLASS ACTIONConcerns about PFAS first came to light in the US in the late 1990s, following a farmer’s suspicions that pollution from chemical corporation DuPont’s nearby West Virginia plant was killing his cows.
Further investigations revealed that high concentrations of PFOA, used to manufacture products like Teflon, was leaching into the surrounding community’s drinking water. DuPont had been using PFOA since the 1950s.
Increasing awareness of the environmental and health impacts of PFAS has led to a number of lawsuits and civil penalties in the US, including a US$670 million class action against DuPont. PFOA is now being phased out in the US (DuPont phased it out in 2013).
In April this year, PFAS became the focus of Australia’s largest-ever class action when 40,000 people sued the federal government, alleging their land and water supplies had been contaminated by PFAS used on military bases and that their property values had subsequently plummeted.
The government has settled three of these class actions concerning defence bases at Williamtown in New South Wales, Oakey in Queensland and Katherine in the Northern Territory. It’s understood that there are nearly 100 similarly affected sites in Australia.
PFAS ARE EVERYWHEREIn New Zealand, PFAS contamination has been found in soil and water around the air force bases at Woodbourne, on the south island, and Ohakea, on the north island, as well as at commercial airports, ports, military bases, fuel storage facilities and refineries.
But New Zealand Defence Force suppliers have advised they have not provided any foam products containing PFAS above trace levels since 2002.
PFAS is used widely in South-East Asian countries and has been found to contaminate land and waterways.
It’s been discovered in sediment in Bangladesh and Indonesia, in river water in Nepal, Thailand and Vietnam, in groundwater in Thailand and Vietnam and in drinking water in Malaysia, Thailand and Vietnam.
It has also contaminated the Sundarbans mangrove area, a UNESCO World Heritage Site that stretches across Bangladesh and India.
INSURANCE IMPLICATIONSEnvironmental insurance can cover the clean-up costs associated with PFAS and third-party liabilities from pollution and contamination at a policyholder’s site.
Aon’s Mok says the majority of environmental underwriters can underwrite risks in Australia, New Zealand and South-East Asia. Insurers take into account country-specific and region-specific factors, including different regulatory frameworks.
When writing policies, environmental underwriters are looking at the activities occurring at a site and activities that have occurred in the past. Firefighting raises a flag to an underwriter that there could be PFAS contamination.
‘For such a site, or one that has had a lengthy industrial history, an underwriter will want to understand the potential for legacy contamination, whether that be PFAS or asbestos, through a review of an environmental site assessment or site investigation report,’ says Mok.
CASE BY CASE BASISAmber Lepparde, national environmental practice leader at Marsh, says insurers are currently reviewing their portfolios, checking sites they are insuring for pre-existing pollution conditions coverage and underwriting the exposure for new insurance applications.
‘The majority of exposures relate to PFAS that have been present in the environment for a long time,’ says Lepparde. ‘The way they typically assess the risk of PFAS is through a preliminary site investigation undertaken by an accredited environmental consultant.
The report delves into historical site activities and surrounding site activities to evaluate whether such activities could have resulted in PFAS contamination, including if there is a risk of contamination migrating from a surrounding site to the insured site.’
An insurer might accept the risk of known PFAS conditions if it thinks levels are safe for human health and the environment, she adds. ‘If not, they may consider a policy exclusion.’
Where there is known or likely PFAS contamination, environmental insurers usually apply a PFAS exclusion on a case-by-case basis.
‘This is driven by uncertainties around how to clean up PFAS, what the remediation costs will be, what clean-up standards will be applied and what additional liabilities could arise,’ says Mok.
MANAGING THE RISKSInitially, most PFAS claims revolved around personal injury, but now most claims are related to diminution in property value or inability to use a property, explains Wild.
‘So, someone might say they’ve got a water bore on their property and because the groundwater is affected by PFAS, they can’t use that bore to water their vegie patch or whatever else they might be using it for, and so they bring a claim on that basis,’ she says.
For businesses looking to buy a site that has a history of industrial activities, Mok recommends being aware of the potential problems and proactive about identifying them.
‘Seek advice from an environmental consultant as to the environmental condition of the site,’ she says.
IMPLEMENT A PLANFor businesses that own a site with PFAS contamination, it’s important to look at implementing a plan to minimise harm from the contamination, understand the regulatory obligations and seek advice from an environmental lawyer.
‘Different jurisdictions around the globe are still considering what the impact might be and the best response,’ says Studdert. ‘Different approaches have been taken.
Each site and each case is different. But generally the response is a precautionary approach to ongoing exposure and management.’
There’s still a long way to go before the scope of the problem is defined and there is a consistent or agreed response.
What’s essential is to have access to the best information available and the right technical expertise to assist in defining, understanding and managing the exposure and to respond accordingly.
THE QANTAS SPILL THAT CONTAMINATED A RIVERPFAS came to national attention in Australia in 2017 when thousands of litres of firefighting foam ended up in the Brisbane River after leaking from a Qantas hangar at Brisbane Airport.
At the time, tests revealed the river and upstream sites contained PFAS contaminants from not only the Qantas spill but also a number of other sources.
Qantas subsequently announced it would phase out the use of firefighting foam containing PFAS chemicals.
The airline had to compensate commercial fishers who were unable to work as a result of a temporary fishing ban.