Alert

Strategic Risk Mitigation for Insurance Providers Amidst PFAS-Related Environmental Liability

May 30, 2025

The increasing volume of litigation involving Poly- and Perfluoroalkyl Substances (PFAS) presents substantial financial and operational uncertainties for the insurance sector. Due to their environmental persistence and toxicological composition, PFAS-related claims alleging bodily injury, property damage, and ecological contamination have escalated. This article analyzes comprehensive strategies insurers can implement to limit liability exposure and mitigate environmental coverage claims.

Under the advice of legal counsel, insurance providers may consider the following key activities: refining policy language, structuring exclusions, advancing risk assessments, and actively engaging with regulatory developments. A proactive, multi-layered approach is essential for insurers to remain both competitive and resilient in the face of evolving PFAS risks.

PFAS litigation

Poly- and Perfluoroalkyl Substances (PFAS), colloquially known as “forever chemicals,” comprise a group of synthetic compounds employed in manufacturing, industrial processes, and firefighting due to their chemical stability and resistance to heat and moisture. As litigation against manufacturers and users of PFAS accelerates, insurers are increasingly burdened with claims related to bodily injury, property devaluation, and cleanup costs. To manage the potential and alleged liability, insurance companies may want to employ strategic adaptations across underwriting, policy design, regulatory compliance, and claims management.

PFAS and Environmental Liability: Context and Challenges

Scope of PFAS-Related Claims

PFAS litigation spans multiple domains:

• Bodily Injury and Property Damage: Lawsuits alleging chronic health impacts and property value diminution.
• Natural Resource Damages (NRD): Claims by public entities seeking reparations for environmental harm under statutes such as the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA).
• Remediation and Cleanup: Mandatory cleanup operations and cost recovery actions driven by environmental regulations. As referenced in a previous article, the rollback of environmental enforcement and environmental justice initiatives has resulted in an uptick of (Non-Government Organization) NGO Citizen Suits.

Evolving Regulatory Pressures

The U.S. Environmental Protection Agency (EPA) and state-level agencies continue to establish enforceable standards for PFAS in drinking water and industrial discharges. The 2023 finalization of drinking water limits for PFOA and PFOS under the Safe Drinking Water Act significantly elevates insurer exposure (EPA, 2023). The legal designation of PFAS compounds as hazardous substances under CERCLA and state analogues further increases cleanup liability and associated defense costs.

Strategic Mitigation Measures for Insurance Providers

Refinement of Policy Language and Exclusions

To reduce ambiguity and avoid coverage disputes, insurers may want to consider using precise policy drafting techniques. For example:

• Absolute Pollution Exclusions: Widely adopted in Commercial General Liability (CGL) policies, these clauses exclude coverage for damages caused by pollutants, including PFAS. Courts have generally supported broad interpretations.
• PFAS-Specific Exclusions: Tailored exclusions explicitly referencing PFAS or related substances minimize interpretive risk.
• Named-Peril Structuring: Transitioning from all-risk to named-peril coverage allows insurers to control environmental exposure more selectively.
• Known-Loss Exclusions: These deny coverage for known contamination or risks prior to policy inception—particularly pertinent for policyholders with historical PFAS usage.

Advanced Underwriting and Environmental Risk Assessment

Insurers may consider enhanced underwriting due diligence using the following practices:

• Environmental Audits: Comprehensive site and operational audits identifying historical PFAS use and existing contamination.
• Industry Profiling: Risk stratification by sector—e.g., airports, chemical manufacturing, waste management—enables exposure-based underwriting.
• Disclosure-Based Warranties: Binding declarations on PFAS usage from applicants to limit post-claim disputes.
• Premium Differentiation: Risk-adjusted premiums based on PFAS footprint incentivize safer practices and chemical substitution.

Coverage Structuring: Limits and Sub-Limits

To cap financial exposure, insurers can introduce:

• Sub-Limits for Environmental Damages: Setting dedicated caps for PFAS-related claims within broader liability policies.
• Aggregate Pollution Limits: Enforcing cumulative caps across multiple pollution-related claims within a policy period.

Managing Legal Defense and Claims Resolution

Litigation Cost Containment

PFAS defense is resource-intensive due to complex causation issues and expert testimony. Insurers can manage these costs via:

• Alternative Dispute Resolution (ADR): Mediation and arbitration clauses expedite claim resolution and reduce litigation expenses.
• Early Settlement Strategies: Proactive engagement to resolve high-risk claims reduces cost and reputational fallout.

Duty-to-Defend Clauses and Defense Cost Controls

Strategic drafting can further limit defense obligations:

• Defense Cost Sub-Limits: Capping legal expenses within PFAS-related endorsements.
• Defense-Only Policies: Offering limited-scope policies that provide legal defense but exclude indemnification for remediation costs.

Regulatory Engagement and Forward-Looking Adaptation

Monitoring Policy and Legislative Developments

Insurance carriers can monitor and respond to regulatory changes at federal and state levels. The finalization of CERCLA designation for certain PFAS compounds will require real-time policy revisions and internal legal guidance.

Compliance-Oriented Incentives for Insureds

Premium discounts or coverage enhancements for clients implementing PFAS substitutes or containment systems can align insurer and policyholder interests.

Adaptive Revisions of Coverage Language

Formal designation under federal law of PFAS as hazardous has already triggered complex and new litigation dynamics. Insurers may want to revisit coverage forms to align with emerging standards and avoid retroactive liabilities.

Take-Aways

The rise of PFAS litigation represents a paradigmatic shift in environmental insurance risk. To remain solvent and sustainable, insurers may want to integrate exclusionary language, stratified underwriting, capped coverage, and regulatory alignment into their strategic frameworks. Given the breadth and latency of PFAS contamination, a comprehensive, anticipatory posture will be an invaluable tool in managing liability in the decades to come.