This past July, I wrote a blog about how the toxic group of chemicals known as PFAS, or “the forever chemical,” was gaining public scrutiny for its contamination of public water supplies as the adverse health effects were becoming better understood. Last month, the movie Dark Waters hit theaters and has brought with it a heightened focus on PFAS and environmental accountability.
Dark Waters, starring Mark Ruffalo, tells the true story of a DuPont facility in West Virginia that, in the 1990s, knowingly contaminated the public water supply and of the lawyer who brought an environmental lawsuit against the chemical maker. As Congress currently debates how to address PFAS assessment and regulation in the future, many questions about the effect of PFAS on public health still remain.
For insurance carriers that underwrite environmental policies, and the insureds like property developers, lenders and companies involved in property transactions through M&A, PFAS contamination is unchartered territory with many unknowns.
What is PFAS?
PFAS contamination and its impact on human health are complex issues that require a more definitive understanding. Comprising over 5,000 types of chemicals, PFAS are used to make firefighting foams, non-stick cookware, stain-resistant fabrics, food packaging and waterproof clothing, to name a few. The chemicals don’t break down, which means that over time they accumulate both in the environment and in the human body. They’re been linked to cancer, thyroid problems, liver damage, high cholesterol and decreased fertility. PFAS chemicals have been in production since the 1940s, primarily by Dupont and 3M. And although some of the chemicals, like PFOA and PFOS, have been voluntarily phased out by the industry, they remain in the environment.
Both government and non-government studies have found varying levels of contamination in drinking water, soil and human populations. The Environmental Working Group (EWG) issued a report in September saying that 74 community water systems serving 7.5 million Californians are contaminated. Some studies have found that 99% of people tested positive for PFAS in their blood. And while the EPA has set the margin of protection for PFOA and PFOS in drinking water at 70 parts per trillion, some states have set their own, more rigorous, standards.
Know Your Options
If you’re a developer and you have a site that tests above the EPA’s threshold, what are your options? That’s a big question mark right now and one that will play heavily in commercial real estate transactions going forward.
Because of the long-term cradle-to-grave nature of environmental liability, developers must enter into projects with as much awareness of PFAS liability as possible. Unlike other forms of environmental pollutants, in which the testing methods and remediation, or clean-up, efforts are well known, PFAS is an emerging issue. The remediation costs are unknown and there isn’t enough data to understand the long-term implications.
Until some of the uncertainty around the PFAS issue is out of the equation, assigning insurance products to properly handle the situation will be a challenge. So far, some environmental insurance carriers have added restrictions and exclusions on PFAS.
And it’s not just developers that need to pay attention to this issue. Any bank or lender that funds loans on property developments or takes over loans from other banks must also be aware of their obligations in costly remediation projects if their borrowers default on a loan. Companies that are conducting property transactions as part of a M&A could also face long-term exposure.
The due diligence process should include an environmental insurance broker with the most up-to-date knowledge of the PFAS issue and how the market is responding to it.
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