PFAS Liability for Water District Remediation Costs Estimated Up to $175B

Economic liability associated with the remediation of perfluoroalkyl and polyfluoroalkyl substances (PFAS) in U.S. water districts is estimated to be between $120 billion and $175 billion, according to global consulting and actuarial firm Milliman Inc.

PFAS are often referred to as “forever chemicals” due to their persistence in the environment have been linked to health issues, such as cancer, liver damage and endocrine disruption.

Maximum contaminant levels (MCLs) for various PFAS compounds in drinking water have recently been established by the Environmental Protection Agency (EPA), prompting water districts nationwide to test and remediate their systems.

Related: Why Insurers Should Develop Strategies for Estimating PFAS Loss Reserves; PFAS By the Numbers

The first major lawsuit related to PFAS exposure was filed in 1999 and since then, the number of PFAS-related lawsuits has increased to more than 10,000 complaints involving almost 500 companies across a variety of industries, according to the actuarial firm.

Many suits brought forward by water districts were filed against chemical producers and other manufacturers that added PFAS to their products.

“A significant portion of these suits were consolidated into a multi-district litigation (MDL) centered on contamination from aqueous film-forming foam (AFFF), a firefighting foam used to fight liquid-based fires,” the report stated, indicating the foam caused runoff to seep into public drinking water systems.

Known settlements total more than $16 billion, a figure likely to grow as more complaints surface.

Multiple types of insurance coverage are involved in these complex lawsuits including general liability, pollution legal liability, and directors and officers (D&O) coverage, Milliman noted.

Insurers have a hard time quantifying losses related PFAS, since coverage case law is still in the making and health effects from exposure to the chemicals is still unknown.

“Ongoing coverage disputes hinge on policy language and limited jurisdictional precedent, further complicating the ability of insurers to quantify their potential liabilities,” the report added.

Milliman’s proprietary stochastic modeling approach incorporates a range of variables, including geospatial, regulatory and industry data, to produce individualized estimates for over 140,000 U.S. water districts.

The estimates account for the presence of approximately 30 different PFAS compounds and identifies the unique risks and remediation needs of each district, according to the firm.

“Our approach not only estimates the potential costs but provides insurers and corporations with the tools to navigate this complex landscape,” said Drew Groth, associate actuary at Milliman. “The granularity of the model coupled with probabilistic outcomes allows the user to integrate the estimates into various analyses, including enterprise risk management, underwriting, pricing and reserving.”

The findings highlight the financial challenges water districts face in meeting regulatory standards and underscore the urgent need for potentially liable parties to understand their possible share of remediation costs, Milliman said.

“While federal and state funding will assist, the projected costs far exceed currently available resources, necessitating alternative funding mechanisms and/or litigation to recoup costs,” the report added.