New PFAS Federal Drinking Water Standards Create Major Liability and Litigation Risk

The United States Environmental Protection Agency has released a final regulation setting individual drinking water maximum contaminant levels (MCLs) for five per-and polyfluoroalkyl substances (PFAS). These MCLs are incredibly stringent due to EPA’s stated concerns about the human health impacts of PFAS exposure. Because PFAS are ubiquitous in water supplies at levels above these new limits, public water systems will incur massive compliance costs. This, in turn, creates a high potential for a wave of cost recovery actions by those systems against not just manufacturers of PFAS but also against local businesses and property owners who could be implicated for contributing PFAS to the water supply.  Those businesses and property owners will face a significant financial burden in such litigation, particularly given the limited availability of insurance coverage. Moreover, transactional due diligence efforts will need to take this risk into account.

PFAS are sometimes referred to as “forever chemicals” due to their ability to persist in the environment and in the human body. Although production of PFOA and PFOS has been largely phased out, EPA determined that these chemicals present a continued risk to human health.  Because there is no scientific consensus on the nature and scope of that risk, or on what may be considered a “safe” amount of PFAS exposure, EPA set the drinking water MCLs for PFOA and PFOS, and three additional PFAS (PFHxS, PFNA, and HFPO-DO) very low, between 4 and 10 parts per trillion.  These are much lower than MCLs for other chemicals that have previously driven major groundwater cleanups and related cost recovery litigation across the country. 

For example, tetrachloroethylene (PCE) and trichloroethylene (TCE), which are chemicals used in dry cleaning and metal degreasing that have resulted in widespread groundwater contamination, both have MCLs of 5 parts per billion. These are one thousand times less stringent than the new PFAS MCLs of 4-10 parts per trillion. In fact, the PFAS MCLs are set at around the currently reliable laboratory detection limit for these chemicals. Effectively, this means that unless a sample is “nondetect” for PFAS, the MCL will have been exceeded.

There are limited options available to water systems to address PFAS contamination: filtering water at the wellhead; pumping groundwater, treating it, and reinjecting it into the aquifer; and/or shutting down wells in areas of contamination and creating (via new internal well systems) or purchasing (from external sources) uncontaminated water supplies. All these options are very expensive, and the financial burden on water systems will continue for decades, unless new and more cost-effective treatment technologies become available.

As a result, public water systems will incur very significant compliance costs. EPA has itself estimated the cost at $1.5 billion per year, but that figure has been critiqued by many water systems and technical experts as grossly understated. Regardless, federal grant funding available to water systems will be insufficient to ensure compliance with the PFAS MCLs. Water systems will need to either pass those costs on to their customers via increased rates, or seek to recover those costs in litigation against parties who may be held legally responsible for the presence of PFAS in the water supply. 

Given that water systems have spent decades litigating similar cases over other contaminants, such as PCE and TCE, a new wave of lawsuits focused on PFAS is likely imminent. Not just against the chemical companies that manufactured PFAS, but also against operators of industrial facilities that used chemicals that contained PFAS in their processes or products. Water systems are likely to allege that those facilities contributed to the presence of PFAS in the water supply of the communities where they are located, and should therefore bear the financial burden. In fact, owners of the land where those local industries operated are also at risk of being swept into that type of litigation, even if they had no active role in the activities that may have caused contamination.

Because insurance coverage is generally unavailable, local industries and property owners who find themselves named as defendants in PFAS litigation will very likely need to bear all of the costs of defense, as well as pay any judgment. Most commercial and property liability policies have contained “absolute” pollution exclusions since the mid-1980s, and locating applicable policies from earlier decades is often very difficult.  Moreover, even those who purchase insurance to specifically address environmental risks may find themselves out of luck. Most pollution legal liability (PLL) policies that have been underwritten since the emergence of PFAS as a significant risk have included “absolute” or significantly qualified exclusions from coverage related to PFAS contamination. 

Finally, this litigation risk will have a significant impact on due diligence and decision-making regarding current and future acquisition and development of properties. PFAS are not CERCLA-listed hazardous substances (at least currently; listings are pending at EPA). As such, Phase I Environmental Site Assessments that are or have been prepared in compliance with the ASTM Phase I standard entirely exclude analysis of PFAS risk in most instances.  Purchasers wanting to assess risks related to PFAS usage or contamination at a property therefore cannot necessarily rely on the standard Phase I process for that purpose, and may need to conduct supplemental diligence, potentially including Phase II environmental testing. Caveat emptor, indeed.