Environmental Insurance Market Update

Environmental Insurance Market Update

As we reported at the time, the U.S. Environmental Protection Agency (“EPA”), in the spring of 2024, finalized its rule formally designating two specific compounds as hazardous substances under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”)—perfluorooctanoic acid (“PFOA”) and perfluorooctanesulfonic acid (“PFOS”)—both of which fall into a broader category of per- and polyfluoroalkyl substances (“PFAS,” which is by now a well-known acronym).

This designation had (and still has) significant consequences for many of our clients, as they now need to contemplate the potential impact of two relatively ubiquitous compounds as they put together their risk management programs.

In June 2024, seven industry groups petitioned the U.S. Court of Appeals for the District of Columbia (“D.C. Circuit”) to set aside the PFOA and PFOS ‘hazardous substance’ designations.  The petitioners argued that EPA’s designation was legally, scientifically and administratively deficient.  The petitioners based their argument partly on EPA’s interpretation of the term ‘hazardous substances’, partly on the scientific rigor involved in how it determined the toxicology of PFOA and PFOS, and partly on the requirements of the Administrative Procedure Act.

On August 18, 2026, a unanimous D.C. Circuit panel denied the petition on numerous grounds.  In its decision, Chamber of Commerce of the United States v. EPA, No. 24-1193 (D.C. Cir. Aug. 18, 2026), the D.C. Circuit concluded that EPA need only find there is a possibility (not a certainty) that the released substance may present a substantial danger to public health, while also emphasizing that the risk must be serious, real, and not hypothesized.

The immediate, practical result is that the ‘hazardous substance’ designation for PFOA and PFOS remains in effect.  (It’s unclear whether the petitioners will appeal the decision to the U.S. Supreme Court.)  This means EPA can (i) continue to focus on PFOA or PFOS contamination to identify contaminated sites; (ii) compel responsible parties to clean up; and (iii) more broadly, re-open cases involving sites that are the subject of EPA closure

Takeaways:

• Transactional: If you are engaging in real estate, asset or stock transactions that involve properties with potential PFOA and PFOS contamination, you need to get ahead of this issue and have a risk management game plan.  And you should have a plan before engaging an environmental consultant to conduct Phase I (and certainly Phase II) Environmental Site Assessments.  Moreover, in these instances, you should be thinking about how to deal with this in the contract negotiations, at or before the LOI stage.
• Legal: The D.C. Circuit decision is the first notable EPA-related rulemaking challenge in which a court applied the U.S. Supreme Court’s 2024 Loper Bright analysis, where the Court overruled its 1984 Chevron decision by holding that courts must exercise their own independent judgment when interpreting statutes and may not defer to an agency’s interpretation merely because a statute is ambiguous.  The D.C. Circuit’s decision here is instructive to the extent it illustrates that while courts remain the ultimate arbiters of statutory language, they will nevertheless defer to the agency’s technical analysis.
• Practical:  If you own or operate a site that has the PFOA or PFOS contamination (or the potential for it), it’s time to reevaluate your environmental risk management program and ensure you are getting the broadest PFAS-related insurance coverage you can.
• Political: The federal regulatory oversight of certain PFAS compounds has been supported through multiple administrations and appears to be a relatively apolitical issue.  If you are waiting for a broad rollback of PFAS-related regulations, it does not appear to be coming.

The Environmental Insurance Practice at CAC, part of The Baldwin Group,  has been closely following the regulatory, legal, and risk management-related implications of EPA’s PFOA and PFOS designation.  We have placed dozens of policies where PFOA and PFOS (and other PFAS compounds) are central to our clients’ concerns and exposures.

For additional information, please reach out to Grant E. Nichols, Environmental Practice Leader at grant.nichols@cacgroup.com or +1 215.990.9161

CAC is now part of The Baldwin Group

The Baldwin Group and CAC are stronger together. Together we deliver more specialization, more capabilities, and deeper expertise to our clients. For more information, please visit us at www.cacgroup.com.