Environmental Risk Managers, Inc. » ENVIRONMENTAL EXPOSURES FACED BY MANUFACTURERS

Common environmental exposures faced by manufacturers include: Air emissions from painting and plating lines, ovens, boilers, reactors, (types of emissions include: carbon dioxide, nitrous oxides, sulfur dioxide, mercury, particulate (heavy metals and dusts), VOC (volatile organic compounds); PCB-containing equipment and transformers; spills or leaks from underground and/or aboveground storage tanks, no storage tank management programs, no secondary containment for above ground storage tanks, improper waste storage/handling practices, generation of hazardous waste materials (i.e. drums of spent solvents, acids, caustics, paint, heavy metal particulate and dust from bag houses and electrostatic precipitators; sludge’s from water treatment operations; raw materials stored and utilized in large quantities (i.e. acids, bases, compressed gases including cyanide and hydrogen chloride, diesel fuel and lubricant oils, flammable paints and solvents); wastewaters generated from contact and non-contact cooling water; plating lines; drum cleaning; products cleaning and chemical treatments (wastewaters generally contain heavy metals, oil, grease and organic compounds); uncontained floor drains around the plant; lack of knowledge on where floor drains discharge; inadequate capacity to control fire-fighting water; 55-gallon drums of chemicals stored at multiple uncontained locations; unknown abandoned underground storage tanks; in-ground concrete sumps and pits; inadequate groundwater monitoring around plant; unsealed truck ramps; old and/or unknown landfills and lagoons; uncertainties about the historical use and conditions of property; improper management of electroplating baths and sludge; paint sludge; inadequate or out-of-date emergency and spill control plans; inadequate or no auditing of hazardous and non-hazardous waste handlers, transporter and disposal companies; obsolete and remote equipment storage (bone) yards where oils and other liquids percolate into the soils; improperly maintained paint booth filters; nuisance odors; possible adverse reactions and interactions of chemical compounds that accidentally commingle during a fire; air emissions from on-site refrigeration systems; no emergency response training for employees; halon releases from fire suppression equipment; old septic systems, spills and leaks from the storage and handling (loading/unloading) of material containers such as drums, totes or bags from vehicles and/or rail cars; temporary on site storage of hazardous materials; corroded wastewater and storm water sewers; improper characterization of hazardous waste; non-compliance with SARA Title III/Community Right-to-Know reporting requirements; natural resource damages; asbestos or lead containing materials.

Environmental Liability Claims For Manufacturers:

1. A metal manufacturer had been removing oil and grease from their products prior to painting them. The metal goods were passed through a vapor bath of trichloronethylene (TCE), a common solvent. During an environmental assessment it was determined the groundwater surrounding the plant contained significant concentrations of TCE and other solvents. The cleanup of the site was estimated to exceed $900,000.

2. While moving a large metal coil, a forklift operator hit a hydrofluoric acid aboveground storage tank releasing dangerous fumes into the neighboring community. Area residents and businesses were evacuated and several people were treated at the local hospital for fume inhalation. Claims for bodily injury and business interruption topped $94,000.

3. A manufacturer stored bag house dust containing heavy metals in an uncovered dumpster behind the facility. Whenever it rained, storm water mixed with the dusts, forming a slurry, which ran off-site. Soil testing of a nearby stream bank showed high levels of lead, cadmium and mercury. The contaminant source was determined to be the dumpster run-off. The manufacturer was responsible for cleanup costs and natural resource damages exceeding $250,000.

4. A manufacturer operated a machine, which was used to punch holes in sheet metal. A portion of the machine was located beneath the floor. For more than 20 years, lubricating oil from the machines moving parts was released into the surrounding soils. When a nearby homeowner’s down gradient well used for potable water was tested, it contained total petroleum hydrocarbons. They were determined to be from the leaking equipment. The homeowner was forced to hook up to municipal water. The homeowner submitted a claim totaling more than $40,000 for the hookup cost alone, and an additional bodily injury claim for contamination ingestion.

5. A manufacturer began expansion of the production line area. During excavation, oily soils with a petroleum odor were discovered. Further investigation uncovered an old, undocumented sludge-drying pit, which the previous owner used back in the 1940’s. The manufacturer had to remove and remediate the soils at his expense. Cleanup costs exceeded $400,000.

6. A manufacturer stored a drum of caustic chemicals next to a drum of highly reactive acid. When a forklift disturbed the drums, their contents were released, causing a violent reaction. Fumes spread over the neighboring properties and destroyed all the plants at the nursery next door. The nursery owner submitted a claim totaling more than $35,000 for business interruption and loss of goods.

7. A chemical manufacturer stored incorrectly labeled drums of raw materials used for the manufacture of dry cleaning products. One-day neighbors noticed a thick, whitish-yellow vapor cloud emanating from the vicinity of the drums. The fire department was called and after reading the labels on the drums, they began to spray them with water. This caused an explosion, followed by a thick smoke cloud of sulfur dioxide. Forty plaintiffs filed three lawsuits to recover damages for injuries suffered from exposure to the sulfur dioxide cloud. Damages topped $3 million.

8. Concrete trenches were used to transport plating line wastes to the on-site wastewater treatment system. The high acidity of the wastewater degraded the trenches that allowed the wastewater to seep into surrounding soils. Subsequently the soils and ground water were contaminated with heavy metals and solvents used in the plating process. Testing in a nearby stream revealed that fish had high concentrations of metals in their systems as a result of the contamination. Because fishing was prohibited a local environmental group submitted a class action suit against the platter for loss of enjoyment of the stream. The group also submitted perceived bodily injury claims for ingestion of the contaminated fish. Total claims exceeded $3.2 million.

9. A plastics manufacturing plant was sued by a neighbor who alleged that toxic chemicals emanated from the plastics facility stored in railroad cars that have leaked or been spilled due to improper environmental management practices. The adjacent property owner contended they had been forced to purchase a new building and relocate their staff and business as a result of the contamination. Cost to the plastics manufacturer to remediate the problem along with third party claims came to $2,000,000. The adjacent property owner also claimed their normal business operations had been interrupted and the pollution has interfered with the use and enjoyment of the property, and resulted in a diminution in their property value. In total, the adjacent property owner was seeking damages in excess of $50,000,000. Defense costs to date have cost the plastic manufacturer over $250,000.

Risk Transfer Strategies

The majority of manufacturers operating today, lack the financial strength to self insure their environmental liabilities. Consideration needs to be given to the economies of scale afforded with environmental liability insurance as part of your risk transfer strategy.

Consider the three main benefits environmental liability insurance affords:

Coverage includes defense cost. Environmental liabilities are relatively new and very litigious. Even if you do nothing wrong you can still get named in a suit and have to expense defense dollars to get released. At one time, Superfund had .83 cents of every dollar going to legal fees, and only .17 cents for actual cleanup. When you realize the average Superfund site cost in excess of $30,000,000 to clean up, you can begin to understand just how big of a factor defense costs play in your risk transfer strategy.
All policies come with experts to assist you in handling the claim. Anytime you can have the EPA, state and local environmental officials along with the press pounding on your door, this is not a fender bender, you need experts to assist you in running damage control central.
The majority of the time the cost to clean up the environmental problem/s is far less than the associated claims that come in from third parties, mainly for business interruption. You need to look at the customers and neighbors that can be impacted should an environmental loss occur. Who can you impact should you or a sub-contactor/vendor cause an environmental liability?

Environmental risk transfer products for manufacturers:

ENVIRONMENTAL IMPAIRMENT LIABILITY (EIL)

EIL is for manufacturers susceptible to economic loss caused by pollution that actually or allegedly originated from their operations. Sometimes referred to as pollution legal liability this coverage is for those who own, operate, lease, or have any other insurable interest in real property and the operations. Coverage can be written in a variety of ways addressing unknown preexisting conditions or new conditions. Coverage can include third party bodily injury and property damage along with business interruption and extra expense, on and off site clean up costs, legal defense expenses, non-owned disposal sites, transportation and more. EIL can be offered on multi year terms. Sewer lines and pump/lift stations can be covered by EIL. Most EIL policies cover above ground storage tanks.

PROPERTY TRANSFER COVERAGE

When buying or selling property their can be unknown preexisting environmental conditions. Since a Phase I, Phase II, All Appropriate Inquiry (AAI) survey cannot guarantee uncovering all potential environmental liabilities, insurance companies have created property transfer insurance. This coverage protects the new owner or any party with an insurable interest, against unknown environmental conditions that may be discovered during the policy period, that were not caused by the new owner. This coverage not only helps to keep the property at its maximum value, it will assist the purchaser in being able to secure the necessary financing to complete their transaction. Property buyers have negotiated lower interest rates by blending property transfer coverage with their mortgage.

TRANSPORTATION POLLUTION LIABILITY

Generally, Business Auto or Truckers policies will exclude pollution losses arising from spills or other releases of their cargo. Broadened auto pollution liability (typically Form CA 9948) affords coverage during the loading, unloading and transportation, for a spill, release or sudden upset and over turn of transported cargo.

UNDERGROUND STORAGE TANKS

Financial responsibility requirements ensure that owners and operators of underground storage tank systems have the ability to financially handle a release from an underground storage tank. The responsibility encompasses the ability to pay funds for corrective action and third party bodily injury and property damage from non-sudden and sudden and accidental releases from a regulated underground system.

Note: For manufacturers, you have potential indirect environmental exposures from the service vendors you hire and products you purchase. Should your vendors cause an environmental problem or exacerbate an existing environmental issue their general liability insurance policy probably will have either an, absolute or total pollution exclusion.

How do you receive your raw materials? Do you purchase the materials FOB point of shipment? If you do, when your raw materials leave the shipping dock you are the owner. What is your strategy if there is an accident while in transit and your raw materials cause a pollution loss?

CONTRACTORS POLLUTION LIABILITY (CPL)

CPL coverage can be purchased to meet two specific exposures. First, contractors that perform remedial activities (asbestos, lead, mold, soil or ground water remediation) there is the standard contractors pollution liability (CPL) insurance coverage. This protects the insured for pollution conditions they may cause or exacerbate while performing remedial services. This is for covered operations performed by or on behalf of the insured. The loss must occur away from any premises the insured owns, rents, leases or occupies, in other words while they are performing remedial services in the field.

Secondly, standard contractors (i.e. general contractors, HVAC, plumbing, electrical, mechanical, janitorial, demolition, drilling, excavation, street and paving contractors, rigging, utility, artisan, etc.), in performing their services may cause an environmental liability that is generally excluded from their general liability coverage. For these contractors there is contingent contractors pollution liability (CCPL) coverage. Basically they are afforded the same coverage as remedial contractors but the cost to purchase this insurance is substantially less.

TRANSPORTATION POLLUTION LIABILITY

PROFESSIONAL LIABILITY (E&O)

E&O insurance protects manufacturers should an environmental engineer/consultant make and error or omission in performing their professional services. The standard commercial general liability policy excludes coverage for professional services performed by engineers/consultants/surveyors….