Environmental Exposures Impacting Manufacturers
Include, but are not limited to: 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); Spills from underground and/or aboveground storage tanks; No secondary containment for above ground storage tanks; Leaks from elevator hydraulic fluid storage tanks; Waste storage/handling practices; 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; Unknown abandoned underground storage tanks; In-ground sumps and pits; Unsealed truck ramps; Old and/or unknown landfills and lagoons; Uncertainties about the historical use and conditions of property; Electroplating baths and sludge; Paint sludge; Inadequate or no auditing of hazardous and non-hazardous waste handlers, transporter and disposal companies; Obsolete and remote equipment storage (bone) yards where contaminants percolate into the soil/groundwater; Improperly maintained paint booth filters; Nuisance odors; Adverse reactions and interactions of chemical compounds that accidentally commingle during a fire; 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….; Utilities that cross manufacturers property; 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; Silica; mold, vapor intrusion….
Environmental Claim Scenarios
- An auto parts 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.
- During the night, an unknown party illegally placed drums of hazardous waste into a dumpster behind a manufacturer’s facility. The containers were not leaking, but the cost to properly dispose of the illegally dumped waste cost the manufacturer roughly $50,000.
- 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 $100,000.
- 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.
- 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.
- A manufacturer operated a machine, which was used to cut 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. After further investigation, it was found the manufacturer’s property was the source of the pollutant. Total cost of remediation and 3rd party bodily injury claims exceeded $5,000,000.
- A 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.
- 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.
- A manufacturer hired a waste hauler to transport their waste materials to a 3rd party disposal site. During transportation the hauler got into an accident, causing the truck to overturn and spills its load into a nearby stream. Under CERCLA, the commercial insured must contribute for their apportionment of the load for cleanup cost since federal law states that you own your waste from cradle to grave. Cost to settle the claim for the insured was $700,000.
- An Auto parts manufacturer was sued when contamination was discovered in the drinking water at a new residential development. After further investigation, it was determined that the discovered pollutants were not used as part of the manufacturers process, nor was the manufacturer’s property the source of the contamination. The manufacturer was eventually released from the lawsuit. However, they had already expensed over $200,000 in legal defense costs.
Overlooked Benefits of Environmental Liability Insurance
Unlike most liability exposures impacting manufacturers, pollution losses are not a frequency risk, but rather a severity risk. Since every manufacturer is impacted by environmental liabilities, consideration needs to be given to the economies of scale afforded with environmental liability insurance as part of your risk transfer strategy, versus self-insurance.
Three Overlooked benefits of environmental liability insurance:
- Defense Costs: 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 costs i.e. legal fees, environmental investigations, etc.
- Claim Management: All policies come with specialists to assist you in handling a claim. Who is in charge of communications, public relations, emergency response, government compliance, financial management, third party claims for bodily injury, property damage, natural resource damages….?
- Third Party Liability: 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 for bodily injury, property damage and business interruption. You need to look at your client’s and neighbors that can be impacted if you or a sub-contractor/vendor cause an environmental loss.
Environmental Liability Insurance Products
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 there 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.
Contractors Pollution Liability (CPL)
CPL Coverage protects the insured for pollution conditions they may cause or exacerbate while performing work at a 3rd party locations. This is for covered operations performed by or on behalf of the insured. For manufactures, CPL would cover any work they perform for their customers at their customer’s location, such as servicing, installation, and monitoring.
Transportation Pollution Liability (TPL)
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.
Note: Manufacturers have potential indirect environmental exposures from the service vendors they hire and products they 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?
Products Pollution Liability
Products Pollution Liability is for manufactures that make and/or distribute a product that if faulty could cause a pollution incident. This coverage can be written on a stand-alone policy, or included on an environmental impairment liability policy. For Environmental Insurance markets to consider offering this coverage, they typically prefer products be intended for commercial use, as opposed to mass distribution to the general public.
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.