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environmental Strategist, between the lines: Share this with your excavation client’s. Even though the contractor did not cause the pollution, under federal law if you exacerbate an existing pollution condition, even if you are to aware the pollution condition exists, you are now a liable party. I wonder how much it’s going to cost the contractor to buy water for people. What about defense cost, investigation costs, who is going to manage the claim for the contractor….

ROCHESTER (AP) — The EPA is testing water and soil samples near a pit where a contractor disturbed a chemical tainted with PCBs that now pose a threat to well water.

A contractor digging a pit for a sewer pumping station dug through a layer of clay soil Thursday and exposed a mixture of water and a petroleum-based chemical.

Preliminary results showed that the mixture tested positive for PCBs, a liquid coolant banned by the federal government in 1977 that’s classified as a probable cause of cancer.

The U.S. Environmental Protection Agency has conducted extensive soil and water testing from the site near Lake Bruce in Rochester.

The agency expects to receive test results later this week, a state official said.

“We’re trying to determine whether it’s just right there or if it’s gone beyond the area around the excavations,” said Amy Hartsock, a spokeswoman for the Indiana Department of Environmental Management.

The pit is on a former Chesapeake and Ohio railbed that the Lake Bruce Conservancy District bought from CSX. Construction of the sewer has been halted while the testing analysis continues.

And since Friday, when Fulton County health officials issued a no well-water use order, between 80 and 100 residents on the lake’s southwest side have been unable to use their tap water.

That order means residents cannot consume the water or use it for laundry and bathing.

Michigan has created a huge opportunity for insurance agents as it relates to Brownfields.

As of January 2008 Michigan now allows Environmental Liability insurance to qualify as an eligible activity for reimbursement.

Why would any Michigan Brownfield not have environmental insurance on it if the cost will be reimbursed to the owner/developer?

For agents outside of Michigan find out if your state allows this. Back in the mid 1990’s Michigan created the Baseline Environmental Assessment (BEA) that is now accepted I believe country wide as a way to delineate new from old pollution conditions and identify liable parties.

Allowing environmental insurance to be a reimbursable activity makes way to much sense and I believe it will not be long and this will be a country wide practice.

Environmental Risk Managers has been involved with hundreds of Brownfield projects across the country and they can generate premiums in the seven figures. We have proven Brownfield strategies that will allow your agency to capitalize on this great opportunity.

Environmental Strategist, between the lines: Back in the early 90’s when I was a retail agent I called this company about the Bay Harbor Brownfield project at the former site of a large cement factory/quarry. I was told by the developers they were all set and there was no need for cost cap coverage, environmental impairment liability, contractors pollution liability insurance, auto pollution liability. Here we are 15 plus years later and you read for yourself.

Brownfields offer great opportunities and truly are economic multipliers. A solid Brownfield strategy includes transferring a portion of the risk to a third party. There are guesstimates that in the United States we have 1,500,000 Brownfield sites. I feel you can double that number and still be low. Are you using Brownfields to drive your growth and profits?

Published: February 08, 2008 09:46 am

Several groups plan to appeal the decision

BY SHERI McWHIRTER
smcwhirter@record-eagle.com

ALBA — An energy company will soon poke a new hole in the ground for a deep-injection disposal well near Alba.

State and federal environmental regulators on Thursday approved permits to allow CMS Energy to drill a new well in Antrim County’s Star Township, despite opposition from local residents and conservationists who want to keep contaminated water out of their community. A 30-day appeal period now begins.

“It was a decision based on what the law requires us to look at. They met the requirements, so we had to issue the permit,” said Bob McCann, spokesman for the Michigan Department of Environmental Quality.

The DEQ and the U.S. Environmental Protection Agency issued well permits after a six-month review of public comments. The agencies held a joint public hearing in June when local residents descended to criticize the plan, including potential dangers to drinking and surface water.

The well is part of CMS’s cleanup plan for polluted water in Little Traverse Bay, caused by water seepage through old cement factory kiln dust beneath luxury homes in the Bay Harbor resort. The company was an investor in the lakeshore development and is responsible for a $93 million cleanup project.

Wastewater from the cleanup site near Petoskey will be injected 2,150 feet into underground rock formations. Contaminated water currently is treated onsite to reduce alkalinity and heavy metal concentrations and then trucked to a commercial injection well in Montmorency County and a treatment plant in Grand Traverse County.

Thursday’s well permit approvals were “expected, but disappointing,” said John Richter, president of the Friends of the Jordan River Watershed. The conservation group will file an administrative appeal with the state and federal agencies and seek an injunction in circuit court.

Star Township also will join the fight.

“They are using Alba as dumping grounds for the wastewater from Bay Harbor. It is environmental injustice, transferring the problem from an existing contaminated area to an uncontaminated area,” said Susan Topp, the township’s attorney.

The company will complete construction of an onsite treatment facility by spring, which eventually would replace the Alba well as the final disposal method for the Bay Harbor wastewater, said Tim Petrosky, MCS area manager.

Appeals and lawsuits against the well — which soon will be under construction — would be “without merit, unsuccessful and an unfortunate expenditure of resources,” he said.

Most of the commercial insurance products out there with “green” in their name appear to be coming out of the property side of the business.

By Matthew Brodsky

Fireman’s Fund Insurance Co. was the first carrier to offer a standard property product with its Certified Green Building Replacement and Green Upgrade coverages, released in October 2006.

For existing green certified buildings, the product offers a premium discount because these buildings are generally considered safer and better built than nongreen structures. Yet the product also covers exposures specific to sustainable construction practices and elements, such as alternative water and energy systems and living roofs.

In typical property policies, explains Rick Hawkinberry, senior vice president with the Willis environmental practice, the plants found on a living roof would not be covered.

Should a green-certified building suffer a total loss, the Fireman’s Fund policy would pay out for the building to be resurrected in green form, certified to one level higher than it had been previously. For losses, underwriters take into account the greater replacement value inherent with green materials and practices. Says Steve Bushnell, product director, commercial business, at Fireman’s, the additional costs can range from 1 percent to 1.5 percent more than costs of similar nongreen products.

That’s also about the additional premium you can expect to pay if you sign on for the Green Upgrade coverage. For policyholders with nongreen buildings, this product would pay to rebuild with green products any property damage to nongreen property. Energy Star rated appliances, carpets and paints with low-volatile compounds for better air quality, efficient plumping and electrical systems, and office partitions sans formaldehyde. In the event of a total loss, the entire rebuild would be done toward getting green certification.

A third product that Fireman’s introduced in Oct. 2006 was building commissioning coverage, which pays, in the event of a loss to a green building, to have a commissioning engineer oversee the rebuild to meet certification requirements.

“We end up with a greener building and a safer building,” says Bushnell.

So far, the upgrade has been the most popular of the three, reports Bushnell, with upward of 800 insureds buying it. The common denominator among these policyholders is that there is no common theme–buyers have come from different sectors, from small companies to corporations with hundreds of locations.

“There is a general interest that building owners have in being sustainable and green,” explains Bushnell, adding that green building is one of the few environmental movements that has a profit motive behind it.

Fireman’s Fund is expanding its participation in this movement with new green policies, such as one for manufacturers that incentivizes for sustainable practices in property such as energy efficiency and workers’ compensation such as improving the working environment and air quality. The carrier also offers a products liability credit for companies that practice sustainability in their operations. And there’s a green commercial auto policy that pays out to replace older “regular” fleet cars with hybrids.

The Allianz-owned, Novato, Calif.-based insurer is not alone in offering these products anymore. Other carriers have come on board and are competing in the green movement.

Liberty Mutual unveiled a property product this April called Green Select. Similar to the Fireman’s product, it would pay for existing certified buildings to be rebuilt after a complete loss to one higher level of certification. It would also pay out for debris recycling, vegetative roofs, recommissioning and recertification costs, and the higher prices shelled out for special building products. And, similarly, Green Select would rebuild a nongreen property after a loss to meet certain green aspects.

Both types of cover are included on the same endorsement to RM Select property policy.

“It’s easier to put it on one endorsement and deal with it on a scheduled basis,” says Ann Butterworth, underwriter for the product.

Lexington’s Upgrade to Green property product, announced this spring, covers these two main bases as well–rebuilding and recertifying an existing green building, and upgrading a nongreen property post-loss with green products.

More standard form products such as these are surely on the way. In the meantime, carriers are also writing green risks in the manuscript, one-off, customized way.

Lindene Patton, climate product officer with Zurich, for instance, reports that it currently manuscripts extensions to property policies to cover the unique exposures of a particular green building. The insurer, she says, has standardized green forms currently in the filing process.

Patton says that green building is covered in regular Zurich E&O coverages for architects and engineers, as well as in standard construction and project-specific policies.

Considering the matter further, she adds that even current “nongreen” property forms might cover green exposures. Many cities and counties are changing their building codes to mandate that some construction be done in a green manner. So if a property policy is written to rebuild to code after a loss, then inherently reconstruction would be done in a green manner.

“Cutting edge is extending coverage that might not be regulator mandated but would be appropriate,” she says.

MATTHEW BRODSKY is senior editor/Web editor of Risk & Insurance®.

From: , Worldwatch Institute,

January 10, 2008 10:13 AM

Washington, D.C.— Pioneering entrepreneurs, nongovernmental organizations, and governments around the globe are inventing the Earth’s first sustainable global economy, according to State of the World 2008: Innovations for a Sustainable Economy. In response to climate change and other environmental problems, these leaders are field-testing a remarkable array of economic innovations that offer surprising and hopeful new opportunities for long-term prosperity, finds the new report from the Worldwatch Institute.

“Once regarded as irrelevant to economic activity, environmental problems are drastically rewriting the rules for business, investors, and consumers, affecting over $100 billion in annual capital flows,” say project co-directors Gary Gardner and Thomas Prugh.

The report describes a host of new economic opportunities that are attracting capital. An estimated $52 billion was invested in renewable energy in 2006, up 33 percent from 2005. Preliminary estimates indicate that the figure reached $66 billion in 2007. Carbon trading is growing even more explosively, reaching an estimated $30 billion in 2006, nearly triple the amount traded in 2005.

Some of the most powerful players in today’s economy have announced breakthrough environmental initiatives in the past two years, including Citigroup, Goldman Sachs, Kleiner Perkins Caufield & Byers, McKinsey & Company, and Wal-Mart. And many large companies are putting their political muscle where their investment capital is: 27 major corporations, including Alcoa, Dow Chemical, Duke Energy, General Motors, and Xerox, are actively urging the U.S. Congress to pass legislation regulating greenhouse gas emissions—something that would have been unthinkable two years ago.

Innovative companies are also revolutionizing industrial production to meet environmental challenges, while finding that they’re saving money: the chemical giant DuPont cut its greenhouse gas emissions 72 percent below 1991 levels by 2007, saving $3 billion in the process.

Another sign of dramatic change is the 575 environmental and energy hedge funds now in existence, most of them formed in the last few years. “Clean tech” has rapidly grown to be the third largest recipient of venture capital, trailing only the Internet and biotechnology. And 54 banks, representing 85 percent of global private project finance capacity, have endorsed the Equator Principles, a new international standard of sustainability investment.

State of the World 2008 cites two major economic modeling studies that find that the damage from global climate change could equal as much as 8 percent of global economic output by the end of this century. Citing World Bank data, the report also notes that some 39 countries experienced a decline of 5 percent or more in wealth when accounting measures also included factors such as unsustainable forest harvesting, depletion of non-renewable resources, and damage from carbon emissions. For 10 countries, the decline ranged from 25 to 60 percent.

To avoid economic collapse at the global level, the State of the World authors call for major reforms of government policy to steer investment away from destructive activities such as the extraction of fossil fuels and toward a new generation of environmentally sustainable industries. Specific recommendations include making prices tell the ecological truth by reducing subsidies and adopting environmental taxes.

“We have the tools today to steer the global economy onto a sustainable path,” say project co-directors Gardner and Prugh. “The task now is to bring them together and scale them up so that they become the norm across today’s economies.”

The report urges a full assessment and valuation of the services that nature provides free of charge to the human economy and describes several efforts to create markets to protect biodiversity. The report cites a recent assessment that found green accounting programs in place in at least 50 countries and identified 20 other countries that were planning to initiate such programs.

State of the World 2008 finds growing evidence suggesting that the global economy is now destroying its own ecological base. It quotes former World Bank chief economist Nicholas Stern, author of the acclaimed Stern Review on the economics of climate change, who describes the changes now under way in Earth’s atmosphere as “the greatest and widest-ranging market failure ever seen.”

“Continued human progress now depends on an economic transformation that is more profound than any seen in the last century,” says Worldwatch president Christopher Flavin. “We should be practicing a sustainable approach to economics that takes advantage of the ability of markets to allocate scarce resources while explicitly recognizing that our economy is dependent on the broader ecosystem that contains it.”

Potential environmental liability exposures: completed operations exposures including incomplete line hookup or improper system construction causing spills or emissions; fumes, emission and spills of chemicals applied during construction (finishers, sealants), lubricant oils and other fluids from field equipment; release of oils/fuels as a result of vandalism, site preparation/excavation work through preexisting contaminated soil, air emissions from dust and debris, impacting underground storage tanks, storm water runoff contamination, excavation and spreading of unknown preexisting contaminated soil, impacting groundwater from drilling and excavation work (i.e. cross contamination of aquifers, etc.); impacting underground utilities and other underground structures, release of naturally occurring asbestos during excavation, no auditing of waste handling and disposal companies, heating ventilation, air conditioning construction or maintenance errors causing release of airborne bacteria,.

Environmental liability case studies

1. Excavated Soil Spreads Contamination On and Off Work Site: a general contractor excavated 357 feet of trench for one week at a cost of roughly $30,000 and stockpiled the soil on an adjacent property. Within six months from the excavation date, dioxin was discovered in the soil. Subsequent investigation also found contamination at the adjacent property. It was determined that contamination had seeped from the ground surface into a shallow aquifer which is located next to the housing development and feeds the water supply for 5,000 residents. The contractor so far has paid in excess of $1,000,000 to address the issue.

The US Environmental Protection Agency (EPA) investigated and found dioxin levels to be unacceptable. Also, the EPA concluded that people who drink or come in contact with the water from the wells tapping the aquifer might be at risk. An extensive clean-up was ordered at the work site and the adjacent property. Numerous people filed claims for property and environmental damages against the industrial contractor. Also, thirty homeowners filed claims for property damage and bodily injury. Damages from multiple claims and cleanup costs for all properties exceeded $3 million.

2. Faulty Pump Contaminates Local Creek and Pond. During routine transfer of diesel fuel from a fuel truck to an onsite job fuel storage tank, a pump malfunctioned releasing approximately 4,500 gallons of diesel fuel. The product migrated along the edge of the tanks into a culvert, spilled into an adjacent creek, and pooled in a pond. The state department of environmental management was notified and the company’s spill response plan was initiated. Approximately 644,300 gallons of contaminated water was removed from the creek and pond at a cost of $63,000.

3. An excavation contractor was working on a $500,000 sewer rehabilitation project. During excavation of a trench, the bucket of a backhoe hit a natural gas line. This forced evacuation of the immediate area, including a small strip mall. Storeowners filed loss of business claims against the contractor, which exceeded $75,000. The general contractors general liability carrier denied the claims based upon the absolute pollution exclusion.

4. An excavation contractor was subject to cleanup costs and business interruption expenses in excess of $500,000 when they ruptured and unmarked petroleum pipeline.

5. During an expansion for a mine, the contractor bulldozed fill and installed dams in a tributary and damaged wetlands. As a result, a dam built by the previous landowner failed, which sent a large amount of sediment downstream. The EPA said the un-permitted discharges threatened the water quality in the tributary and a nearby creek. The owner was ordered to immediately stop any further discharge into the creek, wetlands and tributaries and to submit a plan within 30 days for assessing and repairing the damage. Work must be completed in one year. The mine owner was found responsible for all costs associated with the assessment and clean-up ordered by the EPA. The assessment must be completed by a qualified wetland scientist acceptable to the EPA and provide full documentation. Documentation must include area mapping, a description of the damage, a description of the sediment and work needed to restore it, and plans for future monitoring. Under the Clean Water Act, the owner could be fined up to $27,500 a day for discharging pollutants into waterways without a permit from the U.S. Army Corps of Engineers.

6. A general contractor dropped a piece of heavy equipment from a crane onto a pipe leading to a hydrofluoric acid tank. Acid was emitted into the surrounding atmosphere, creating a vast vapor cloud. Approximately 3,000 residents were evacuated and 1,000 were treated for respiratory injuries. The court entered judgment holding the contractor 95% liable for the accident. Over 4,500 claims have been filed in excess of $23,000,000. The claims include bodily injury, property damage, lost profits and emergency response costs.

7. ASARCO, Inc., one of the country’s largest mining companies has agreed to spend $50 million for environmental improvements and pay a $6 million fine to settle pollution charges concerning two facilities in Arizona and Montana. ASARCO agreed to clean up toxic contamination at the two sites and to establish a new pollution management program at all 38 of its facilities in seven states. The settlement resolved nearly two years of litigation over what the government claimed were years if illegal discharges of toxic waste at the company’s open pit copper mine near Kelvin, Ariz., and a lead smelting facility near East Helena, Montana.

8. An excavation/grading contractor unknowingly spread petroleum-contaminated soil across a project site during fill operations. The contractor was named in a lawsuit for exacerbating the extent of contamination. After lengthy deliberations, the contractor was eventually removed from the lawsuit. However, he had invested $250,000 in his defense.

Risk Transfer Strategies

The majority of contractors 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:

1. 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.
2. 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.

3. 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?

CONTRACTORS POLLUTION LIABILITY

Contractors (i.e. general contractors, HVAC, plumbing, electrical, mechanical, demolition, drilling, excavation, highway, street and paving contractors, rigging, utility, millwrights, artisan, residential, etc.) performing their regular services have exposure to environmental losses that are excluded from their general liability policies. Contractors Pollution Liability (CPL) insurance protects the insured should they cause or exacerbate an environmental condition while performing their construction services. This is for covered operations performed by or on behalf of the insured and the loss must occur away from any premises the insured owns, rents, leases or occupies.

Typically, coverage for CPL insurance is rated based upon the Insured’s gross receipts or payroll. You can purchase coverage on a claims made or occurrence basis. Coverage can be purchased on a job specific basis, or on a blanket basis to cover all the work performed by the insured. Most policies can be endorsed to cover transportation pollution liability and/or off-site disposal coverage.

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.

Common environmental exposures faced by wastewater treatment plants include: Discharges of contaminated effluent, (resulting from a treatment process breakdown, untreatable contaminants, excess volume from combined sewer overflows….); contaminated effluent which causes soil, surface water and/or groundwater contamination (the effects of improperly treated effluent entering a surface water body might include, natural resource damages, fish kills, harm to human health if the surface water is used for recreational purposes or contamination of drinking water supply), pump/lift station failure; backup generator failure; nuisance odor claims; leaks, ruptures, spills from underground or above ground storage tanks used to process materials and wastes; improper storage of sludge causing soil or groundwater contamination; No auditing of waste handling and disposal companies; historic site conditions; lagoon failures; sewer line ruptures….

Environmental Liability Claims For Wastewater Treatment Plants:

1. A chlorine release at a wastewater treatment plant resulted in toxic air emissions. Area residents and businesses were evacuated and several people were hospitalized for inhalation of fumes. Claims against the facility for bodily injury and business interruption, combined with defense costs, exceeded $460,000.

2. A liquid wastewater treatment plant utilized sulfuric acid in their process and stored it on-site in a 20,000-gallon aboveground storage tank. The storage tank was contained by two foot high, chemically sealed masonry walls. Overnight, an area high on the wall of the storage tank ruptured, releasing the sulfuric acid. The leak squirted beyond the containment walls, releasing approximately 3,000 gallons of tank contents into the soil and into an adjacent stream. Government mandated costs for clean up of on-site soils, the stream and the stream bank exceeded $1 million.

3. A manufacturer operated its own on-site wastewater treatment facility. Seals on the bottom of the treatment system leaked and wastewater overflowed from the top of the system. This caused numerous discharges of contaminated effluent to enter the soil and migrate off-site to neighboring businesses. The business owners had environmental testing performed on their properties, confirming that elevated levels of contaminants existed at their properties. In addition, The EPA cited the manufacturer for various discharge violations and issued an administrative order finding the manufacturer responsible for contamination of the adjacent properties. Government mandated cleanup costs exceeded $250,000. In addition, business owners filed claims against the manufacturer for property damage, business interruption and trespass of pollutants. The combined total of the civil suits exceeded $500,000.

4. An industrial user of a wastewater treatment plant sent a sudden surge of contaminants, often called a slug, through the plant. The slug upset the treatment process and killed off the population of microorganisms. As a result, untreated effluent was discharged into a river – a source of both drinking water and recreation. The adjacent town discovered contamination in their municipal water supplies and were forced to close their wells. The town sued the treatment plant and settled for $780,000. A local environmental group filed a class action suit (under the Clean Water Act) in the amount of $750,000 for loss of enjoyment of the stream. Additionally, the plant had to shut down temporarily to clean treatment tanks and reestablish its capabilities.

5. A convention taking place at a park was disrupted and forced to relocate because of the odor from a wastewater treatment plant. A suit in the amount of $100,000 was filed against the plant for loss of enjoyment and for costs to relocate the convention.

6. Dalton Utilities, a municipal company that provides electricity, sewage treatment, natural gas, and drinking water for the city of Dalton, Ga., has been sentenced in Northern Georgia U.S. District Court for falsifying wastewater analysis in monthly operating reports. Dalton was fined $1 million.

7. The city of Ketchikan, Alaska, reached a $39,000 settlement with the EPA. The city owns and operates a wastewater treatment facility that discharges treated wastewater into the Tongass Narrows. The wastewater treatment plant is part of a sanitary sewer system that receives domestic wastewater from residential and commercial sources. The facility serves a population of approximately 8,000. The discharge from the city’s facility exceeded the fecal coliform bacteria, copper, biochemical oxygen demand, total suspended solids, pH and total residual chlorine effluent limits on numerous occasions.

Risk Transfer Strategies

The majority of waste water treatment plants 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:

1. 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.
2. 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.
3. 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?

Three risk transfer products for wastewater treatment plants:

ENVIRONMENTAL IMPAIRMENT LIABILITY (EIL)

EIL is for waste water treatment plants 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 first party on-site cleanup, 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. Strong consideration should be given to first party business income and extra expense.

CONTRACTORS POLLUTION LIABILITY

This coverage can be purchased to meet two specific exposures. First, contractors that perform remedial activities (asbestos, lead, mold, soil or ground water remediation, emergency response) or land application at non-owned or leased property. There is the standard Contractors Pollution Liability (CPL) insurance coverage for the non-environmental construction services necessary for the operation and proper maintenance of waste water operations. CPL protects the insured for pollution conditions they may cause or exacerbation of an existing situation while performing their covered construction services. The loss must occur away from any premises the insured owns, rents, leases or occupies, in other words while they are performing remedial services at a hospital or medical facility.

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.

Vendor Insurance Coverage’s:

If you contract engineering/laboratory or contracting services, you should confirm the vendor has professional liability including pollution and/or contractors pollution liability coverage. If the vendor is a transporter refer to transportation pollution liability above. If you use a vendor for land applications, either EIL or contractors pollution liability, depending upon the insurable interest where the land application is taking place.

Common environmental exposures encountered at car dealerships, gasoline/service stations, and garages include: Leaking underground fuel and waste oil storage tanks; Untested underground fuel & waste oil/solvent tanks and pipes; Underground tanks which were removed/abandoned; Lack of information on existing and former underground tanks (e.g. age, contents, size, construction, cathodic protection, etc.); Poor housekeeping resulting in oil, fuel, parts cleaning solvents, and paint being spilled on unpaved areas; Leaking grease traps or oil/water separators that seriously pollute the soils and/or groundwater; Accumulated old batteries which contain leached acidic liquids; Wastewaters flowing from service bays into the sanitary sewers; Electrical equipment containing PCBs; Paint residues from the body shop washed into storm drains; Wash waters from a car wash discharged into a storm sewer; No auditing of waste handling and disposal companies; Poor information on the possible adverse reactions and interactions of chemical compounds that accidentally commingle during a fire. Some of the pollutants these operations are impacted by include asbestos, lead, mercury, cadmium, oil, diesel, etc.

1. An automobile dealership had a wash bay’s piping system that released a substantial amount of cleaning solvents into soil and ground water. The cost to remediate the cleaning solvents, soil and ground water cost $250,000

2. A service station had a waste hauler that was transporting its used motor oil overturn and spills its load into a nearby stream. Under CERCLA, the service station 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 service station was $600,000.

3. A waste facility for an auto body shop released contaminates into a nearby neighborhood’s drinking water. The local regulatory agency designated the body shop as a responsible party. The contribution to settle the claim was $340,000.

Risk Transfer Strategies

The majority of automotive salvage yards 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:

1. 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.
2. 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.
3. 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?

Three environmental risk transfer products for Automotive Salvage Yards:

ENVIRONMENTAL IMPAIRMENT LIABILITY (EIL)

EIL is for automotive salvage yards 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. Most EIL policies cover above ground storage tanks.

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.

Automotive Services and Repair Industry Highlights

Nationwide, car and truck dealerships, service stations and garages take care of the maintenance and repair of millions of vehicles every year. Operations may include general maintenance such as oil changes, engine repair and parts washing. Other vehicle services such as fueling, painting, body repair and engine cleaning may also be part of their business. Vehicle maintenance and repair requires the removal, replacement, storage and disposal of many types of hazardous materials such as automotive fluids (brake, transmission and hydraulic fluids etc.), parts (like tires, batteries, halogen light bulbs) and petroleum products (such as gas, diesel, grease and waste oil) which can pose pollution risks. Other operations such as vehicle painting generate hazardous waste from chemicals such as paint thinners and removers and cleaning solvents. Dealerships and garages are responsible for proper storage and disposal of their hazardous waste on site and at off-site treatment, storage or disposal facilities. They must evaluate their waste and keep records of evaluation. Some of the hazardous wastes and materials that may be produced include painting materials, automotive parts, solvent wastes, used oil, and more. The Need For Environmental Insurance: In every area of vehicle servicing, repair and body shop operations there is potential for environmental risk. Car and truck dealerships, service stations and garages must properly store and dispose of potentially toxic fluids and materials on a daily basis. Also, the maintenance and repair of vehicle mandates the use of many chemicals and generates hazardous waste as well, placing this industry at great risk.

Checklist: Pollution prevention for automotive repair and service stations

Service stations and other automotive repair shops are, by their nature, awash in oil, grease, solvents, antifreeze, gasoline and other pollutants that, if not properly disposed, could have an adverse affect on the environment. A list of pollution and waste prevention tips, provided by the Pollution Prevention Unit of the Alabama Department of Environmental Management, are geared specifically toward automotive repair and service stations, but many of them are also applicable to other industries.

Material use and supplies

• Switch to non-chlorinated compounds, such as a citrus-based solvent for parts cleaning.
• Cover all solvent containers and turn off your solvent sink when not in use. Solvent losses from evaporation and spills can range from 25 percent to 40 percent.
• Always use spring-loaded funnels or pumps to dispense and collect fluids such as antifreeze, solvents and used oil.
• Recycle used oil, antifreeze and solvents. Recycle filters after drip draining or spinning out the oil.
• Use a filter on parts cleaners to extend the life of the solvent. Use dirty solvent when first cleaning parts.
• Consider using burnable absorbents to clean up used oil. Often your used oil hauler can recycle them as well as your used oil.
• Pre-rinse parts before using hot tanks or jet spray washers.
• Switch to a recirculating spray cabinet for cleaning parts instead of using solvent or hot tanks.
• Purchase or use a solvent distillation service for solvent-based cleaners. The material can be reused at a cost savings to your shop.
• Keep hazardous and non-hazardous wastes separate to minimize disposal costs.
• Maintain an accurate record or inventory to prevent overstocking of hard-to-dispose-of items.
• Read the label carefully. Biodegradable does not necessarily mean environmentally sound, or that the product is exempt from regulations. So called “safe” products that are mixed with hazardous materials such as solvents or heavy metals may have to be handled as hazardous wastes. Maintain disposal records.

Safety: Prevent slips, trips and falls.

• Remove parts slowly after they have been in solvent tanks to prevent spillage.
• Use drip pads and pans to catch leaking fluids when working on vehicles.
• Keep parts cleaning equipment near service bays to reduce spills and drips.
• Immediately clean up spills with rags or dry absorbent.
• Store solvents and used shop towels in metal cabinets and keep away from heat sources.

Waste reduction.

• Use a rag service for shop towels to reduce oily dumpster waste and a “throw it away” attitude.
• Purchase your most frequently used materials in bulk to minimize container waste.
• Seal floor drains to prevent materials from entering the sanitary or storm sewers.
• Don’t wash off your parking lots and garage bays into grease traps, sumps or storm drains. Keep run-off to a minimum by using dry cleaners and absorbents to clean up any spills.
• Recycle cardboard and other bulk material that you are throwing away in your dumpster–empty dumpsters mean lower disposal costs.

Checklist: Pollution prevention and waste management

Regardless of whether waste is hazardous or non-hazardous, facilities still end up paying a great deal of money for its storage and disposal. Finding a way to reduce, or even eliminate, the waste translates into cost savings for the company.

The following checklist is courtesy of the New Hampshire Department of Environmental Services Pollution Prevention Program, Waste Management Division.

Pollution prevention policy and task force

• Does your company have a formal written pollution prevention policy?
• Have you established a pollution prevention team/task force?
• Have you considered the opportunity to reduce your regulatory requirements by incorporating pollution prevention practices at your facility?

Publicizing your waste reduction efforts

• Do you publicize your company’s efforts to reduce waste?
• Do your marketing strategies incorporate the positive image related to waste reduction?

Waste generation and management

• Are you aware of the potential harmful effects of the hazardous materials and wastes at your facility?
• Do you and your employees recognize the importance of proper management of hazardous materials and waste reduction?
• Have you conducted a facility assessment and developed a materials balance/flow diagram for your business?
• Do you maintain logs on these types and quantities of waste produced by your company so that you can target certain waste for waste reduction opportunities?
• Do you know the quantity of waste (liquid, solid, gaseous) produced by each process in your business?
• Have you re-evaluated parameters (pH, temperature, concentration, flow, etc.) for the optimal condition your process needs?

Cost of generating and managing wastes

• Do you calculate the costs of generating and managing wastes? Handling and storage, analysis and reporting, treatment and disposal (including transportation), insurance, training of workers, response planning, safety, potential liabilities (lawsuits, fines, cleanup costs, customer confidence)?
• Can you allocate the costs associated with waste generation to the various processes in your business (i.e. not “lumped” into overhead)?

Assessing the cleanliness of your facility

• Do you keep your shop clean and orderly to enable you to keep track of chemical handling and process operations?
• Are there noticeable spills, leaking containers or water dripping or running?
• Is there discoloration or corrosion on walls, work surfaces, ceiling and walls or pipes?
• Do you see smoke, dirt or fumes to indicate material losses?
• Do you notice any scrap or out-of-specification parts lying around?
• Are there open containers, stacked drums, shelving too small to properly handle inventory or other indicators of poor storage procedures?

Employee training and involvement

• Do you continuously train employees in good housekeeping procedures (spills, leaks, loss prevention, energy, water and material conservation)?
• Are there employee involvement or incentive programs in place to solicit suggestions on improving operations and reducing wastes?

Researching and using alternative products

• Are you investigating the potential for reformulating the products that require hazardous materials?
• Are you evaluating alternative methods of cleaning?
• Are you investigating the potential for reuse or recycling?
• Are all containers labeled as to their contents and hazards?

Monitoring and recordkeeping

• Do you monitor critical parameters and carefully maintain them?
• Do you keep records on the amount of raw materials used per process to monitor process efficiently?

To make sure we start out on the same page, I would like to point out that virtually every business operating today faces either a direct or indirect environmental exposure. Businesses with direct environmental exposures are quite obvious, i.e. chemical manufacturers, environmental remediation contractors, hazardous material transporters, etc….

Businesses with indirect environmental exposures are not quite so obvious, like a financial institution with a mortgage on a property where environmental contamination has just been discovered. Even though the financial institution had nothing to do with the contamination, they still hold the mortgage and are facing an indirect environmental exposure. Should the bank foreclose on the contaminated property if the owner can’t make payments? Are there monies to address the required cleanup? Government issued fines and penalties? Are third party bodily injury or property damage claims possible? Legal costs? Note: The worst environmental damage occurs slowly, seeping into the ground or water over time, and may go undetected for decades.

Environmental exposures can have a significant impact on a financial institutions ability to collateralize property. Today’s transparent business environment (SOX, FIN 47, SAB 92 Ruling…) requires financial institutions to change their strategy because just meeting lender liability due diligence is not enough. Financial institutions must fully understand “who they are doing business with” and the environmental issues impacting their operations.

Historically, financial institutions have depended upon a Phase I/Phase II environmental site assessment in order to meet their lender liability environmental due diligence while at the same time determining a property’s collateral value. Note: Research conducted by Environmental Risk Managers, Inc., shows that roughly 50% of Phase I reports are inaccurate. To address this issue the government has updated environmental due diligence now called All Appropriate Inquiry or AAI

We know that All Appropriate Inquiry (AAI) is only a snap shot of the properties condition at the time an environmental professional conducted the inquiry. During the life of a loan, AAI does not address daily operating exposures, changes in business processes, operations or materials used, neighboring properties causing an indirect environmental loss….

To address the potential indirect environmental liabilities faced by financial institutions, there is a risk transfer product offered by the environmental insurance industry called Secured Creditor Coverage (SCC). SCC was designed expressly for financial institutions that hold or invest in loans backed by commercial property to fill gaps created by traditional environmental due diligence and much more.

SCC provides collateral value protection in the event of a loan default and a newly discovered pollution event at the covered location. When this occurs, SCC can pay out one of two ways. First, the insured receives the outstanding loan balance and extra expenses. Secondly, the insured receives the lesser of the outstanding loan balance and extra expenses or the estimated cleanup costs. In either case foreclosure is not required prior to making a claim.

SCC allows a financial institution to be more competitive on loans they would once be forced to pass-up due to environmental uncertainties plus:

1. Increase loan portfolio value.
2. Offers first party cleanup costs for claims made after the lender has foreclosed on a covered location.
3. Covers third party bodily injury and property damage claims, including defense costs, caused by a pollution event during the policy period.
4. Shields assets by protecting collateral and insuring environmental liability arising from collateral properties.
5. Accelerates the loan process. Note: For financial institutions with in-house environmental departments, SCC provides valuable tools to assist in expediting and securing loans. For financial institutions that outsource their environmental services, Secured Creditor Coverage can assist by expanding your environmental services and reduce costly outsourcing.
6. Reduces costs by minimizing or eliminating traditional environmental due diligence processes.
7. Allows financial institutions to better manage cash flow in the event of a claim.
8. Coverage is offered on a single transaction or master portfolio basis.
9. Multi year policies, up to the term to maturity of the insured loan.

10. Assignment of interest, freely assigned to successor lien holder.

11. Wavier of subrogation against borrower in possession. Note: Pursuing borrowers for recovery of losses when they default on a loan can jeopardize the status of additional loans held with the financial institution, often making a bad situation worse.

12. Has the ability to enhance a pool’s credit rating. Rating agencies have recognized that environmental insurance can add credit support to commercial mortgage pools.

13. Expert claims handling service.

14. Allows the Insured to select their own legal representation.

15. Increases financial institutions stock value.

Any financial institution that feels they do not have an environmental exposure as a secured creditor, I would like to point out that AIG, the largest insurance company in the country, once offered SCC. However, AIG had so many claims and paid out so much money that AIG is no longer offering SCC.

(Note: This document is designed to educate financial institutions on Secured Creditor Coverage and how it assists in proactively addressing potential environmental liabilities. For specific contract language you should always refer to the actual insurance policy and/or endorsements)

environmental Strategist Risk Tip For Financial Institutions

As the above competitive environmental intelligence illustrates, in a transparent business environment you have to find out: “Who You Are Doing Business With?”

For example: Vendor Exposure; For an environmental engineer to do environmental work for a bank the environmental engineering firm has to be pre-approved.

One approval process has involved getting a certificate of insurance as evidence the engineers have professional E&O insurance should they make an error or omission in performing environmental due diligence. Some financial institutions on the advice of their legal counsel have gone a step further and they will have their attorney’s review the actual professional liability insurance policies to assure appropriate coverage within the policy exists.

The financial institutions intent in going through this pre-approval process has been to make sure there is appropriate financial support backing the environmental engineer should they create a financial liability while performing their professional services.

The flaw with both of these approaches? The financial institution has done step two and three and forgot to do step one, review the warranty insurance application filled out by the environmental engineering firm to get their insurance. An environmental insurance policy will only be issued after the insurance carrier receives a signed warranty application.

A warranty insurance application states the insured has correctly filled out the application and if at the time of a loss it is determined the application is not filled out correctly the insurance carrier can deny coverage. Financial institutions first and foremost, have to make sure the insurance application is correctly filled out, because if it’s not, the certificate of insurance and/or the insurance policy may not be worth the paper they are written on.