Tag: plastics

What is a Pollutant? 

Any material, substance, liquid, product, etc… which is introduced into an environment for other than its intended use / purpose. In other words, something that ends up where it doesn’t belong. Fresh water, cheese, and milk have all been classified as pollutants by Insurance Carriers under various circumstances. 

Most commercial insureds assume that claims arising from their operations are covered by the general liability policy. However, claims resulting from a “pollution incident” are excluded from most general liability policies, which leaves commercial insureds with gaps in coverage. What pollutants are impacting your business?

Environmental Exposures Impacting Plastics Manufacturers

May include, but are not limited to:  Air emissions; Vapor Intrusion;  Above and underground storage tanks;   Insufficient secondary containment for above ground storage tanks; Waste storage/handling practices;  Water and waste water treatment operations;  On site storage of raw materials;  Lubricant oils; Products cleaning and chemical treatments;   Unsealed truck ramps;  Uncertainties about the historical use and conditions of property and neighbors;  Paint sludge;  Inadequate or no auditing of hazardous and non-hazardous waste handlers, transporter and disposal companies;  Improperly maintained paint booth filters;  Nuisance odors;  Adverse reactions and interactions of chemical compounds that accidentally commingle during a fire;  No emergency response training for employees;  Halon releases from fire suppression equipment;  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 property;  Corroded wastewater and storm water sewers;  Natural resource damages;  Asbestos or lead containing materials; Silica; mold;  Storm water runoff….  

Plastics Industry Environmental Bio

• There are upwards of 2,000 different contaminants associated with the plastics industry. Examples of some of these contaminants are; antioxidants, asbestos, fillers and reinforces, formaldehyde, heat stabilizers, lubricants, peroxides, preservatives, ammonia, crude oil, flammable retardants, solvents, styrene. 
• According to the EPA, five of the top six chemicals that are regulated as hazardous waste are commonly produced during the manufacture of plastic packaging.  
• The production of polymers includes highly reactive and explosive processes and catalysts are sometimes used to produce certain characteristics in the plastic.
• Polymer manufacturers provide the materials that are shaped into products that we have come to depend on, i.e. plastic bags, plastic packaging, water bottles, CD disks, toys, automobile parts, furniture, epoxy, silicone and much more. Polymer manufacturing is reliant upon the petroleum industry. Since polymer manufacturers rely on a tremendous diversity of petroleum-based products, chemical and complex manufacturing processes they have numerous environmental exposures.
• Due to the variety of hazardous chemicals used in plastic manufacturing, at both the oil refinery and plastics manufacturing stages, tight controls must be in place to ensure chemical loss is also properly mitigated.
• Many plastics are non-degradable.  
• Production of plastics involves the use of water for cooling and processing plastics.  The wastewater generated must be treated prior to discharge; this discharge must be permitted and meet state and local regulatory compliance. 

Environmental Claim Scenarios

1. A plastic manufacturer began expansion of their 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. 
2. A plastic manufacturer received their plastic pellets via a side track agreement.  The manufacturers unloading process allowed for the plastic pellets to find their way into the local sewer system.  Over time, the accumulation of plastic pellets clogged the sewer system and caused for sewer backups.  Property damage claims exceeded $700,000.
3. Over the weekend, a fire ignited at a plastic manufacturing facility. Firefighters responded to the 911 call. Water used by the fire department to extinguish the flames became contaminated by a slurry like mixture from the melting materials inside the building. the high pressure hoses forced the contaminated mixture to flow off the property onto a neighboring property, which included a local stream. Emergency remediation contractors began investigating the next morning, and found that the pollutants had entered the stream and had flowed downriver into a lake. Because the fire department is immune from pollution claims while in the course of duty, the plastics manufacture was held liable for the cleanup. The insured’s fire insurance excluded pollution losses, so the insured was left to cover the loss, which included natural resource damages (including loss of aquatic life), investigation, remediation, and 3rd party business interruption claims as some local business were forced to shut down during the cleanup. Total cost of the loss exceeded $6M. 
4. 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.
5. 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. 
6. A plastic manufacturer had several paint booths located on their premises. Over time, poor maintenance on the paint booths allowed for fumes to be released into the local community. Vapor intrusion claims for third party bodily injury and property damage from exposure to the paint fumes exceeded $450,000.
7. The janitorial department for a plastics manufacturer inadvertently mixed environmentally friendly cleaners. The result was a toxic cloud that caused respiratory problems with employees and third parties who were in the building at the time. Defense cost exceeded $90,000 and third party bodily injury claims were in excess of $250,000.  
8. A plastics manufacturer was sued when one of their customers experienced a pollution event, which they claimed was caused by faulty product from the manufacturer. After further investigation and litigation, it was determined that the faulty product was indeed the cause of the loss, leaving the manufacturer liable. Claims for cleanup, 3rd party property damage, and 3rd party business interruption exceeded $1.2M. 
9. A plastic 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.  Forty plaintiffs filed three lawsuits to recover damages for injuries suffered from exposure to the air emissions, damages topped $3 million. 
10. A plastics manufacturer had a waste hauler transporting its used 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 plastics manufacturer was $700,000. 

Benefits of Environmental Liability Insurance

Unlike most liability exposures impacting plastics manufacturers, pollution losses are not a frequency risk, but rather a severity risk. Since every plastics 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.

Furthermore, most commercial insureds only consider the remediation costs associated with a pollution event. However, often times the clean-up costs are far less than other costs that can arise from the loss.

Three Overlooked benefits of environmental liability insurance:

1. 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.  
2. 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….?
3. 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 for the Plastics Manufacturers

Environmental Impairment Liability (EIL) 

EIL is for plastic 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. Most EIL policies cover above ground storage tanks and underground tanks can be endorsed on.

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:  For plastic 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 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. 

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 the product 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.  

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.