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In the state of Indiana, insurance carriers face well-known legal hurdles when dealing with environmental claims. When facing a claim for environmental coverage in Indiana the following actions can help an insurer manage the situation:
• Perform a quick and thorough fact investigation.
• Carefully review costs incurred by insured’s
environmental consultant.
• Maintain active oversight of ongoing
environmental activities.
• “Take over” the remediation project if
the insured’s consultant is “over his head.”
Fact Investigation
If a person makes a claim under an auto or homeowner policy, the insurance carrier will usually have an adjuster investigate the facts surrounding the claim and evaluate the damage in person. This is an important, but often overlooked, activity when handling an environmental insurance claim. There are often pertinent facts that a file review and site visit will uncover which can impact the determination of coverage. These include:
• Estimating when the release started through interviews with on-site personnel
• Identifying the cause of the release (UST, spills, etc.)
• Identifying other potentially responsible parties for potential subrogation opportunities
For Indiana sites, one of the first steps Roux Associates, Inc. takes is to visit the Indiana Department of Environmental Management (IDEM) Virtual File Cabinet (VFC). This site provides access to many of the important documents related to contaminated sites, including technical reports and correspondence. The second step is to visit the actual site. Roux has found that on-site visits provide insight to conditions which are not readily discernible from a review of documents. Issues such as elevation changes (which might impact groundwater or surface water flow), details of surrounding land use, and observation of on-site waste-handling activities can assist in analyzing a claim.
Careful Review of Costs Incurred by the Insured’s Environmental Consultant
Based on Roux’s experience in Indiana there are many small environmental consulting companies that work hand-in-hand with coverage counsel. These consultants are knowledgeable of the nuances of the insurance law and often tailor their work to enhance coverage. We have seen many Indiana cases where the insured’s consulting firm completes multiple rounds of unnecessary investigations in an attempt to maximize defense coverage. In addition, the insured’s consultant rarely segregates defense costs from indemnity costs. If they do try to identify defense costs, their analysis often includes “mistakes” that identify indemnity costs as defense costs. The insured’s consultant has no motivation to separate the costs accurately. If differentiating defense costs is important, then an invoice review is imperative.
It is also prudent to review consultant invoices for billing irregularities, such as excessive markups on subcontractors. The industry standard is to include a 10 to 15 percent markup on subcontractor costs, however, in Indiana, inflated markups of costs of up to 35 percent or higher have been observed. Other items to be aware of when reviewing invoices include: compliance-related costs, costs of ongoing operations, and costs that are unrelated to the issue at dispute.
Active Oversight of Ongoing Activities
While it is always important to keep an eye on the insured’s consultant, Roux has found that this is particularly important in Indiana. As mentioned previously, there are many smaller environmental companies in Indiana are not technically able to “cross the finish line” and complete site closures for complicated sites. These firms often complete multiple rounds of investigation and even submit a Remedial Work Plan (RWP) without accomplishing a full delineation of the contamination. There are cases where the consultant’s activities are so inadequate and delay the project so much, that IDEM removes the site from the Voluntary Cleanup Program (VCP) and puts it into a more expensive State Cleanup Program. This can easily be avoided with prudent and active oversight by the insurance carrier.
Roux has also found that obtaining budgets and work plans from the insured’s consultant before work begins allows for better management of site activities. This simple step can provide a good check on cost overruns and progress towards closure.
Taking Over the Remediation Project
Roux has experience with several sites in Indiana where the carriers have decided to “remove” the insured’s environmental consultant and proceed directly with a consultant of their choice. We have found that taking over a project is most often necessitated when the insured is unsophisticated and has retained a small local consultant. As mentioned previously, these consultants can often get in over their heads and face technical issues that they are unqualified to address.
Case Study – PCE Distribution Facility
Roux was retained on a case in Indiana that involved an environmental claim from a small chemical distribution site that specialized in PCE and TCE. In this instance, Roux was hired to review the previous consultant’s “cost-to-closure” and provide our opinions to a group of four insurance carriers. It was our opinion that the consultant’s estimate of $7.5 million was excessive. We informed the carrier group that we could complete the closure for much less. Roux was retained and the site remediation and was completed with closure expected in the near future at cost of $2.5 million, significant savings for the carrier group.
Case Study – Dry Cleaner
Recently Roux was retained by an insured (dry cleaner) at the request of the carrier to take over a cleanup which had stalled. In this case, the insured’s consultant had completed several rounds of investigation, incurred over $100,000 in costs and missed a source of contamination on-site. Roux was required to complete additional investigations, and we are confident that the site will be closed in a more cost-efficient manner.
Conclusion
In conclusion, it is always important to conduct a thorough investigation and to monitor environmental clean-up activities and costs. However, it is even more important in a state like Indiana, where the insurance law heavily favors the insured. As presented in this article it has been Roux’s experience that the attorneys and contractors utilized by the insureds in Indiana are adept at maximizing insurance coverage and therefore extra oversight is warranted.
Useful Links for Review:
One Beacon vs. American Motorists: Insurance Coverage Litigation
Environmental Law Developments: Hope and Ambiguity In Achieving The Optimum Environment
Insurers Uphill Fight On Coverage In Indiana
Indiana Supreme Court Requires Insurers to Pay for Environmental Cleanup
Litigation/environmental alert - Indiana Supreme Court affirms ambiguity, unenforceability of pollution exclusion in CGL policies
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