As the recent release of chemicals into the Elk River in Charleston, WV, the Duke Energy Coal Ash Release in NC and the Lac-Mégantic, Quebec Crude-Oil Train Explosion remind us, the frequency and cost of environmental disasters continues to increase. Most of these incidents are covered by some form of commercial insurance, either a policy written specifically for pollution incidents (such as a Pollution Legal Liability) or endorsements to a Commercial General Liability policy. These high-cost incidents demonstrate the need for quick-response fact investigation and real-time cost evaluation as the claims are presented to the carriers.
Representative Incident Summary
Examples of two such incidents that were at least partially covered by insurance are the 2008 TVA Coal Ash Release in Kingston, TN and the 2010 Enbridge Pipeline Rupture in Marshall, MI. According to media reports, TVA has recovered nearly $250 million of its $1 billion coal-ash claim to date, and continues to litigate with its excess insurers for hundreds of millions more. Enbridge has collected insurance payments of more than $500 million related to its oil spill in Michigan and still has several hundred million dollars in outstanding claims. Roux Associates, Inc. (Roux) has assisted various insurers on both these claims and identified tens of millions in claimed costs that insurers determined was outside the policy terms.
These very large environmental claims often involve more than one insured. For example, although BP is self-insured, many of BP’s contractors involved in the BP Horizon well blow-out were successful in recovering very large costs from their insurance carriers. In the Lac-Mégantic Crude-Oil Train Explosion, the Montreal, Maine and Atlantic Railway (MMA) had inadequate coverage ($25 million), therefore the province of Quebec is now seeking contribution from other parties, such as the owners of the tracks, owners of the oil, and their respective insurance carriers. Similarly, in the 2014 West Virginia Freedom Chemicals incident, the local water supplier is also being sued for allegedly not shutting off water services in a timely manner.
Fact Investigation
As with all claims, it is important that insurance carriers potentially at risk for a given incident conduct a timely incident investigation. Due to the large-scale financial implication of these incidents, it is also important that excess carriers promptly conduct their own investigation, particularly if their policies have different terms than the underlying carriers.
An on-site presence during emergency response to an environmental release is crucial because key pieces of evidence can be lost during the emergency response. For large losses from oil rigs, pipelines, and transportation systems in the U.S., federal agencies such as the National Transportation Safety Board (NTSB) or the Coast Guard may be in charge of conducting a failure analysis investigation. However, their investigation may not be focused on the questions an insurer may need answers to and your presence onsite can make a difference.
Roux staff have been on the scene representing insurance carriers during emergency operations at several of these billion-dollar environmental disasters, including the TVA Coal Ash Release, the Enbridge Pipeline break, and Hurricane Sandy. We have been instrumental in assisting insurers investigate and understand the causes and implications of these chemical releases.
Careful Review of Costs Incurred by the Insured's Environmental Consultant
As with any insurance claim, a careful review of the insured’s claimed costs is essential. It is Roux’s experience that even with small spills, costs that fall outside the provisions of the policy are often submitted for reimbursement. Examples of claimed costs that sometimes fall outside policy terms include:
- First party damages, such as repair of the insured's owned pipeline.
- Costs of failure analysis and other claims adjusting expenses.
- Remediation of insured’s owned property.
- Costs unrelated to the release.
- Costs for company personnel involved in the release.
- Undocumented costs.
We have also found it 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, to cover the prime-contractor’s costs of insurance, contracting, and interest. However, during emergency response activities, Roux has observed inflated service charges of 50 percent or higher.
We have found that almost every claim review will identify at least a small percentage of costs that may not be reimbursable. Even a small percent of inappropriately claimed costs on large losses results in a savings of millions to our insurer clients.
Conclusion
On multi-million dollar claims, it can make a huge difference if insurer’s conduct a quick-response investigation and monitor environmental clean-up costs in real-time. It is even more important to do so during a large environmental disaster, when hundreds of millions of dollars are to be spent. Roux has first-hand experience monitoring these types of environmental disasters.
Roux provides “Boots-on-the-Ground” for quick-response fact collection and real-time cost evaluation services for insurance carriers. We can typically have staff on-site in less than 24 hours, and often within just five hours. Should you have additional or incident specific questions please contact us at: 631.232.2600 and ask for Dan Sullivan or Scott Glash.
