Municipalities and Public Entities

What is a Pollutant? 

Any material, substance, liquid, product, etc… which is introduced into an environment for other than its intended use / purpose. Fresh water, cheese, and milk have all been classified as pollutants by Insurance Carriers under various circumstances. What pollutants are impacting your business?

Environmental Exposures Impacting Municipalities and Public Entities 

Some common environmental exposures faced by public entities/municipalities include:  Wastewater treatment plants/pumping stations exposures from nuisance odor claims, raw sewage rupture, chlorine gas emissions;  Storm water runoff;  Sick building syndrome;  Asbestos;  Lead;  Mold;  Historic site conditions (i.e. old in ground tanks, surface impoundments, lagoons, clarifiers, unknown/old landfills);  Sewer lines;  Maintenance garage services;  Aboveground and/or underground storage tanks;  Leaks from elevator hydraulic fluid storage tanks;    Inadequate or no secondary containment for above ground storage tanks;  Parts washer solvents;  Storage and use of pesticides and herbicides;  Petroleum waste products;  Vehicle and equipment storage/parking over unsealed surfaces;  Parks, lakes, rivers and open land (i.e. midnight dumping, discharge of raw sewage/industrial waste, asphalt paving projects with storm discharge to open waters, unknown surface conditions);  Transfer and recycling facilities;  Hosting household hazardous material collection days or other environmentally sensitive materials/chemicals;  Landfills;  Inadequate methane collection or venting;  Leachate;  Natural resource damages;  Uncontrolled storm water;  Incinerators (i.e. airborne particulates, heavy metals (airborne and in residual ash), airborne volatile organic compounds);  Spills/releases during loading/unloading process;  Waste handling and disposal operations;  No auditing of waste handling and disposal companies;  Abandoned industrial sites within the municipality;  Contamination from cemeteries;  Poor community relations;  Poor information on the possible adverse reactions and interactions of chemical compounds that accidentally commingle during a fire;  Brownfields….

Note:  The above list is intended only to outline some typical pollution exposures common to public entities, it is not all-encompassing.  If a public entity has schools, airports, hospitals, golf courses or other operations not outlined above contact environmental Strategist, Inc. (Phone 231-256-2122) for a list of common environmental exposures.

Environmental Loss Examples 

1. 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. A total of 12 businesses were forced to shut down for the better part of a day. Bodily injury claims amounted to $70,000 and business interruption claims totaled $120,000.
2. A wastewater treatment plant that was 25 years old had been upgraded several times over the years. Improper closure of an old clarifier and on-site surface impoundment had allowed gradual seepage into groundwater. These constituents contaminated the underlying groundwater, which was a potable water supply for the neighboring community. The costs for groundwater cleanup and emergency water supply for residents totaled $550,000.
3. A local park owned by a municipality served as a convenient illegal disposal site for a recycling contractor. The contractor dumped five 55-gallon drums, releasing 275 gallons of used mineral spirits into the municipal park. When the drums were dumped, the hazardous contents leaked into the soil. In addition, the contractor emptied the contents of the vacuum truck into a nearby community lake. Total cleanup expenses amounted to $475,000.
4. A maintenance garage used solvents for parts washing performed the work over a drain leading to an on-site septic system. Over time, the septic system leach field migrated into the surrounding soils and groundwater. At the time of the septic system closure and conversion to a public sewer system, the contamination was discovered. Site remediation involved soil removal and installation of a groundwater recovery system. The costs exceeded $720,000.
5. A municipal property was selected as the site for a new library. Construction was halted after the discovery of an unknown landfill location at the site. As a result of haphazard disposal techniques, there had been a wide array of materials disposed at this site. An investigation revealed that the landfill occupied about three acres and the refuse was approximately 20 feet deep. The cost to exhume all buried materials and sort them for proper disposal exceeded $1 million. Additionally, further investigation turned up soil contaminated with pesticides, total petroleum hydrocarbons and various volatile organic compounds. Soil investigations, cleanup and disposal amounted to approximately $500,000, bringing total costs to $1.5 million.
6. At a newly built wastewater treatment plant pumping station, a faulty valve malfunctioned. As a result, a ruptured pipe released 2.8 million gallons of raw sewage into a local creek. Municipal workers acted quickly to stop the pipe rupture. Raw sewage traveled downstream to a larger river. The river was used by local fisherman, recreational boaters and marinas. Many boats were damaged by the sewage and marinas were forced to close temporarily while the riverbanks were cleaned up. The total cost of property damage and loss of income claims totaled $195,000.
7. William Lee Slocum Jr., of Youngsville, Pa. has pleaded guilty in Pittsburgh U.S. District court to six counts of negligently violating the Clean Water Act when he operated the Youngsville Sewage Treatment Plant between 1983 and 1995.  The Justice Department said during that period there were repeated discharges of raw sewage and sewage sludge from the plant into Brokenstraw Creek, a tributary of the Allegheny River.  Slocum, a Pennsylvania State senator, could be sentenced to one year in prison and/or a fine of $100,000 per violation.
8. The facilities department for a municipality hired a licensed hazardous waste transporter to pick-up and deliver three barrels of spent solvents, used for cleaning their boiler, to a treatment plant. While loading on municipal grounds, one barrel fell and spilled its con-tents, which seeped into the ground. Shortly after, twenty neighbors notified the state health department that their well water smelled odd. Health officials determined that chemicals from the accident had seeped into their wells. The municipality paid $1.2 million in damages and clean-up costs.
9. A municipality hired a fiber optics company to install a network of data and voice cables. The job included directional drilling under a number of roads. While drilling, the contractor hit a fuel line and did not report it. After about 2 years, neighbors smelled gas in their well water. During investigation, the damaged fuel line was discovered and determined as the source of contamination. Since the fiber optics company was no longer in business, the municipality was held liable for damages and clean-up costs in excess of $2.7 million.
10. A water treatment plant supplied potable water to 10,000 residents. A malfunction at the plant allowed an improperly treated volume of water to be distributed to the residents. As a result, a large number of residents became ill and several were hospitalized. The residents filed a class action suit against the water treatment company for bodily injury as well as pain and suffering.  The General Liability policy denied the claim citing the total pollution exclusion on the policy. A court awarded the residents $750,000 in damages. In addition, the water treatment plant incurred $300,000 in legal defense expenses.
11. At a transfer station, vandals littered an area with debris and overturned drums of chemicals and maintenance fluids stored at the site. The vandalism went undetected for more than a week.  The contents of the drums seeped into on-site and off-site soils and contaminated area groundwater and residential wells. Costs for property damage claims from nearby residents and for soil and groundwater cleanup exceeded $500,000.
12. A wastewater treatment plant maintained its own sewer lines. Due to the age of the lines, several cracks had developed over the years. These cracks had continuously leaked liquid raw sewage over many years and eventually polluted a nearby stream. Residents in the area sued the treatment plant for the cost to remediate the stream as well as loss of enjoyment of the stream.  Claims exceeded $350,000.
13. A process tank at a wastewater treatment plant malfunctioned.  The tank discharged a large volume of untreated wastewater into a nearby stream, causing damage to aquatic life.  Several residents and environmental groups filed property damage lawsuits.

Environmental Risk Transfer Strategies

The majority of public entities 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.

The Three Main Benefits environmental liability insurance offers:  

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, .
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 Coverages

ENVIRONMENTAL IMPAIRMENT LIABILITY (EIL)

EIL is for public entities 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 cleanup 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, selling or condemning property there can be unknown preexisting environmental conditions. Since a Phase I or Phase II 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.

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 (typicallyFormCA9948) affords coverage during the loading, unloading and transportation, for a spill, release or sudden upset and over turn of transported cargo.  Note:  AnMCS-90 endorsement is not pollution coverage.

UNDERGROUND AND ABOVE GROUND STORAGE TANKS (UST, AST)

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.

Note:  For public entities, you have potential indirect environmental exposures from the vendors you hire to perform services.  Should your vendors cause an environmental problem or exacerbate an existing environmental issue their general liability insurance policy generally will have either an absolute or total pollution exclusion.  In order to be protected you should make sure your vendors have the proper environment insurance coverage before they do any work on your behalf.

CONTRACTORS POLLUTION LIABILITY (CPL)

This coverage can be purchased to meet two specific exposures. First, contractors that perform remedial activities (asbestos, lead, mold, soil or ground water remediation) there is the standard contractor’s pollution liability (CPL) insurance coverage. This protects the insured for pollution conditions they may cause or exacerbate an existing situation while performing remedial services. This is for covered operations performed by or on behalf of the insured.  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 an educational institution.

Secondly, standard contractors (i.e. general contractors, HVAC, plumbing, electrical, mechanical, janitorial, demolition, drilling, excavation, highway, street and paving contractors, rigging, utility, millwrights, artisan, etc.), in performing their services may cause an environmental liability that is generally excluded from their general liability coverage. For these contractors there is contingent contractor’s pollution liability (CCPL) coverage. Basically they are afforded the same coverage as remedial contractors but the cost to purchase this insurance is substantially less.

PROFESSIONAL LIABILITY (E&O) 

Should an environmental engineer/consultant or analytical laboratory make an error or an omission in performing professional services for you they will need a E&O policy including pollution for there to be coverage.  Some professional services could include Phase I or Phase II site assessments, All Appropriate Inquiry (AAI), air monitoring, lead and asbestos assessments, waste characterization, remedial action plans, water testing, mold survey’s, environmental training….