Auto Salvage Yards

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 Auto Salvage Yards  

Automobile parts cover a variety of segments, each facing their own unique environmental exposures, including metals, ceramics, plastics, rubber, textiles, batteries, electronics, oils, lubricants, etc.  Many of these segments utilize hazardous materials that produce hazardous wastes, & must be handled properly throughout the salvaging process.                                                                                                          
Environmental exposures may include, but are not limited to: Soil and/or ground water contamination from mercury, lead, cadmium, asbestos, oil, anti-freeze, hydraulic fluids, gas or diesel fuel, PCB’s, solvents etc.; Devaluation of property value due to a buyer’s concern of known or perceived pollution conditions;  Pollution conditions as a result of a fire;  3rd parties illegally placing waste on your property (midnight dumping);  Storm water runoff; Releases from above ground or underground storage tanks; Inadequate secondary containment for above ground storage tanks;  Air emissions; Non-owned offsite disposal sites;  History of on-site spills; Transportation of potentially hazardous materials/wastes;  Inadequate auditing of hazardous and non-hazardous waste handling and disposal contractors;  Loading and unloading from trucks over unsealed ground;  Older equipment;  Legal defense for 3rd party nuisance claims;  and more… 

Environmental Claim Scenarios 

1. After a river experienced a sudden, major fish kill that left 61 tons of fish dead, EPA officials traced the source of contamination to a nearby scrap yard that stored hazardous waste in 55 gallon drums.  During a heavy rain, the ground washed away under the barrels releasing the contents. The scrap yard was found liable for clean-up, third-party damages, and natural resource damages. Total cost of the claim exceeded $10,000,000. 
2. A scrap yard had been in operation since 1947. Over the years, numerous owners used underground storage tanks to store petroleum products. Local residents began to complain about the quality of their water. Testing revealed petroleum contaminants in the groundwater and identified the scrap yard as the source of the pollution.  Further investigation revealed that underground storage tanks had succumbed to corrosion and cracking.  The contaminated groundwater entered breaks in nearby water distribution lines, polluting the drinking water supply.  The scrap yard paid out over $5,000,000 in clean-up costs, and 3rd party bodily injury claims. 
3. An auto salvage yard hired a waste hauler to transport their waste 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, commercial insureds 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 for the salvage company was $700,000. 
4. At a 26-acre site used as an auto salvage yard the EPA discovered over 600 rusting buried drums of chemicals.  The barrels were illegally disposed on the property by the previous owner who had since passed away.  Nearby resident’s field suit for perceived bodily injury from drinking the contaminated ground water.  The auto salvage yard faced a multi-million lawsuit, alleging liability for bodily injury, property damage, and cleanup.
5. An Auto Salvage facility caught on fire. The fire department’s high-pressure hoses forced melting plastics, metals, insulation, roofing, drywall, chemicals, and other materials to build up inside the building’s foundation, creating a toxic “sludge”. Some of the “sludge” escaped the building and migrated onto to neighboring properties. The property owner was responsible for clean-up, 3rd party property damage & business interruption, and natural resource damages, which totaled over $3,500,000.  NOTE: fire departments are immune to pollution claims arising from their work while putting out fires.
6. An auto scrap yard was sued when pollutants were discovered in the soil at a neighboring property. After further investigation, it was determined that the pollutants were due to industrial operations that took place on the property by a previous owner. Under federal law, real estate owners are responsible for the environmental condition of their property, regardless of who caused the pollution or when it occurred. Total cost of the remediation for the scrap yard exceeded $2,500,000. 
7. A scrap yard routinely filled & stored barrels of waste such as fuel, oil, anti-freeze, paint thinners, metal cutting oil, and solvents….  While loading about 1,000 pounds of potentially hazardous waste onto a truck, five barrels slipped off the fork lift releasing the contents.  Fortunately for the scrap yard they had an emergency response plan in place, and their emergency response team contained the contaminants.  Cost of clean-up $70,000.
8. When arriving at work one morning, an employee at an auto salvage company discovered that several totes of unidentified waste had been illegally placed on the property my unknown 3rd party during the night. The totes were not leaking, but had to be properly disposed of at the salvage yard’s expense, at a cost of over $50,000. 
9. An auto salvage yard was sued when contamination was discovered in the drinking water at a new residential development. That the auto salvage yard was not the source of the contamination, and they were released from the lawsuit. However, they had already expensed over $100,000 in legal defense costs fighting the suit.  

Overlooked Benefits of Environmental Liability Insurance

Unlike most liability exposures impacting Auto Salvage Yards, pollution losses are not a frequency risk, but rather a severity risk. Because all Auto Salvage Yards have notable environmental exposures, 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 the clean-up costs are far less than other costs that can arise from the loss. 

Overlooked Benefits of Environmental Liability Insurance:  

• 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 must expense defense costs (legal fees, environmental investigations, etc.)  

•  Claim Management:  All policies come with specialists to assist you in handling a claim.  Who oversees communications, public relations, emergency response, government compliance, financial management, third party claims for bodily injury, property damage, natural resource damages….?

• Third Party Liability:  Most 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

Premise Pollution Liability (PPL)

PPL is for automotive salvage yards susceptible to economic loss caused by pollution that actually or allegedly originated from their operations. 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. PPL can be offered on multiyear terms.  Most PPL policies cover above ground storage tanks.

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.  

Underground Storage Tanks

Financial responsibility requirements ensure that owners and operators of underground storage tank systems can 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.  

Pollution Prevention Strategies for Automotive Salvage yards

• 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/pumps to dispense & collect fluids such as antifreeze, solvents, & 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. 
• Use solvent distillation service for solvent-based cleaners, which 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 hazardous materials. 
• 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. 
• Immediately clean up spills with rags or dry absorbent. 
• Store solvents and used shop towels in metal cabinets and keep away from heat sources.
• Use a rag service for shop towels to reduce oily dumpster waste and a “throw it away” attitude.  
• 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.