Plastic Recyclers

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 Plastic Recyclers

May include, but are not limited to:  Air emissions;  PFAS Chemicals;  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;  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;  Utilities that cross property;  Corroded wastewater and storm water sewers;  Natural resource damages;  Asbestos or lead containing materials;  Silica; Mold;  Storm water runoff;  Devaluation of property due to known / perceived pollution conditions; and more…  

• 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 manufacturing and recycling of plastic packaging.  
• Due to the variety of hazardous chemicals found in plastics, tight controls must be in place to ensure environmental conditions are properly mitigated. 

Environmental Claim Scenarios

1. A fire ignited at a plastic recycling facility. Water used by the fire department to extinguish the flames became contaminated by a toxic slurry like mixture from the melting materials inside the building. The high pressure hoses forced the contaminants to flow off the property, which included a local stream. Emergency remediation contractors began investigating 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 claim, which included natural resource damages (including loss of aquatic life), investigation, remediation, 3rd party bodily injury from toxic fumes, and 3rd party business interruption claims as local business being forced to shut down during the cleanup. Total cost of the loss exceeded $6M.
2. While moving a large metal coil, a forklift operator hit an aboveground storage tank, allowing the contents to flow out of the containment. Total cost of investigation and remediation cost the recycler over $150,000. 
3. 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. 
4. A plastic recycler operated an extrusion machine. A portion of the machine was located beneath the floor. For more than 20 years, lubricating oil from the machines moving parts was released into the surrounding soils. When a nearby homeowner’s down gradient well used for potable water was tested, it contained total petroleum hydrocarbons. After further investigation, it was found the manufacturer’s property was the source of the pollutant. Total cost of remediation and 3rd party bodily injury claims exceeded $5,000,000.
5. A plastics recycler hired a waste hauler transport its waste 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 recycler 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 recycler was over $100,000. 
6. A plastic recycling plant was sued by a neighbor who alleged that dies stored at the facility had 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 recycler 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 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.  Additional defense costs for the plastic recycler was an additional $250,000.
7. A plastic recycler shipped their plastic pellets to 3rd party locations over an unsealed truck ramp.  The recycler’s 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 and cleanup claims exceeded $700,000.

Benefits of Environmental Liability Insurance

Unlike most liability exposures impacting Plastic Recyclers, pollution losses are not a frequency risk, but rather a severity risk. Since every Plastic Recycler 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. 

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 often arise from the loss.

Three Overlooked benefits of environmental liability insurance:

1. Defense Costs:  Environmental liabilities are relatively new & very litigious.  Even if you do nothing wrong you can still get named in a suit & 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 Products for the Plastic Recyclers

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 Premise Pollution Liability (PPL), 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 multiyear terms, and multiple properties can be packaged on a single policy. 

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. 

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?  

Products Pollution Liability 

Products Pollution Liability is for recyclers 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. 

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.