Green But Not Clean
The recycling industry is poised to continue growing as humans put greater stress on the planet, and technology allows more efficient extraction of useful materials from spent products.
Although recycling may be green, the process is not clean, and it carries many of the same risks as other heavy industries, plus some additional pollution exposures.
Even as environmental laws and regulations grow more restrictive, many recyclers still underinsure their operations for pollution.
Typically, the recycling industry’s claims look like the claims affecting any heavy industry’s. The risks to recyclers of a product are similar to the manufacturer of that product, experts said.
“When a pollution claim hits, it hits big,” said Daniel Curran, director of underwriting for several of Willis’ environmental programs, including RecycleGuard.
Many recycling companies underestimate their environmental liability exposure and take a pass on the insurance.
Even so, the market for pollution insurance is a “sizable” $1 billion — a rough estimate, since hard numbers don’t exist, said Mary Ann Susavidge, environmental chief underwriting officer at XL Insurance.
The law requires more regulated companies, such as landfills and hazardous waste recyclers, to buy environmental insurance, while others, including “R2 certified” electronic recyclers, are contractually obliged to buy it.
There are also larger companies that see environmental insurance as true asset protection even if they are not required to purchase it.
Then, there are some less regulated companies, including paper and scrap recyclers, that tend to have operations of $5 million or less. Those companies often regard pollution coverage as a discretionary expense, experts said.
“Fifty percent of the accounts I look at gamble on their general liability covering an environmental spill, fire or contamination and they don’t protect their assets,” said Matt Gartner, assistant vice president of underwriting at XL Insurance.
“They don’t expect an incident, but bad things happen to good people,” he said.
Stacy Brown, president and managing partner of Freberg Environmental Insurance, recalled a small business with a large above-ground storage tank that dislodged during one of the increasingly frequent major floods on the East Coast.
“Fifty percent of the accounts I look at gamble on their general liability covering an environmental spill, fire or contamination and they don’t protect their assets.” — Matt Gartner, assistant vice president of underwriting, XL Insurance
The tank floated downstream, struck a tree and spilled five thousand gallons of oil into a river. Fortunately, the company had pollution insurance, which covered the million-dollar-plus remediation that would otherwise have forced it into bankruptcy.
Many insurance companies request an environmental audit to limit their losses to catastrophic “acts of God.”
When Brown underwrites a facility, he looks for the company’s degree of compliance with federal, state and local environmental laws. Even before he walks in the door, he looks at publicly available records, compliance histories, permits, and Google Earth, which shows the physical plant, stacks of recovered materials and above-ground storage tanks.
Regulations guide the underwriting process. If the company handles hazardous materials, are they stored in the proper tanks? Does it have a storm-water management plan? Where does it store used oil?
“I look at cleanliness. Housekeeping tells a lot about how a company is run,” Brown said. He looks at records, since companies may accumulate certain waste materials for only a certain time, and whether they’re filed neatly or jumbled in a desk drawer.
He interviews management to understand how tightly they run the facility and line workers to understand how they do their jobs. Are they draining fluids the right way?
The consultation with compliance experts is collaborative, not confrontational, he said.
Noncompliant companies eventually get shut down and expose themselves to expensive engineering remedies. They also suffer reputational loss, which can be as crippling as the cost of corrective action.
“It’s cheaper to stay in compliance,” Brown said.
And it’s cheaper to do business with compliant recyclers. Under Superfund Section 107, said Bill McElroy, senior vice president at Liberty International Underwriters, the chain of liability extends from material producers, through transporters, waste brokers, recyclers, and the people who buy the recovered materials.
For example, 255 defendants — mostly upstream industrial producers — were named in United States vs. Chemetco Inc. et al., in which a now-bankrupt recycler of copper-bearing scrap and manufacturing residue pleaded guilty in 2001 to violating the Clean Water Act by secretly installing a pipe that illegally dumped metal-filled wastewater into a creek for a decade.
The plaintiffs were fined $3.8 million, and the property is now a Superfund site.
Not only do upstream producers have liability under the Resource Conservation and Recovery Act (RCRA) for the misdeeds of the rare recycling “bad actor,” said Kim Ferraro, a senior staff attorney with the Hoosier Environmental Council, an Indiana environmental advocacy group, but so do responsible buyers of a site contaminated by previous owners.
Ferraro represented the plaintiffs in Adkins et al. vs. VIM Recycling, which couldn’t keep up with the volume of waste — engineered woods, plastics, steel, padding, drywall, etc. — from nearby recreational vehicle manufacturers in Elkhart, Ind.
The waste accumulated in 100-foot-high piles, Ferraro said, and rotted noxiously when exposed to the elements, sickening neighbors with its smell and dust emissions, and contaminating the groundwater.
When a spark ignited in a dirty grinder, the plant went up in flames, killing one worker and injuring another. VIM did not have the permits to do business legally, let alone pollution insurance, Ferraro said.
The RV producers whose waste VIM putatively recycled may have had liability under RCRA, which establishes responsibility for solid waste that creates endangerment. Ferraro considered naming them in the case, but finally did not.
The neighbors cheered when the court reached a default judgment against VIM, which failed to defend itself in court and went out of business.
The assets of the operation were purchased by Soil Solutions, which makes animal bedding and landscape mulch from recycled wood chips.
Although it obtained the proper permits and set up a responsible shop, said its attorney, Ed Sullivan, a partner with the international law firm of Faegre Baker Daniels, the company found itself hobbled by the hostility of the community, as well as lingering problems from VIM’s many failures to satisfy state standards.
Soil Solutions was added as a defendant to an existing class-action lawsuit claiming the operations were a nuisance and health hazard. As part of an out-of-court settlement, it agreed to process and remove many of VIM’s contaminants.
The settlement halts the litigation, and allows Soil Solutions to operate on the site for up to five years.
Lessons learned? Beyond complying with regulations, Ferraro said, it’s important to have cordial relations with the community. Legitimately listen and address the concerns of neighbors.
And second, she said, don’t buy a business that is being sued.
Sullivan agreed on the importance of good community relations. “My client tried to do that,” he said, “but the plaintiffs decided early that Soil Solutions was just like VIM.”
Any kind of environmental operation that creates odor, such as composting yard and waste processing, creates third-party liability and is fertile ground for plaintiffs’ attorneys — even if the operator does everything correctly and has all its permits, said Ken Cornell, executive vice president, chief environmental lines underwriter with Aspen Insurance
Plaintiffs’ attorneys may comb through regulatory databases and inspections for violations, even administrative errors such as posting the right notice in the right place.
“Good relations with your neighbors, and make darn sure your record is clean,” he advised. “Have a methodology for dealing with complaints up-front before the neighbors get attorneys.”
Filling the E-Waste Insurance Gap
The technology industry cultivates a popular impression of itself as “clean,” with products packaged in spotless white boxes, but the manufacture — and ultimate disposal — of these products is far from clean and carries considerable risk.
For example, older circuit boards contain lead, tin, cadmium and mercury, which are regulated as hazardous waste and can cause contamination when released, said Bill McElroy, senior vice president, Liberty International Underwriters. Such contamination is difficult and expensive to remediate.
“We insure our clients against the risk that they make their neighbors sick or contaminate the environment,” he said.
Most e-waste recycling is about getting valuable rare earth minerals out of electronics for reuse in new products.
Less-valuable plastic components and metals are also recovered and recycled, but the unusable waste is landfilled or incinerated, a process that may release gasses into the air or toxins into groundwater.
E-waste recyclers often believe their general liability policies cover any accidental releases, only to find out too late that their total pollution exclusion leaves them liable — and pollution claims tend to be very high-ticket incidents.
“I wouldn’t recommend anyone in the waste management business not have pollution insurance,” McElroy said.
Elizabeth Bannister, managing director, Marsh, suggested that electronics recyclers look hard at the language in their general liability coverage. The standard coverage is likely to include a pollution exclusion that includes “materials to be recycled, reconditioned or reclaimed.”
If that is the situation, she said, such recyclers should consider filling the gap with affirmative coverage for pollution liability.
Recyclers may not understand that insurers define their products as “pollutants” or “hazardous materials,” since the EPA and other regulatory bodies use different definitions, said Ross Fields, manager of the e-waste insurance program, Leavitt Group.
But since recyclers’ business is the waste stream, nearly everything they touch is a “pollutant,” and the insurance industry considers their “product” to be a pollutant until it reaches its final point of destruction or reuse, he said.
These semantic nuances have big implications for potential liability.
The provision in a general liability policy covering “products and completed operations” would not cover bodily injury or property damage arising out of their product: pollution. To address this risk, experts said, a company in electronics recycling needs products pollution liability.
It’s also important for producers of materials to make sure their downstream e-waste recyclers have environmental liability coverage, said Matthew Pateidl, vice president, environmental risk, Lockton.
“Vet your vendors,” he said, noting that he audited an e-waste recycler before recommending it as a partner to his client, an electronics producer.
“If I were a plaintiff in an environmental suit,” he said, “I’d go after the producer. They have deeper pockets than the recycler.”
E-waste recyclers assume some risks that other recyclers don’t, including first- and third-person liability from the contents of computer hard drives.
Many general liability policies have exclusions for intellectual property. This applies to both licensed software, such as Microsoft Office, and to account and customer information.
A lot of big manufacturers, such as Hewlett Packard and Apple, are paying more attention to the end uses of their products and their disposal, said Garick Zillgitt, senior vice president, primary casualty & surety, environmental, Rockhill Insurance.
For example, a recycler can’t resell computers to the public still loaded with ongoing licensed software products or operating systems without risking sanctions from the owners of the intellectual property.
Producers and recyclers also face first- and third-party liability risks for data that ends up in the wrong hands.
“Is it your data? Do you want your competitors to see it?” asked Matt Gartner, assistant vice president of underwriting, XL Insurance.
And if a company fails to destroy customer information such as credit card numbers from a computer sent to a recycler, it is liable even if the recycler is contractually obliged to destroy data.
This is a particular concern to producers, since up to 70 percent to 80 percent of putatively recycled e-waste is actually sent intact to developing countries, according to the Basel Action Network (BAN). The licensed software still loaded on these computers can be used illegally and confidential data mined and exploited.
Gartner advises companies that recycle computers to make sure their recycling vendor provides data destruction or do it themselves. A lot of bigger companies that are more aware of data theft send someone to the recycler’s site to observe shredding of hard drives, he said.
“They ship hard drives separately, sometimes in armored vehicles, and security stands there and watches them be destroyed. Shredding hard drives is an important part of the recycling industry.”
The two certification programs specific to electronics recyclers, the Environmental Protection Agency’s R2/RIOS (Responsible Recycling/Recycling Industry Operating Standard) and the Basel Action Network’s (BAN) e-Stewards, both include procedures to protect data.
Recyclers that earn the certificates use those assurances as a marketing tool to differentiate themselves from other recyclers.
Healing the Healers
When Bob Baranello joined Cold Spring Hills Center for Nursing and Rehabilitation as chief executive officer in 2011, the facility “clearly had a lot of work to do” to reduce staff injuries and workers’ compensation costs, he said.
The average claim cost was $7,500, lost-time claims averaged 26 days and with an experience mod of 1.45, and premiums were “through the roof.” The facility had a weak safety culture and a pervasive fraud and abuse problem.
Cold Spring Hills was not yet enforcing the strict safety standards its owner, National Healthcare Associates, had put in place at its 40 other nursing and rehabilitation facilities.
After Prism Consultants, a health care brokerage and risk management consultant, ran extensive analytics on a large quantity of claims data, National Healthcare discovered its employees were at even greater risk than they had realized, said Ephram Ostreicher, director of operations, National Healthcare Associates.
It brought in Prism to manage all aspects of the workers’ compensation program, and set about changing across-the-board safety, customer service, and quality of care practices.
“When you change a culture, you fix a lot of things,” Baranello said.
New Safety Culture
“We put a lot of work into a new safety awareness culture,” Ostreicher said. The existing culture wasn’t conducive to gaining traction on safety improvements. “There was cynicism and negativity. We had to prove we care.”
“When you change a culture, you fix a lot of things,” — Bob Baranello, CEO Cold Spring Hills Center for Nursing and Rehabilitation
Top of the list: Remediating conditions related to patient-handling injuries and slips, trips and falls, the biggest source of claims, both in number and severity. Targeting the back and shoulder injuries that plague nurses and nursing assistants from constant bending and lifting, Cold Spring Hills initiated its “Journey to Zero Lift” program.
It bought 14 new Hoyer lifts, mechanical devices that spare wear and tear on residents as well as nurses and assistants. It created Journey to Zero Lift “kit bags,” which contain non-friction sheets and gait belts for lifting and turning, depending on the residents’ medical records and care plan. The kits are stored outside resident rooms for easy access.
“By branding the kits and the program,” said Ettie Schoor, the founder and managing principal of Prism Consultants, “we helped employees understand the importance of the program.”
Cold Spring Hills also started to investigate every accident immediately to make sure it never happens again. In the past, investigation of an accident may have lagged three or four weeks, by which time the traceable conditions would have changed.
Now, supervisors immediately go to an accident scene and ask employees to re-enact it, if they’re able. They examine every environmental detail, including lighting, footwear and hardware, Schoor said. This practice identified a mechanical problem with dietary carts, which had injured a number of employees.
“We brought in the vendor to check every cart. They changed the wheels,” she said.
The surveillance cameras Cold Spring Hills installed also shed light on how the accidents happened and how they could be prevented.
These efforts, Baranello said, mark a sea change from the dark days just five years ago when injured employees filed 231 workers’ comp claims. That number dropped to 98 in 2013, and is still falling.
Strategic “micromanagement” extends all the way up the corporate food chain. Baranello is directly responsible for safety. He’s involved in every incident, not just the “big ones” that would merit the CEO’s attention at most facilities.
Baranello, department heads, supervisors and line staff participate in monthly meetings of the newly refashioned safety committee so they can spread the safety gospel.
“Safety of residents and staff is a huge part of every employee’s job,” said Baranello.
Revised resident care plans factor into safety as well, with highly detailed profiles and instructions. One might note, for example, that Mr. Smith prefers a male aide or that he doesn’t want to be awakened before 10 a.m. Care plans conform as closely as possible to the resident’s tastes and pre-facility life, minimizing the behavioral problems that produce a distressing number of scratches and bites to the direct care staff.
“For everybody’s safety, we hold closely to the care plan,” said Ostreicher. “It’s part of the training.”
Showing the Love
When accidents do happen despite precautions, Cold Spring Hills and Prism show employees “a lot of love and care,” said Schoor. That means frequent and regular follow-up calls with the employee and all medical providers. It might also mean providing nursing care at home, household help, child care, delivered meals and even flowers — any way possible to lift injured workers’ spirits and accelerate their return to work. This kind of attention can also forestall the litigation characteristic of disgruntled workers.
When a dietary worker suffered third-degree burns, the insurance company anticipated initial exposure of $480,000 and potential exposure of over a million dollars in medical treatment and lost time. It predicted a long, grim life of disability for the worker and subsequent lifetime indemnity payments.
Prism assisted Cold Spring Hills in pulling out all the stops to aid the injured worker’s recovery and boost her morale. Employees from both organizations, including Baranello, visited her in the hospital.
They sent cards to her and food to her family. When she started to fret over the depleted minutes on her mobile phone plan, they funded her cell phone so she could concentrate on the important job of getting better.
Nine months, multiple surgeries and $80,000 in medical bills later, the worker declined a $150,000 insurance settlement, choosing instead to return to work — this time at a desk job instead of in the kitchen where she was burned and traumatized.
“She said, ‘Because of the way I was treated, I will never leave this facility,’ ” Schoor said.
Return to Work
That worker’s modified assignment is a key part of National Healthcare’s claims management strategy.
“We try to get all employees back to work no matter what their restrictions are,” said Ostreicher. “We find a meaningful job they can do within their restrictions,” while monitoring progress on the path to full duty.
Prism works with National Healthcare and doctors to identify temporary restricted duty (TRD).
A nursing assistant who underwent spinal fusion was still in a wheelchair when she was released to return to work. “We worked with her to identify tasks she felt were important to the operation: folding residents’ clothes, polishing handrails/walls and reading to and feeding residents,” Schoor said.
Cold Spring Hills paid her previous salary, so she experienced no loss in compensation, and she felt her contribution, although different, was still important.
When injured employees return to TRD, they report their progress regularly to supervisors, who are “hands-on involved” in returning workers to full duty as soon as medically appropriate. “They know we’re on top of it,” Schoor said.
The team also ensures that as workers’ restrictions ease, their jobs change also. This minimizes exposure while earning the worker’s loyalty.
Smoking Out Fraud
As much as Cold Spring Hills, its parent company and Prism show the love to genuinely injured workers, they turn an equal fury on fraudsters.
“If you mess with us, we’ll catch you and be all over you,” Schoor said.
“Tender and tough — that’s our policy,” — Ettie Schoor, founder and managing principal, Prism Consultants
“When an accident happens, we work with our staff to make sure the same one won’t happen again, and when we do have an accident, we help the employee return to work,” Schoor said. This keeps exposure down, and so does meticulous follow-up on claims.
“If we smell something — not necessarily fraud — we follow up. If the doctor says the employee is disabled but she’s able to lift her kids, we’ll use that information to get a release to work. That also keeps exposure down.
“Tender and tough — that’s our policy,” said Schoor.
In one spectacular case of gumshoe insurance investigation, a worker “disabled” by a shoulder injury called Prism about her workers’ comp check. The caller ID showed the name of a beauty supply store.
Prism sent an investigator equipped with a wrist-watch camera to the store and asked the worker to reach up for several items. The movement engaged the putatively injured shoulder, which he filmed surreptitiously.
When he paid for the items, he captured her name on the sales slip. Between the two pieces of documentation, the fraudulent injury claim collapsed.
An overwhelmingly honest workforce isn’t spooked by these aggressive tactics, said Baranello, but rather welcomes them.
“Good people don’t want to see fraud, and most are hard-working and responsible,” he said. “They want us to prosecute the few bad apples who try to game the system.”
Read more about all of the 2014 Teddy Award winners:
Building Value with Trust: Honda of South Carolina boosted its involvement with injured worker cases, making a positive first impression on employees and health care providers.
The TLC Behind the Roar: A proactive and holistic approach to employees’ well-being has resulted in huge reductions in work-related injury claims for Harley-Davidson.
Quick to Act: Compass Group is lauded for its safety initiatives and for a return-to-work program that incorporates all of its business lines.
Healing the Healers: Teddy Award winner Cold Spring Hills Center for Nursing and Rehabilitation proved that even small organizations can make a huge difference in their employees’ lives.