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.”
Fear of Loss
Like dialogue from a bad movie, the stories wrapped around the Ebola virus in recent times leave one looking for the exit. But here, unfortunately, there is no exit, and an Ebola script will continue to be written.
The questions are what to do about it and what role property and casualty insurance can play.
As is the norm in insurance coverage issues, the answer must be: It depends. And counterintuitively, some exclusions in liability and property insurance policies, which don’t specifically exclude viruses, may leave the door open for policyholders to collect on Ebola-related losses from such policies.
We have been here before, although not with quite as fearful a contagion.
In 2003, severe acute respiratory syndrome (SARS) killed more than 900 people, shut down airports, roiled governments and dominated the news. Now, contagion is back, in the form of a virus that relegates SARS to minor league status.
The World Health Organization estimates there will be 10,000 estimated new cases a week before the outbreak subsides.
More than 5,000 people have died to date, the mortality rate is estimated at 50 percent and the World Health Organization estimates there will be 10,000 estimated new cases a week before the outbreak subsides.
Besides death and debilitation, there is a huge economic impact, even outside West Africa. Businesses are taking note of aircraft taken out of service, cruise ships barred from entry, apartments quarantined and stigmatized, and bridal shops closed and inventory destroyed. The reason: infection or alleged or threatened contamination by the Ebola virus, or fear of such infection or contamination.
A Wake-Up Call
As a starting point, SARS was a wake-up call for the insurance industry (if the rapid rise of mold litigation had not already raised the alarm).
Concerns over the insurance of infection came to the fore. Although the Mandarin Oriental Hotel collected millions of dollars on its business interruption claim after a significant SARS-related loss, in the current circumstances such recoveries are at best, less certain, and at worst, potentially barred.
The primary reason is strong exclusionary language, but even with that, all may not be lost. Here is a standard (ISO) Exclusion of Loss Due to Virus or Bacteria endorsement, which may be found in first-party property policies: “We will not pay for loss or damage caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.”
Video: A bridal shop shuts down to due customers’ fears of possible infection, but losses aren’t covered.
That language is broad, although it arguably does not encompass alleged or threatened outbreaks.
On the liability-insurance side, we have seen an Absolute Mold Exclusion that excludes loss “related or attributed to, arising out of, resulting from, or in any way caused by any bacteria, virus, mycotoxin, ‘fungus(i),’ ‘spore(s), scent or byproducts.’ ”
That language is also broad, but it arguably does not encompass alleged or threatened outbreaks either.
Further, while those exclusions are broad, they are not used universally.
For example, an exclusion we reviewed recently provided that it excluded loss “which would not have occurred, in whole or in part, but for the actual, alleged or threatened inhalation of, ingestion of, contact with, exposure to, existence of, or presence of, any ‘fungi’ or bacteria on or within a building or structure, including its contents.…”
It does not take a rocket scientist to note that viruses are not listed in the terms of the exclusion.
It does not take a rocket scientist to note that viruses are not listed in the terms of the exclusion, leaving open the possibility that a policyholder might find coverage for loss traced to Ebola. Further, its use of “alleged or threatened … exposure” could be used as evidence that the two other exclusions mentioned above do not reach loss caused by alleged or threatened exposure.
Another path to potential coverage is evaluation of the actual harm that has occurred.
In some cases, the Ebola virus is actually present (the first victim’s fiancé’s apartment in Dallas, where he was staying). In other cases, it is only fear of the virus that has caused the damage (the stigma attaching to bridal gowns in an Akron, Ohio, store visited by someone not yet diagnosed with Ebola). In that case it might be difficult to say that Ebola caused the loss when there is no Ebola to be found on the dresses.
But that raises a serious issue. Property policies usually, if not always, require physical damage as a precondition for coverage for a loss. So what is physical damage? Does it require actual physical change to the property at issue? Or is it enough that the property cannot be used?
If fear of being in a bridal shop visited by an undiagnosed customer requires the shop to shut down, burn merchandise, and lose sales, that “loss of use” of the property might lead to an insured claim.
The physical damage issue is eliminated in some policies with extensions of coverage for “orders of civil authority.” Under such provisions, if access to property is forbidden under government order, coverage may be available, notwithstanding the lack of physical property damage.
Rather than contesting the local health board’s quarantine order based on suspicion of Ebola, companies might welcome it and tender it to their insurer with their claim. Clearly, the cruise ship that was turned back by Belize should carefully review its policy in this regard.
Could specialized coverages be turned to advantage? Pollution legal liability policies would appear to be well-fitted to Ebola contamination issues. These policies extend coverage to pollution events.
Does Ebola contamination, or suspected Ebola contamination, constitute pollution? Close examination of one’s policy may make that clear.
If “pollutant” or “pollution” is defined to include microorganisms or “contaminants” then that would seem airtight. It might be a closer call if the coverage extends to “contaminating substances,” because the insurer likely will assert that a virus is not a substance.
Does Ebola contamination, or suspected Ebola contamination, constitute pollution?
But, because ambiguities in insurance policies are nearly universally construed in favor of the policyholder, there is a reasonable chance that a contaminating substance could be found to include the Ebola virus.
Policyholders, risk managers and counsel pursuing this angle should remember that much of the potentially relevant case law will address the meaning of pollution exclusions. The rules of construction in those cases are significant.
First, the carrier would have the burden of proof to prove the application of the exclusion. Second, exclusions are construed narrowly. And third, the goal in those cases would have been to show that a mold, bacteria or virus was not pollution, rather than the goal here, which is to show the opposite.
So a holding that a virus is not pollution in the pollution exclusion cases may be completely irrelevant to whether a virus is pollution in a policy written to cover pollution.
Landlords have special concerns with Ebola. Even after the Ebola-ridden tenant is cured and/or vacates, others may perceive high levels of risk and refuse to rent the apartment or even nearby ones. This may vest huge importance in tenants’ renters insurance.
Policyholders should also consider directors’ and officers’ coverage, if claims of economic loss are brought against individuals or organizations based on how they reacted to an Ebola outbreak or threat.
While those policies frequently contain pollution exclusions, the availability of Absolute Mold Exclusions or Bacteria or Virus Exclusions strongly suggests that a pollution exclusion should neither apply nor bar coverage.
Even if the case law in a jurisdiction would extend a pollution exclusion to a virus, that is not the end of the story. The loss must “arise out of” or “result from” the virus. There is substantial case law holding that such words of linkage are ambiguous where an insurer attempts to bar coverage for a claim alleging directors’ negligent disclosures relating to pollution.
The conclusion those courts tend to reach is that the loss does not arise out of pollution but rather out of the improper disclosure.
Where do EPLI policies fit in the landscape? Those policies often exclude bodily injury claims, but have an exception for mental anguish or emotional distress.
If a worker is “negligently reassigned” to a work location where there is an actual or feared Ebola outbreak, and that worker claims mental anguish or emotional distress as a result, that claim could be covered under an EPLI policy.
Policyholders, brokers, risk managers and carriers should think critically about whether coverage for Ebola specifically, or pathogens more generally, should be affirmatively offered.
As always, the market will dictate what the market will offer. If there is a true desire for such coverage and matching appetite and ability to underwrite it accurately, the future might lead to clear Ebola coverage across all lines of coverage.
As policyholders and insurance companies wend their way through some of the issues identified above, they will likely come to some landing point on the efficacy of this coverage.
The Promise of Technology
The field of workers’ compensation claims management seems ideally suited as a proving place for the power of technology.
Predictive analytics in the hands of pharmacy and medical management experts can give claims managers the data they need to intervene in troublesome claims. Wearables and other mobile technologies have the potential to give healthcare providers “real-time” reports on the medical condition of injured workers.
Never before have the goals of quick turnaround and transparency in managing claims appeared so tantalizingly achievable.
In the effort to learn more about technology’s potential, in September, Risk & Insurance® partnered with Duluth, Ga.-based Healthcare Solutions to convene an information technology executive roundtable in Philadelphia.
The goal of the roundtable was to explore technology’s promise and to gauge how advancements are serving the industry’s ultimate purpose, getting injured workers safely back to work.
Big Data, Transparency and the Economies of Scale
Integration is a word often heard in connection with workers’ compensation claims management. On one hand, it refers to industry consolidation, as investors and larger service providers seek to combine a host of services through mergers and acquisitions.
In another way, integration applies to workers’ compensation data management. As companies merge, technology is allowing previously siloed stores of data to be combined. Access to these new supersets of data, which technology professionals like to call “Big Data,” present a host of opportunities for payers and service providers.
Through accessible exchange systems that give both providers and payers better access to the internal processes of vendors, a service provider can show the payer the status of the claim across a much broader spectrum of services.
“One of the things I see with all of this data starting to exchange is the ability to use analytics to predict outcomes, and to implement workflows to intervene.”
–Matthew Landon, Vice President of Analytics, Bunch CareSolutions.
“Any time that we can integrate with a payer across multiple products such as pharmacy, specialty and PPO services, what it does is gives us a better picture of the claim and that helps us to drive better outcomes,” said roundtable participant Chuck Cavaness, chief information officer for Healthcare Solutions.
Integration across multiple product lines also produces economies of scale for the payer, he said.
Big Data, according to the roundtable participants, also provides claims managers an unparalleled perspective on the cases they manage.
“One of the things that excites us as more data is exchanged is the ability to use analytics to predict outcomes, and to implement workflows to intervene,” said roundtable participant Matthew Landon, vice president of analytics with Lakeland, Fla.-based Bunch CareSolutions, A Xerox Company.
Philadelphia roundtable participant Mike Cwynar, vice president of Irvine, Calif.-based Mitchell International, agrees with Landon.
“We are utilizing technology to consolidate all of the data, to automate as many tasks as we can, and to provide exception-based processing to flag unusual activity where claims professionals can add value,” Cwynar said.
Technology is also enabling the claims management industry to have more productive interactions with medical providers, long considered one of the Holy Grails of better case management.
Philadelphia roundtable participant Jerry Poole, president and CEO of Malvern, Pa-based claims management company Acrometis, said more uniform and accessible information exchange systems are giving medical providers access to see how bills are moving through the claims manager’s process.
“The technology is enabling providers to call in or to visit a portal to figure out what’s happening in the process,” Poole said.
Another area where technology is moving the industry forward, according to the Philadelphia technology roundtable participants, is mobile technology, which is being used to support adjustors and case managers and is also contributing to quicker return to work and lower costs for payers.
The ability to take a digital tablet to a meeting with an injured worker or a health care provider is allowing case managers to enter data and give feedback on a patient’s condition in real time.
“Our field-based case managers have mobile connectivity to our claims systems that they use while they’re out of the office attending doctor’s appointments, and can enter the data right there into the system, so they’re not having to wait until they are back at the office to enter critical clinical documentation,” said Landon.
Injured workers that use social media, e-mail and the texting function on their mobile phones are staying in better touch with those that are charged with insuring that they are in compliance with their treatment plans.
Wearable devices that provide in-the-moment information about an injured workers’ condition have the potential to recreate what is known in aviation as the “black box,” a device that will record and store the precise physical state of an employee when they were injured. Such a device could also monitor their recovery process.
But as with many technologies, worker and patient privacy also needs to be observed.
“At the end of the day, we need to make sure that we approach technology enhancement that demonstrates value to the client, while ensuring patient advocacy,” Landon said.
As payers and claims managers set out to harness the power of computing in assessing an injured worker’s condition and response to treatment, the cycle of investment in companies that serve the workers’ compensation space is currently playing a significant role.
The trend of private equity investing in companies that can establish one-stop shopping for such services as medical case management, bill review, pharmacy benefit management and fraud forensics has huge potential.
“Any time that we can integrate with a payer across multiple products such as pharmacy, specialty and PPO services, what it does is gives us a better picture of the claim and that helps us to drive better outcomes.”
— Chuck Cavaness, Chief Information Officer, Healthcare Solutions.
The challenge now facing the industry, one the information technology roundtable participants are confident it can meet, is integrating those systems. But doing so won’t happen overnight.
“There’s a lot of specialization in the industry today,” said Jerry Poole of Acrometis.
Years ago there was a PT network. Now there’s a surgical implant guy, there’s specialized negotiations, there’s special investigations, said Poole.
The various data needs to be integrated into an overall data set to be used by the carriers to help lower the cost of risk.
Securing Sensitive Information
Long before hackers turned the cyber defenses of major national retailers inside out, claims management professionals have focused increased attention on the protection of data shared across multiple partners.
Information security safeguards are changing and apply to what technology pros refer to “data at rest,” data that is stored on a particular company’s servers, and “data in flight,” data that is transferred from one user to another.
Mitchell’s Cwynar said carriers want certification that every company their data is being sent to needs to have that information and that both data at rest and data in flight is encrypted.
The roundtable participants agreed that the industry is in a conundrum. Carriers want more help in predictive analytics but are less willing to share the data needed to make those predictions.
And as crucial as avoiding cyber exposures and the corresponding reputational damage is for large, multinational corporations, it is even more acute for smaller companies in the workers’ compensation industry.
Healthcare Solutions’ Cavaness said the millions in loss notification and credit monitoring costs that impact a Target or a Home Depot in the case of a large data theft would devastate many a workers’ compensation service vendor.
“They’d be done in a minute,” Cavaness said.
The barriers to entry in this space are higher now than ever before, continued Cavaness, and companies wishing to do business with large carriers have the burden of proving that its security standards are uncompromising.
Workers’ compensation risk management in the United States is by its very nature, complex and demanding. But keep in mind that those charged with managing that risk get better results year after year.
Technology has a proven capability to iron out the system’s inherent complications and take its more mundane tasks off of the shoulders of case adjustors.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Healthcare Solutions. The editorial staff of Risk & Insurance had no role in its preparation.