Heavy Metal in the Water
Thanks to nationwide media coverage of the “orange river” acid mine drainage (AMD) spillage at the abandoned Gold King Mine in Silverton, Colo., the health of the nation’s waterway system attracted much more attention in the past year.
But, in fact, according to the federal Environmental Protection Agency, AMD is the greatest danger to the waterway environment in the United States on an ongoing basis.
“Acid mine drainage is a huge problem,” said Sharon, Pa.-based Rod Taylor, managing director with Aon’s environmental group.
“It’s not just a matter of current mining operations, which now have come under environmental regulations with respect to wastewater discharges, but drainage from abandoned mines that were explored, developed and worked out over the last 125 years in this country with little regard to environmental impact.”
There are hundreds of thousands of abandoned mines in the United States, located primarily in 12 Western states and Alaska where gold, silver, copper, zinc and other precious minerals were mined.
In addition, coal was and is extensively mined in the East, Midwest and the South presenting similar problems, experts said.
“AMD is a problem in streams, rivers and lakes where mineral deposits and mining are prevalent,” Taylor said. It is caused when water flows over or through sulfur-bearing materials, forming solutions of environmentally harmful acidity.
“The parties that are responsible in today’s environmental regulatory world would obviously be the mine operators,” he said.
“The Department of Interior’s estimate of the cost for cleaning up the estimated 500,000 abandoned mine sites in the U.S. range from $32 billion to $72 billion.” — Rod Taylor, managing director, Aon’s environmental group
But while the mine owners are required to post evidence of financial responsibility for mine closure and post-closure care, the amounts required have proven to be inadequate, Taylor said.
“Operators and owners of abandoned mines often are no longer in business,” he added.
“Some that are still around are not financially capable of responding to the problem. This leaves the cleanups and closure for tens of thousands of abandoned mines to taxpayers and government agencies.”
To focus on the daunting problem in the U.S. — in addition to state agencies — the federal government has four agencies devoted to dealing with AMD: the EPA, the Department of Interior’s Bureau of Land Management, the Interior Department’s Office of Surface Mining Reclamation and Enforcement, and the Department of Agriculture’s Forest Service.
Collectively, these agencies spent $2.6 billion from 1997 through 2008 on hardrock mine reclamation, Taylor said.
By itself, the resources that the EPA has to devote to the AMD problem are grossly inadequate for what the task will cost, Taylor said.
“The Department of Interior’s estimate of the cost for cleaning up the estimated 500,000 abandoned mine sites in the U.S. range from $32 billion to $72 billion,” he said.
“If the EPA’s spending rate of $221 million a year was maintained, the abandoned mines could take 325 years to clean up.”
Taylor noted that insurance for AMD might be available for people who are impacted downstream.
“So if you were operating a marina and if there was a chance for a release of AMD from a mine upstream you could purchase environmental insurance as the owner of a site that was affected by AMD,” he said.
“Or you could purchase insurance that could cover you in the event operations were impacted,” Taylor added. “Or if you’re a water delivery system, you might consider insurance if that system had its source in rivers where AMD existed.”
Overall, said Jim Vetter, a Salt Lake City-based managing director with Marsh’s environmental practice, getting gradual pollution coverage for mines is difficult because of the risk perceived by the markets for the industry class as a whole.
“That said,” noted Vetter, “there are some markets that have appetite for mining risks and could cover off-site pollution conditions such as cleanup and third-party bodily injury and property damage claims migrating from a property, depending upon the site-specific details.”
AMD leaks from mines that are inactive, so federal and state agencies bear the burden of addressing it, said Vetter. “But there are a lot of instances where there are current owners that are highly responsible and involved in trying to address the waste drainage.
“In those cases, those operators are incurring significant costs around water treatment. They may be operating wastewater treatment systems. They may be using more passive systems where they’re putting in limestone aggregate to increase the pH of the water,” he said.
Taking the Financial Risk
Also, there are specific companies called environmental buy-out firms that actually have appetite to assume the cleanup risk and water treatment obligation from a company.
“So suddenly you have somebody who is operating a water treatment system that is either installed or has to be constructed,” said Vetter.
“These companies come in and say, ‘We’ll put a value on what it will cost to do the cleanup or operate the water treatment and then we will take that liability from you in cash.’”
“So if you don’t have an owner and there’s no current insured on whom to make a claim, sometimes you can reach back and make a claim on prior insureds under long-past insurance policies if they are still available.” — David Rieser, an attorney with K&L Gates in Chicago.
“These buy-out firms are taking on the risk around financial performance,” Vetter said.
From a risk management perspective, the issue surrounding AMDs in the U.S. is more about who is legally responsible, said Vetter. “You’ve got what is called joint and several liability. Joint and several liability essentially means that once you are in the chain of liability, you can be brought back into the risk again in whole or in part.”
David L. Rieser, of counsel at K&L Gates LLP in Chicago who covers environmental law, said he doubted that commercial general liability policies “would cover releases from mines because of the absolute pollution exclusion. This excludes coverage for claims resulting from releases of contaminants or pollutants.”
There may be coverage under pre-1980s policies that did not have these exclusions, Rieser added.
“There may also be coverage under specialized pollution liability policies which are now available.
“And a lot of these occurred from mines that have long been abandoned,” Rieser said.
“So if you don’t have an owner and there’s no current insured on whom to make a claim, sometimes you can reach back and make a claim on prior insureds under long-past insurance policies if they are still available.”
When it comes to risk management and AMD, “you’re talking about the physical reality of controlling these releases from uncertain or unknown conditions,” Rieser said.
“Sometimes releases occur as a result of geological events where an older mine will suddenly be releasing drainage into a nearby waterway as a result of an earthquake or minor kind of tremor, depending on the geology in the area.
“Under current mining regulations there are any number of different ways people can manage the programs that watch for potential releases and make sure the waste materials stay in the right place,” Rieser said. &
Water Crisis Damages Flint Businesses
Early this year, President Obama declared a state of emergency due to the water crisis in Flint, Mich., making the city and its residents eligible for federal disaster aid.
Officials eventually took action to make Flint’s water supply safer, but businesses still face reputational damage, loss of revenue and for the most part, no insurance coverage due to pollution exclusions.
In April 2014, Flint switched from using Detroit’s water system to draw its own drinking water from the Flint River. Since then, the river’s acidic water corroded lead pipes, leaking lead into the city’s drinking water.
While residents began complaining in 2015 about the odd smell, taste, and discoloration of the water, public officials insisted it was safe to drink. That was until a September 2015 study by the Hurley Medical Center found that the number of children with above-average levels of lead in their blood nearly doubled after the city changed its water source.
Flint officials acknowledged the problem and the city started getting water from Detroit again the following month.
But the damage had already been done, not just to the thousands of residents who were exposed to high levels of lead, but to homes and businesses with lead plumbing that began to corrode from the acidity.
While a safer source of water is now in place, the physical and economic damages could mount for years.
Businesses in the city are “significantly impacted,” said George Wilkinson, group vice president of the Flint and Genese Chamber of Commerce.
The event is not only a public health crisis but an economic crisis that is resulting in a loss of sales and a halting of business operations, he said. It has been especially problematic for restaurants, hotels and those in the hospitality industry.
“They’re seeing a significant decline in [revenue]. There’s also an increase in expenses because they’re buying bottled water and having to install filtration systems,” Wilkinson said.
Flint’s restaurants now regularly test their water and some installed filtration systems that can cost up to $2,000 each.
While business owners can act to ensure their water is lead-free, the real problem is the reputational damage that the city faces, he said.
“They can be cleared by the Health Department but the real problem is the negative perception. The media is portraying Flint as a war zone,” Wilkinson said.
Flint business owners are largely left exposed because business interruption insurance has stringent pollution exclusions, said Micha Knapp, a producer at the Graham Co. in Philadelphia.
Most general liability and property policies preclude any business interruption or property damage arguments a customer could make, he said. In addition, commercial general liability policies do not cover risks associated with polluted water as they often contain an Absolute Pollution Exclusion or a Total Pollution Exclusion specific to lead.
“From a liability and property perspective, there’s often a suite of pollution exclusions that will remove any coverage for a pollutant or containment like lead. It can leave a company susceptible,” Knapp said.
Dave Walker, president of Hartland Insurance Agency in Hartland, Mich., said few businesses in Flint have the specialized insurance necessary to cover businesses losses.
“They would have to have expected this to have that kind of coverage in place. It’s not something most businesses carry,” he said. “Most will have to [cover losses] out of pocket.”
Knapp said it’s important for Flint businesses to continue to effectively test the water for environmental hazards that could impact customers’ health. He recommended they also consider eventually removing and replacing lead pipes on their properties.
Companies can also consider a Pollution Legal Liability insurance policy, which is geared specifically to the restaurant, hospitality and real estate sectors. Such coverage will also protect companies against liability and property damage associated with Legionella.
“Most don’t have it but there are markets out there that will pick up that coverage,” Knapp said.
Flint’s water crisis could be a glimpse into a mounting national problem, according to experts.
Fitch Ratings said in early-March that there are more than 6 million lead water service lines in existence around the country, most of which are located in the Northeast and Midwest.
Dr. Jeffrey Griffiths, a professor of public health at Tufts University and a former chairman of an advisory board for the U.S. Environmental Protection Agency’s Drinking Water Committee, said in an article for the Detroit Free Press that many of the nation’s pipes can not be located or tested.
Electronic Waste Risks Piling Up
The latest electronic devices today may be obsolete by tomorrow. Outdated electronics pose a rapidly growing problem for risk managers. Telecommunications equipment, computers, printers, copiers, mobile devices and other electronics often contain toxic metals such as mercury and lead. Improper disposal of this electronic waste not only harms the environment, it can lead to heavy fines and reputation-damaging publicity.
Federal and state regulators are increasingly concerned about e-waste. Settlements in improper disposal cases have reached into the millions of dollars. Fines aren’t the only risk. Sensitive data inadvertently left on discarded equipment can lead to data breaches.
To avoid potentially serious claims and legal action, risk managers need to understand the risks of e-waste and to develop a strategy for recycling and disposal that complies with local, state and federal regulations.
The Risks Are Rising
E-waste has been piling up at a rate that’s two to three times faster than any other waste stream, according to U.S Environmental Protection Agency estimates. Any product that contains electronic circuitry can eventually become e-waste, and the range of products with embedded electronics grows every day. Because of the toxic materials involved, special care must be taken in disposing of unwanted equipment. Broken devices can leach hazardous materials into the ground and water, creating health risks on the site and neighboring properties.
Despite the environmental dangers, much of our outdated electronics still end up in landfills. Only about 40 percent of consumer electronics were recycled in 2013, according to the EPA. Yet for every million cellphones that are recycled, the EPA estimates that about 35,000 pounds of copper, 772 pounds of silver, 75 pounds of gold and 33 pounds of palladium can be recovered.
While consumers may bring unwanted electronics to local collection sites, corporations must comply with stringent guidelines. The waste must be disposed of properly using vendors with the requisite expertise, certifications and permits. The risk doesn’t end when e-waste is turned over to a disposal vendor. Liabilities for contamination can extend back from the disposal site to the company that discarded the equipment.
Reuse and Recycle
To cut down on e-waste, more companies are seeking to adapt older equipment for reuse. New products feature designs that make it easier to recycle materials and to remove heavy metals for reuse. These strategies conserve valuable resources, reduce the amount of waste and lessen the amount of new equipment that must be purchased.
Effective risk management should focus on minimizing waste, reusing and recycling electronics, managing disposal and complying with regulations at all levels.
For equipment that cannot be reused, companies should work with a disposal vendor that can make sure that their data is protected and that all the applicable environmental regulations are met. Vendors should present evidence of the required permits and certifications. Companies seeking disposal vendors may want to look for two voluntary certifications: the Responsible Recycling (R2) Standard, and the e-Stewards certification.
The U.S. EPA also provides guidance and technical support for firms seeking to implement best practices for e-waste. Under EPA rules for the disposal of items such as batteries, mercury-containing equipment and lamps, e-waste waste typically falls under the category of “universal waste.”
About half the states have enacted their own e-waste laws, and companies that do business in multiple states may have to comply with varying regulations that cover a wider list of materials. Some materials may require handling as hazardous waste according to federal, state and local requirements. U.S. businesses may also be subject to international treaties.
Developing E-Waste Strategies
Companies of all sizes and in all industries should implement e-waste strategies. Effective risk management should focus on minimizing waste, reusing and recycling electronics, managing disposal and complying with regulations at all levels. That’s a complex task that requires understanding which laws and treaties apply to a particular type of waste, keeping proper records and meeting permitting requirements. As part of their insurance program, companies may want to work with an insurer that offers auditing, training and other risk management services tailored for e-waste.
Insurance is an essential part of e-waste risk management. Premises pollution liability policies can provide coverage for environmental risks on a particular site, including remediation when necessary, as well as for exposures arising from transportation of e-waste and disposal at third-party sites. Companies may want to consider policies that provide coverage for their entire business operations, whether on their own premises or at third-party locations. Firms involved in e-waste management may want to consider contractor’s pollution liability coverage for environmental risks at project sites owned by other entities.
The growing challenges of managing e-waste are not only financial but also reputational. Companies that operate in a sustainable manner lower the risks of pollution and associated liabilities, avoid negative publicity stemming from missteps, while building reputations as responsible environmental stewards. Effective electronic waste management strategies help to protect the environment and the company.
This article is an annotated version of the new Chubb advisory, “Electronic Waste: Managing the Environmental and Regulatory Challenges.” To learn more about how to manage and prioritize e-waste risks, download the full advisory on the Chubb website.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Chubb. The editorial staff of Risk & Insurance had no role in its preparation.