Environmental Insurance Still Soft, Even When Water's Involved
By MATTHEW BRODSKY, senior editor/Web editor of Risk & Insurance®
Water, water, everywhere, Nor any drop to drink. The situation almost feels that dire in certain regions of the world when it comes to water scarcity. And as for pollution in water, citizens are even more sensitive. In the United States, perhaps the best known case is that of Erin Brockovich, who, while working as a file clerk for a Southern California law firm in the early 1990s, uncovered and pursued what would become the largest toxic tort injury settlement in U.S. history.
Thanks to Brockovich's digging, eternalized in the 2000 Julia Roberts' film, utility Pacific Gas and Electric Co. had to pay $333 million to about 600 residents of Hinkley, Calif., whose health was found to have been harmed by Chromium 6 that the company had inadvertently leaked into the local groundwater.
Perhaps the latest chemical souring drinking water (literally) is methyl tertiary-butyl ether, or MTBE. As a gasoline additive that makes the fuel burn cleaner in vehicles, it's meant to benefit the environment. But when it leaks from gas tanks, it's been found to spread quickly and break down slowly, meaning it can build up in groundwater. There is some question as to its carcinogenicity, but at the very least, MTBE taints drinking water with a peculiar taste and smell.
In perhaps the largest MTBE-related case, the city of New York is seeking $250 million in damages from Exxon Mobil to remove MTBE from wells in the Queens section of the city. The jury found earlier this month for the city in the first phase of the case, allowing the suit to continue in the U.S. District Court in Manhattan.
As is quite obvious, a single leakage from one gas station could leave businesses with millions of dollars in liability and costs.
These MTBE dollar signs--and the damages from other water pollutants--could be covered with environmental insurance, your typical standard site-specific or contractor's pollution liability policies.
"Plain, old environmental insurance will do it," said Michael Balmer, executive vice president and environmental practice leader for Willis HRH.
Site- or facility-specific policies cover the costs of unexpected cleanups that might occur at a given location at some point in the future, whether they involve soil, groundwater or surface water. Third-party liability and legal defense costs can be covered as well, and coverage can be expanded to include nonowned disposal sites.
Contractor's pollution liability coverage is what it sounds like: policies for builders and developers to cover specific operations or projects in the event they lead to pollution.
PLAIN OLD SOFT
If a risk manager concerned about water pollution liability hasn't shopped the plain, old environmental insurance market lately, she should. The market is competitive, with a lot of insurers entering the space, expanding capacity and delaying a hardening of rates.
"We keep expecting it to harden up," said Balmer. "I'm hoping we're not too far from the bottom."
Balmer made sure to note that for "hairy, more complex risks"--such as an M&A transaction involving an old oil refinery site--pricing can be firm. Even for "straightforward" risks, like a typical real estate investment trust portfolio, rates are not dropping quite like they once were.
Still, Balmer added, good deals are "still out there for buyers."
Of course, multinational corporations need not just worry about polluting water in California or Queens. Legislation and enforcement are evolving in Europe, China and elsewhere to make organizations more liable for spills and liabilities. The environmental insurance market is expanding to meet this demand.
"We are now able to provide global environmental insurance programs structured in a complaint, appropriate manner," said Balmer.
Big players here include ACE, Zurich, Chubb, Chartis, Liberty, Great American and XL.
September 1, 2009
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