Tank Insurance Unlock the Mystery

Transcription

1 Tank Insurance Unlock the Mystery Khan Adams, CPCU, AIC Great American Specialty E&S 301 E. 4 th St., Great American Tower 25-S Cincinnati, OH (513) kladams@gaic.com

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3 To be or not to be an adjuster Investigate Determine coverage Pay or deny

4 Coverage? 2. Insuring Agreement Government Mandated Clean -up Costs Liability a. We will pay those sums that the Insured becomes legally obligated to pay as clean-up costs to which this insurance applies. The amount we will pay for such clean-up costs is limited as described in SECTION IV - LIMITS OF INSURANCE. b. This insurance applies to clean-up costs caused by an environmental incident that commences on or after the Retroactive Date shown in the Declarations and is declared during the Policy Span. The environmental incident must be from an underground storage tank at an insured site in the coverage territory. The environmental incident must be reported to us in writing during the Policy Span. (1) All clean-up costs asserted against you as a result of an environmental incident which was declared during the Policy Span will be deemed to have been made on the day that environmental incident was declared. (2) The insured s obligation to pay clean-up costs must be asserted by the government of the United States of America, Canada or any political subdivision of the United States or Canada

5 Hypothetical Scenario

6 So, is there coverage? b. This insurance applies to clean-up costs caused by an environmental incident that commences on or after the Retroactive Date shown in the Declarations and is declared during the Policy Span. The environmental incident must be from an underground storage tank at an insured site in the coverage territory. The environmental incident must be reported to us in writing during the Policy Span. Was there an incident? Declared during policy span? So what s the problem?

7 Notice of possible contamination

8 What leaked? b. This insurance applies to clean-up costs caused by an environmental incident that commences on or after the Retroactive Date shown in the Declarations and is declared during the Policy Span. The environmental incident must be from an underground storage tank at an insured site in the coverage territory. The environmental incident must be reported to us in writing during the Policy Span.

9 Tanks removed Source?

10 Covered Source? Spills/overfills excluded: SECTION II - EXCLUSIONS This insurance does not apply to: 2. An environmental incident as a result of any spill or overflow that occurs during the loading or unloading of an underground storage tank unless reported to us within 72 hours of the spill or overflow. Piping is included: SECTION X - DEFINITIONS 13. Underground storage tank means any one or combination of tanks, their associated piping and dispensers as listed on the Underground Tank Data Sheet.

11 When? b. This insurance applies to clean-up costs caused by an environmental incident that commences on or after the Retroactive Date shown in the Declarations and is declared during the Policy Span. The environmental incident must be from an underground storage tank at an insured site in the coverage territory. The environmental incident must be reported to us in writing during the Policy Span.

12 Commenced after the retro? Tank and line tightness tests ATG strips Inventory records Repairs and witness accounts Environmental history/reports

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15 Could it be historical? Prior loss in 1986 Thus, the contamination recently discovered could very likely be due to preexisting conditions. Retroactive date: 8/1/2006

16 An event during the removal In November 2011: The GAS poured out into the ground But the policy expired 8/1/11.

17 Timeline 8/1/11 Policy expires 8/26/11 Notify insurer of intent to pull 11/21/11 Tanks removed from the site 1/26/12 Notify insurer of contamination 2/2/12 Date of letter from state with mandate to assess and remediate.

18 6 mo. extended reporting period? SECTION VIII - AUTOMATIC EXTENDED REPORTING PERIOD If this Policy is cancelled or nonrenewed for any reason, the following is added as part (4) of Paragraph 1.c. and part (3) of Paragraph 2.b. of SECTION I - POLLUTION LIABILITY COVERAGE: A claim first made in writing to us within 6 months after the end of the Policy Term will be deemed to have been made on the last day of the Policy Term, provided that the claim is for bodily injury, property damage or clean-up costs as a result of an environmental incident that commenced before the end of the Policy Term and subsequent to the Retroactive Date shown in the Policy Declarations. The environmental incident must be from an underground storage tank at an insured site.

19 Pay or Deny?

20 How can you be sure? a. We will pay those sums that the Insured becomes legally obligated to pay as clean-up costs to which this insurance applies. Test: what would the jury do?

21 The Courts have spoken Mid-Continent v. First Coast, case number 1D in the District Court of Appeal of Florida, First District. A Florida appeals court reversed in part a lower court's decision that both Mid-Continent Casualty Co. and its parent company, Great American Insurance Co., were liable for coverage of cleanup costs for pollution at underground petroleum storage tanks. The Circuit Court for Duval County had found that both companies were liable for the cleanup costs because Great American had written First Coast Energy LLP's first insurance policy, which was still in effect when First Coast made its claims for coverage. The appeals court disagreed, ruling that the trial court had inappropriately applied an extended reporting period to the end of the policy and that First Coast Energy had actually made its claims under a second policy, written by Mid-Continent.

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23 The Courts have spoken Webb Operating Co. v. Zurich American Ins. Co. (United States District Court, Eastern District Michigan, July 18, 2011). In June 2006, one of Webb s underground storage tanks failed a "tank tightness" test during an inspection. The policyholder hired Huron Environmental L.L.C. ("Huron") to perform remediation services in connection with the failing tank. Webb and Huron decided to "close" the tank; however, the policyholder s President decided not to submit Huron's bill ($8,050) to the insurer under the Policy because the deductible was $5,000 and because he did not want a policy claim to raise premiums or affect future insurability.

24 Web Operating v. Zurich Huron continued to monitor the tank and oversee remediation efforts at Webb s gas station for the next three years. During this time, the cost of the remediation services grew to a point at which the policyholder became unable to pay. As a result, the policyholder filed a claim with the insurer sometime in October 2009 believing the loss was covered under the Policy, or alternatively, under the Policy.

25 Web Operating v. Zurich The court determined that the policies in question were claims-made policies, and thus, coverage was unquestionably conditioned upon the policyholder filing a claim within the specifically defined reporting period and not upon the release simply occurring. Moreover, the court held that under Michigan law, the insurer was not required to show prejudice on a claims-made policy. Therefore, as it was undisputed that the policyholder discovered the release in 2006, but did not give the insurer notice of the claim until late 2009, there was no coverage for the release. Likewise, the court rejected coverage under the policy because it was the discovery of a release that triggered coverage, not the discovery of the costs to remediate. Accordingly, the court held the insurer had no coverage obligations under either policy.

26 Issues Late reporting State of denial (its not a river!) Good governance, or not Why do we buy insurance anyway? I don t know where it s from. Does it matter?

27 EPA Study On The Effectiveness Of UST Insurance As A Financial Responsibility (FR) Mechanism U.S. Environmental Protection Agency Office of Underground Storage Tanks Washington, D.C. EPA-510-R December 2011

28 Goal of the EPA The EPA Study states: One of the core missions of the U.S. Environmental Protection Agency (EPA) Office of Underground Storage Tanks is to ensure adequate funding is available to promptly clean up releases from underground storage tanks (USTs). Under 40 CFR 280 Subpart H, UST owners and operators must demonstrate adequate financial responsibility (FR) to clean up releases and compensate third parties for any injuries or damages associated with releases.

29 Purpose of FR The EPA Study states: The intent of the federal UST FR regulation at 40 CFR 280 Subpart H is to ensure owners and operators are readily able to cover first-party remediation expenses and third-party bodily injury and property damage claims, regardless of how, when, or why releases occurred. Insurance is an option, does it work?

30 Examples Insurance buyer s claim is denied and buys other coverage to submit a claim. Insurance buyer receives a demand from the railroad for a property owned/operated in the early 90 s and submits the claim on a policy in place at that time. Insurance buyer removes the tanks at the site and finds 3 abandoned tanks which clearly have had leaks.

31 Insurance is a Contract The EPA requirements for UST insurance language is minimal allowing flexibility. The EPA Study states: What has evolved over time and exists today is an assortment of UST insurance policies purchased by owners and operators which, depending on a lengthy set of circumstances and contingencies, may cover remediation and third-party expenses arising out of releases from regulated USTs.

32 Insurance is a Contract The EPA Study states: Insurance carriers have an obligation to ensure that reimbursements are reasonable and consistent with the terms of the policies. (footnote) Footnote: Practically, relying on pollution insurance to finance UST cleanups and third-party damages means that someone, other than the owner or operator, plays a predominant role in determining and controlling whether and when funds will be provided by the insurance policy and which expenses will be reimbursed.

33 Mandatory Provisions Required Of UST Pollution Insurance Policies The EPA Study states: The analysis indicates that the policies generally complied with a majority of the federal UST FR regulations applicable to UST pollution insurance policies. Policy language issues: Coverage For Temporarily Out Of Service Tanks Retroactive Dates Status Of UST System At Time Of Release Claim Notification Requirements Policy Definitions

34 So, do you cover anything? Our experience in 2009 reported to the EPA as part of their study: Policies: over 2,000 Claims: 50 Declinations: 7 2 in which the insured bought insurance after the incident 2 incidents where prior carrier was covering the claim 2 for non-covered costs (cathodic protection repairs and cleanup costs on 3 rd party only policy) 1 for non-incident; cancelled insurance but never pulled tanks, no mandate Amount paid in 43 covered claims: $3,055,000 (est.)

35 Anecdotes From Owners And Operators The EPA Study states: The final aspect of EPA s study involved reviewing litigation related to UST insurance and summarizing owner s and operator s experiences with UST insurance. The limited results of data collection efforts discussed above do not suggest that excessive claim denial by insurance carriers is a systemic issue. Previously, EPA approached the Petroleum Marketers Association of America (PMAA) to explore this notion and determine whether individual state association members were encountering UST insurance problems. After two years of examination, PMAA concluded it could not draw meaningful conclusions or identify national trends of concern from its insurance-related survey of state UST programs and conversations with state executives.

36 Educating Owners and Operators about UST Pollution Insurance The EPA Study states: Possible strategies include educating owners and operators about: UST insurance; compliance with FR insurance requirements; specific policy provisions to which they should pay particular attention; and recommended practices that may reduce the chance of complications when filing claims with their insurance carriers (e.g., reporting releases as early as possible, or conducting a site assessment prior to temporarily closing their UST systems). This is why I m here!

37 Conclusions And Potential Next Steps The EPA Study states: it does not appear that insurance carriers are excessively or dismissively denying claim payments. Footnote: The 14 state databases analyzed in EPA s The National LUST Cleanup Backlog: A Study Of Opportunities suggest that, in general, the age of releases of privately financed cleanups are slightly younger than the age of releases of state funded cleanups.

38 Suggestion What does work? Insurance: pros and cons State funds: pros and cons

39 Suggestion

40 Questions? Ask Heather! (or Jill)

41 Tank Insurance Unlock the Mystery Khan Adams, CPCU, AIC Great American Specialty E&S 301 E. 4 th St., Great American Tower 25-S Cincinnati, OH (513) kladams@gaic.com