Gallagher Environmental Practice. Environmental Risk and Insurance Discussion for Schools, School Districts and School Pools

Transcription

1 Gallagher Environmental Practice Environmental Risk and Insurance Discussion for Schools, School Districts and School Pools JULY 2017

2 Introduction Standard liability and property insurance policies have excluded coverage for claims related to pollution events since 1985; initially resulting in significant coverage gaps in insurance programs throughout the United States. Although there has been a market for pollution liability insurance since 1979, until recently, coverage was very narrow, limits were low and premiums were comparatively high. The market for pollution liability insurance has changed dramatically since Environmental liability coverage is broader, limits are higher and premiums lower. This article will examine how schools, school districts and school pools can effectively use environmental liability insurance to manage the financial risks associated with environmental liabilities. This review is provided by Arthur J. Gallagher & Co., one of the world s leading providers of risk management and insurance brokerage services. Gallagher Environmental Practice specializes in providing environmental risk management and insurance services. Our role as an industry leader is to (1) identify the potential environmental risks our clients may be facing, (2) analyze the risks in terms of potential frequency and severity, and (3) review the appropriate risk control and financing mechanisms, including environmental insurance, available to address these risks. 2

3 Table of Contents Introduction...2 Potential Environmental Liability Exposures...4 Claims Examples...4 Environmental Liability Insurance...5 Environmental Liability Insurance Examples...6

4 Potential Environmental Liability Exposures Schools and school districts encounter many environmental liabilities and cost exposures arising out of their operations. In general, schools may encounter third-party liabilities related to contaminants from known and unknown historical usage/ operations or neighboring properties, and third-party liabilities from ongoing operations. Environmental and regulatory exposures generally encountered by schools include: Sick Building Syndrome (mold, carbon monoxide, bacterial air release and/or vapor intrusion) Legionella in water systems and HVAC Bodily injury claims resulting from lead, asbestos, PCBs, and radioactive material Investigation and defense due to local and regional soil and groundwater contamination Phase I Environmental Assessment performed during the acquisitions of the property fails to recognize environmental conditions Illicit abandonment of materials and midnight dumping Unknowing leaking underground or aboveground storage tanks or piping Property donated to school and school districts with unknown pollution conditions Inadequate containment at loading/unloading areas and for hazardous materials, waste and process areas Construction debris containing hazardous materials (e.g., paint cans, tars, etc.) Poor community relations Complexities regarding waste management regulations Claims Examples Toxic mold was discovered in various areas of an elementary school after several weeks of heavy rainfall, heat and humidity. The school was closed for two months to clean the premises. The cost to remediate the mold was approximately $700,000. An oil pipe burst inside of a school s boiler room. Around 1,800 gallons of heating oil seeped into the floor drain, which ran into an outside storm basin. After a heavy rainfall, the spill flowed downhill into a hospital parking lot and playground center. The estimated cost to clean up the oil exceeded $1,000,000. PCBs from the caulking in the windows of a school contaminated the soil next to the building. The cost to clean up the contaminated soil will reach approximately $100,000. Absence of comprehensive and coordinated spill control plans Lack of coordinated or formal environmental risk management program Lack of a storage tank management program Improper maintenance of laboratory hood filters Easements (rail/roadways/pipelines) on the property with potential environmental implications. Inadequate backflow prevention devices to keep harmful chemicals and microorganisms from siphoning back into the municipal water supply Wastewater treatment operations (insufficient pretreatment, air emissions, effluent, raw material usage, such as chlorine) During a cleanup or abatement (asbestos, mold, etc.) directed by the school or district, the contractor s activities worsen the contamination at the site Hazardous chemical storage (ammonia, processing chemicals, laboratory chemicals, petroleum products, etc.) improper handling of these materials can lead to accidental spills or leaks that require swift action Surface water runoff and storm water discharge Landscaping activities, including application of pesticides and herbicides Unknown lead, or various other contaminates, in the drinking water (such as in Flint, Michigan) Note: This list is not intended to be a comprehensive listing of every environmental exposure found at these types of facilities or organizations, but rather an indication of the exposures that are often encountered. A school district demolished a school building constructed in the 1940s. During excavation, an unknown underground storage tank was discovered. Environmental studies found soil and groundwater contamination on the school property and at two adjacent residential locations. The adjacent residents filed bodily injury and property damage claims against the school district. A large high school decided to construct a new building on the site of a former parking lot. During excavation, petroleum hydrocarbon contamination was discovered. The school was unaware of the historical use of the site. Cleanup costs were in excess of $300,000. Gallagher Environmental Practice Environmental Risk and Insurance Discussion for Schools, School Districts and School Pools 4

5 At a Middle school in Alabama, a three-and-half-pound vial of mercury was accidentally spilled in a sixth-grade science class. At the time, a substitute teacher was in the classroom and because she didn t know what the spilled substance was, it wasn t discovered to be mercury until three days after the incident. Those three days of exposure provided ample time for the mercury to be tracked across the school by students. Total costs of cleanup amounted to over $500,000. A band teacher had been working in a middle school for only one month, when she became ill and was diagnosed with a lung disease called adult-onset asthma. The teacher decided to perform a mold test in the band room, which came back positive. She presented the evidence to school officials, but they didn t reassign her to a safer environment. The school eventually found itself in court, where the judge ruled in favor of the band teacher. The school was required to pay her $1.63 million in lost wages and $150,000 for her lung disease. Environmental Liability Insurance The environmental liability insurance market today is approaching $2 billion in annual premium in which leading insurers, including Ironshore, Great American, Navigators, AWAC, Beazley, Zurich, Aspen, Allianz, XL-Catlin, and Chubb (to name a few) are providing significant coverage at cost-effective rates. As discussed above, schools, school districts and school pools have many potential environmental liabilities that left uninsured, could have a significant financial impact and adversely affect their everyday operations. The policies and coverage summarized below are designed to address these risks and provide cost-effective ways of transferring risk through insurance. Insurance Policy Type Risks Insured Limits Fixed Site Pollution Liability 1. On-site and off-site cleanup, bodily injury and property damage from new and preexisting pollution conditions 2. Business interruption 3. Non-owned disposal sites 4. First- and third-party transportation 5. Defense of claims 6. Indoor air quality, including mold and Legionella coverage 7. Illicit abandonment of materials 8. Underground and aboveground storage tanks 9. Bodily injury and property damage from asbestos and lead-based paint Up to $50,000,000 per loss and aggregate limits are available Over $500,000,000 in limits are available by stacking insurers Gallagher Environmental Practice Environmental Risk and Insurance Discussion for Schools, School Districts and School Pools 5

6 Environmental Liability Insurance Examples Environmental liability insurance coverage is purchased by school districts to insure their environmental risks. A few recent examples include: A large school district with more than 160 members was concerned about the potential third-party claims for bodily injury related pollution claims at their locations, specifically claims caused by mold and asbestos. They purchased a policy that provides coverage for new and preexisiting pollution conditions, with limits of $1,000,000 per occurrence, $2,000,000 per district aggregate and $75,000,000 total policy aggregate. The total premium is about $300,000 annually. A school district was concerned about its potential environmental exposures from the donation of a former steel manufacturing facility. The property was contaminated with low levels of PCBs, lead, solvent and petroleum compounds. The school intended to acquire the property, enroll in the state voluntary remediation program and conduct the remediation prior to redevelopment of the property into a parking lot and recreational fields. At the closing date, the school purchased a 10-year pollution legal liability policy with a $10,000,000 limit to insure against unexpected cleanup costs, and third-party claims for bodily injury and property damage. The total premium for the 10-year period was $120,000. A large school district was concerned about its potential professional and contractor pollution liabilities related to project and contractor management activities for lead and asbestos abatement projects. We designed a combined professional and pollution liability insurance program to insure such claims over a 10-year period with per incident limits of $10,000,000 and a policy aggregate of $20,000,000. A Midwestern university purchased a pollution liability insurance policy to cover donated property that may be acquired in the future. The policy also covers pollution events at or emanating from any of its owned, leased, or operated facilities. The 5-year policy has per loss and aggregate limits of $3,000,000 subject to a $100,000 each incident deducible. The onetime premium paid at the inception of the policy was $60,000. Gallagher Environmental Practice Environmental Risk and Insurance Discussion for Schools, School Districts and School Pools 6

7 Global Headquarters 2850 Golf Road Rolling Meadows, IL Gallagher Environmental Practice The information contained herein is intended to serve only as an overview of insurance policies available. This is for discussion purposes only. For a completed description of coverage terms, conditions and exclusions, the policy/policies must be referred to. Please address any specific questions to your Arthur J. Gallagher & Co. representative. About the Author Anthony Lehnen is the Managing Director of Gallagher s Environmental Practice, which is an expertise group within Arthur J. Gallagher & Co. For over 20 years, he has specialized in understanding the environmental risks faced by clients and designing the appropriate risk management and insurance program to best address these risks. He has underwritten complex coverage terms and conditions for numerous large national and international Environmental Liability insurance programs for oil and gas companies, real estate clients, attorneys, manufacturers, healthcare, engineers, environmental consultants and contractors. Additionally, he participated in the development of environmental management systems for refineries and chemical manufacturing plants and performed numerous environmental due diligence assessments and regulatory audits of facilities in various industries. For more information, please contact a Gallagher Environmental team member: Chicago Managing Director Anthony Lehnen, CHMM Anthony.Lehnen@ajg.com Tara Frasure Tara_Frasure@ajg.com San Francisco Jonathan Leavens Jonathan_Leavens@ajg.com Cameron Douglass Cameron_Douglass@ajg.com Luke Trejo Luke_Trejo@ajg.com New York Gene Devine Gene_Devine@ajg.com Amber Chavin Amber_Chavin@ajg.com Tatiana Zaatiti Tatiana_Zaatiti@ajg.com Carl Varteresian Carl_Varteresian@ajg.com 17GGB29566A