How Do Changing Laws Affect Dry Cleaners?

Written by Stephen Henshaw, P.G., CEO of EnviroForensics
As seen in Cleaner & Launderer

Over the years, I’ve written about the opportunity to utilize historical Comprehensive General Liability (CGL) insurance policies to assist in funding legal work, site investigation activities and remediation in response to claims made by environmental agencies and landlords. When I first started meeting with dry cleaners to discuss the notion that historical insurance policies were valuable assets, most business owners wouldn’t acknowledge that they had accidental spills of cleaning solvents which contaminated or may have contaminated their site. Early on, the regulatory agencies were not aggressively focusing on the dry cleaning industry as a central theme in regional and local groundwater pollution problems. The agencies were not trying to phase out PERC, and indoor vapor intrusion from dry cleaning solvents was more of a hypothetical discussion than a regulated action.

Today, the wheels continue to turn as agencies have tightened their grip on phasing out PERC and are evaluating potential risks to residences and workers where solvents have been detected in soil gas and indoor air. Court decisions involving complex environmental liability matters continue to change. Where certain state and federal courts once construed the law to allow dry cleaners to use general liability insurance policies to defend against environmental liability claims, those rulings are today being distinguished so as to reduce their precedential authority. While the occasional state court decision favors the policyholder, the rulings now usually favor the insurer’s argument that it has no duty to defend, or if they do, they are limited as to the time period in which they insured the business.

Also, when you consider the current state of the insurance industry, which is constricting by merger and acquisition, plus some disturbing findings regarding the solvency of some of the carriers, it becomes apparent that dry cleaners need to think proactively about how to address the problem of long-tail environmental liability.

In March 2010, an article in Business Insurance forecast the liquidation of Kemper Insurance Company within the next few months. When Kemper officially goes into a state-managed run-off, there will be a small window of time in which policyholders will be allowed to file claims to qualify for cents on the dollar in coverage. Following the end of this run-off period, there will be no coverage under these policies. They will effectively have gone from valuable to valueless in a matter of months.

What will this mean for dry cleaners? Kemper Insurance Company’s lead insurance unit, Lumbermen’s Mutual Casualty Company, marketed its special multi-peril and general liability insurance policies to the dry cleaning industry quite successfully in the 1970s and 1980s. Lumbermen’s Mutual policies were sponsored by dry cleaning associations in various states. Some state dry cleaners associations like the former California Fabricare Institute even purchased a master policy from Lumbermens Mutual for its members and then issued subscriptions to individual dry cleaners. If those dry cleaners covered under these policies wait until their landlords or neighboring landowners discover groundwater contamination traceable to their former operations, it will likely be too late for them to use these historical insurance policies to obtain defense against these claims. They will be required to pay legal fees, and environmental engineering costs out of their own pockets.

Self-preservation requires that dry cleaners act now to pull together their historical insurance policies; that they act now to determine whether contamination in soil or groundwater exists on their business properties. This dangerous environment also demands that they associate themselves with environmental consultants with knowledge of these matters, professionals who know how to guide and assist them in using all the resources at their disposal now to prevent catastrophes from overwhelming, even bankrupting their businesses.

It’s a Good Idea to be Proactive!

Written by Steve Henshaw, President & CEO, EnviroForensics in collaboration with Justin Gifford, General Counsel, EnviroForensics
As seen in the January 2010 issue of Western Cleaner & Launderer

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Opening up Google, a newspaper, turning on the radio or catching the evening news is sure to expose you to the national debate over health care and insurance. Through that exposure, most of us have gained at least a passing familiarity with the issue of “pre-existing conditions.” Insurers either refuse outright to cover a person with a pre-existing condition or exclude that condition from the coverage, leaving the insured to pay for it out of his pocket. Environmental liabilities and using historical insurance to offset those liabilities are not the focus of a lively national  debate, yet the costs incurred by drycleaners each year due to a similar problem are staggering.

We receive calls on a regular basis from drycleaners or property owners already engaged in defining the size of a spill or actively remediating it at the “request” of regulatory agencies asking for our help locating historical insurance to pay for the investigation and cleanup. Often times, we are able to locate that insurance to fund the clean up…but just as often, the twenty, thirty or   hundred and fifty thousand dollars already spent by our client cannot be recovered from the insurer even though the spending was necessary to comply with the regulator’s orders.

Continue reading “It’s a Good Idea to be Proactive!”

Good Housekeeping Includes Good Record Keeping

Written by Steve Henshaw, President and CEO of EnviroForensics and PolicyFind
As seen in the December 2009 issue of Western Cleaner & Launderer

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You can tell a lot about a drycleaner’s operation by the way that he conducts housekeeping. That is to say that if a drycleaner keeps a clean store, he probably handles chemicals in a manner that minimizes environmental releases. However, good housekeeping alone may not keep you out of hot water with the regulatory agencies.

There are some simple, effective and inexpensive ways to protect your business and your assets from liability by keeping good records. If you’ve ever watched one of the procedural crime dramas, the plot usually turns around “the evidence.” Creating, organizing and maintaining records can be the evidence that keeps you out of trouble. Hazardous waste manifests, perc purchase/disposal records, transporter license numbers and treatment facility identification numbers are all examples of things you should (or, in some cases, must) keep records of. However, those records aren’t just in case of a major problem. They can help you identify a minor problem before it gets serious. Continue reading “Good Housekeeping Includes Good Record Keeping”

How Insurance Archeology Can Assist Dry Cleaners When Environmental Contamination Claims Threaten Their Business

By Steve Henshaw, P.G., CEO of EnviroForensics, in collaboration with David O’Neill, Director of Investigations, PolicyFind
As seen in Cleaner & Launderer

The dry cleaner had gone to the attic in search of his old business package policies. He explained that he had no idea before visiting an attorney that these old expired insurance policies could be of any use to him. Since they were package policies, they contained more than one line of insurance. Parts of the policy provided coverage against damage to his building, against break-ins, storm damage and even workers compensation coverage. As far as he knew, all of this coverage had long ago expired. Why would he still have copies of these old policies? There was no reason, he thought, that he would have kept them. They would have to be in a box or two that he had neglected to put in the dumpster. He had been told by his attorney to look for that part of the policy that addressed damage to the property of others. Not damage to others he might do in his delivery van. That was covered under the automobile insurance section of the policy. Rather, it was the part of the policy that covered his customers (the slip and fall coverage) that he was looking for. His attorney had told him that that part of the old package policies could provide him the coverage he needed now to address the environmental contamination of his property from perchloroethylene (Perc) spills below ground that had occurred years earlier.

It was these Perc spills that apparently had caused all the trouble. The landlord, a strip mall owner, had been refinancing and the bank required that he conduct a simple environmental audit that had included soil sampling. The samples had shown Perc in the soil at his end of the strip mall. The landlord was going to have to clean this up to get his refinancing. The cleanup would be expensive and the dry cleaner was expected to take care of the bill because he was the one who had inadvertently put the Perc into the soil over the many years of his operation there.

To understand Perc contamination, read “What makes cleaning up Perc spills so expensive?”

The attorney had assured the dry cleaner that this was indeed legal. The law in his state required that “the polluter” remove the pollution or at least reimburse the landlord if he had to have it done. Up until this time, the dry cleaner had not considered himself a polluter. It was a new role he was going to have to get used to.

His attorney had explained that in his state, as in most states, it took policies issued before 1986 to pay for environmental investigations. This was because the later policies contained pollution exclusions that the courts in his state recognized as barring coverage for Perc spills. Paying the landlord’s environmental experts was likely to be too great for the dry cleaner to handle. After years of operating a successful business, he had significant savings, but these ongoing costs could deplete that savings account in no time. He may even need to consider bankruptcy unless he could find those insurance policies issued before 1986, and successfully file claims that would require his insurers to step in and defend him.

Calling In the Insurance Archeologist

Digging around in the attic, he succeeded in finding one collection of old policies, but these policies dated only to the late 1990s. Telephoning the insurance agent identified on the policies, the dry cleaner found that that insurance agency was no longer in business. Despairing, he reported his lack of success to the attorney, prepared to discuss bankruptcy instead of insurance recovery. However, the attorney suggested another option. He suggested that the dry cleaner hire an insurance archeologist to see what insurance might be located elsewhere.

An insurance archeologist locates and retrieves proof of the existence, terms, conditions and limits of lost or destroyed insurance policies.

Working backward from the earliest insurance policy, the insurance archeologist was able to discover that another insurance agency had purchased the defunct agency’s book of business prior to closing. Contacting that insurance agency, the archeologist found that old policy files no longer existed, but that the agent would permit him to review his old accounting files. A review of these files identified some premium notices issued to the dry cleaner in 1985. These notices identified policy numbers, dates and insurance carrier.

The insurance archeologist provided a specimen policy issued by the same insurance carrier to a different dry cleaner in his state from the 1985 policy period. This policy had a pollution exclusion on it but that exclusion, the attorney advised, was not a bar to coverage as long as the Perc releases had not been intentional, and had been “sudden and accidental.”

Using the premium notices and specimen policy together, the dry cleaner’s attorney was able to file a claim with the insurance company. The company stepped in to defend the dry cleaner, paid his attorney fees and paid the landlord’s environmental experts.

To learn more about what CGL policies can fund, read “How does it work? Insurance archeology and CGL policies”

The moral of the story? Don’t give up. Get some professional help and look under every rock. Ask your attorney about how insurance archeology can help you locate the records you need to defend against environmental claims.

Contact us for a confidential consultation>


About the Authors

Steve Henshaw, PG
CEO, EnviroForensics

Entrepreneur and expert on environmental liability, Steve Henshaw has 30 years saving transactions by compelling carriers to cover legal cleanup costs for site owners. Henshaw holds professional geology registrations in numerous states. As CEO, Henshaw has served as a client and technical manager on over 350 projects associated with site characterization, remedial design, remedial implementation and operation, litigation support and insurance coverage matters. These projects include landfills, solvent and petroleum refineries, foundries, metal plating shops, food processors, wood treating facilities, chemical manufacturers and distributors, mines and quarries, heavy equipment manufacturers, computer manufacturers, and transporters. He has experience in a variety of geological settings including soft sediments, fractured bedrock, glacial outwash, wetlands, and landslides. Henshaw’s expertise includes a strong knowledge of past and current industry practices and procedures, and a hands-on, practical understanding of the fate and transport of contaminants in soil and groundwater. He has also served as a testifying expert on liability issues on behalf of individual landowners and facility operators at several sites impacted by industrial activities and continues to provide technical and litigation support services.

David O’Neill, JD
Director of Investigations, PolicyFind

David O’Neill has 30+ years of experience in claims recovery on behalf of corporate policyholders involving environmental property damage and toxic tort and asbestos exposure claims. O’Neill has extensive experience in locating and retrieving insurance coverage evidence on behalf of potentially responsible parties responding to environmental investigation and remediation demands. His former investigative work includes unique matters involving Holocaust victims rights, mergers & acquisitions of a national landfill operator, and on matters involving national archives.

Using Old Insurance to Cover Investigation and Clean-Up Costs

Written by Steve Henshaw, P.G., President & CEO, EnviroForensics
As seen in the September 2009 issue of Cleaner & Launderer

PDF Version

I heard from some readers that my last few articles were a little too technical and in addressing those comments, I’ve decided to go back to basics. That is to say, what are basic concerns that dry cleaners have? Since this is the Environmental Corner and staying with that topic, it is my experience that one of those basic concerns that dry cleaners might have deals with the questions,“How am I going to pay for an environmental investigation and clean-up?” Old insurance policies may be an answer.

For years I’ve espoused that business owners need to find their old comprehensive general liability (CGL) policies and store them in a safe, dry and fireproof place. CGL policies were purchased by business owners to cover them against all liability exposures of a business unless specifically excluded. Coverage includes products, completed operations, premises and operations, elevators, independent contractors, to name a few. Note the key words, “unless specifically excluded.” These words are very important in determining whether an individual or businesses old insurance policies can be used to pay for environmental investigations and clean-ups.

Continue reading “Using Old Insurance to Cover Investigation and Clean-Up Costs”