Still Fighting the Good Fight Using Old Insurance to Cover Investigation and Clean-up Costs

Written By: Steve Henshaw, President and CEO of EnviroForensics

As seen in the March 2015 issue of Cleaner & Launderer

PDF Version

More often than not, environmental contamination and historical operations of a dry cleaning business go hand in hand.  While this may sound unfair, one could say the same thing about the historical operations of a gas station, a metal plater, even a computer microchip manufacturer.  Particularly true for activities in the 1970’s and 80’s, industries that used chemicals for cleaning and degreasing were not aware that those chemicals when spilled, even accidentally and in small quantities, could and often have lead to soil and groundwater contamination.

Degreasers are often comprised of a hydrogen atom, tightly connected to chlorine atoms and fall under a general organic chemistry category called chlorinated hydrocarbons or chlorinated solvents.  These chemicals are characterized as being heavier than water (so they sink in the groundwater zone), persistent in the environment (meaning they don’t decompose very fast over time), volatile (meaning they prefer being in the gas phase over the liquid phase) and carcinogenic (meaning they have been determined to either cause cancer or may likely cause cancer to people being exposed at certain levels).  No matter which side of the argument you stand on, whether cleaning solvents cause cancer or not, one thing everyone should agree on is that investigating and remediating sites where chlorinated solvents like PCE (PERC) or TCE are present is very expensive.

With respect to responsibility, any person or company that owned or operated a business where chlorinated solvents were used should know that with very few exceptions, they are legally liable for contamination associated with that business and operation.  Worse yet, the law states that an individual or the business is held jointly and severally responsible.

Finally, like taxes, environmental liability is considered a long-tail liability in that it never goes away.

On the face of it, what I’ve presented seems so unfair.  After all, chlorinated solvents were considered to be safe and state of the art and were not explosive or flammable like petroleum based products (e.g. kerosene or Stoddard solvent).  People were handling the solvents in accordance with the laws of the time some 50 years ago and now they are considered an environmental risk subject to legal enforcement.  Businesses that operated with good housekeeping practices and followed the rules are subject to be in the same category as a business that showed blatant disregard for the laws or the environment and operated a filthy business.  A business that operated one year is just as liable for the environmental contamination as a business that operated for 20 years.  Who makes this stuff up?  It most certainly is not fair.

Enough of the doom and gloom, what can a person do to protect themselves from a possible environmental contamination lawsuit?  It’s all about the records and the most valuable documents a person can find and keep are old insurance policies.  Additionally parties that are legally liable for contamination need to be searching for past owners and operators of businesses the may have contributed to the contamination.  The search should also include the past property owners

Old insurance policies; normal, everyday, comprehensive general liability (CGL) insurance policies, which were written years ago for protecting a business from slip and fall accidents, fires, other unexpected risks, can also cover unexpected and unintended spills and releases of solvents.

It is important to know that insurance case law is dynamic and specific issues are being tried and changed continuously in the state and federal courts.  Some states would be considered pro-policyholder and some states pro-insurance depending on fact patterns, circumstances and specific court decisions.  What is commonly accepted in one state may not be true in another state.

For years we have espoused that business owners need to find their old insurance policies and store them in a safe, dry and fireproof place.  CGL policies were purchased by business owners to cover them against liability exposures of a business, unless such liabilities were specifically excluded in the policy.  Generally speaking, prior to the early 1970’s, CGL policies did not contain language that excluded environmental pollution and contamination.  Between ~1972 to ~1985, CGL policies contained language that covered “unexpected and unintended releases”.  Such unexpected and unintended releases mean accidental releases or accidental spills, not intentional releases, which would be better defined as dumping or disposing.  For example, common insurance policy language in the 70’s and 80’s states, “This policy does not apply: To personal injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any water course or body of water, but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental.”

After ~1985, most insurance companies added very specific language to CGL policies that contained absolute pollution exclusion.  In other words, they were not covering individuals and businesses for pollution or contamination associated with dry cleaning operations.  A separate environmental policy would be required to cover environmental pollution and contamination

Better still, the courts in some states have ruled that the term “pollution” and therefore “pollution exclusion” is an ambiguous term the way the insurance policies were written, even after the nationwide changes that took place in ~1985.  Consider this logic, gasoline is purchased by a service station.  If an accident happened while you were filling your car at that service station that injured you or someone you were with, you would expect the service station or someone involved with the accident to have insurance that would pay for your injuries.  Yet, if the gasoline drained into the ground and caused contamination to a drinking water body it was not covered by insurance because the gasoline was now considered a contaminant.  I think that logic was in play when courts of some states ruled that the word contamination was ambiguous.

So, going back to the basic point, if you or your business bought CGL insurance before the policies contained absolute pollution exclusion language, you are likely to have insurance coverage that can address environmental contamination, even if that contamination has only been recently discovered.  If you acquired the business, the business before you may have insurance that would cover environmental contamination costs.

You might ask, that’s all great, but what if I can’t find my old policies or the policies that were bought by former owners?  In my experience, more times than not, those old policies (or evidence of insurance) can still be found.  There are companies that have investigators called insurance archeologists that focus on finding old policies or evidence of old policies.  In my experience, more often than not, a good insurance archeologist can find evidence of old insurance.

OK, you have found old insurance, now what?  Insurance is designed to defend and indemnify a policyholder against a claim.  That claim is the demand from the regulatory agency or third party requiring action to mitigate the damage or harm.   In some states a claim or suit could be a letter from the regulatory agency or a neighboring property owner demanding a response to identified environmental contamination.  In other states the courts have determined that the insurers must only defend an actual lawsuit.

In pulling this concept together, a defense would include paying for lawyers dealing with the environmental contamination.  A defense would also include quantifying an individual or business’s exposure and liability.  The only way to quantify environmental liability is to collect environmental samples (e.g. soil, soil gas, indoor vapor, and groundwater).  It would also mean determining how expensive a cleanup would be, which means that aquifer tests, feasibility studies, and remediation technology evaluations, should be covered.

Obviously, the process of using old insurance policies has many parts.  There may be an insurance archeology component, a legal component, and a technical component and they all have to work together.   Understanding all aspects of the process is not your job, that’s what you hire experts for.

If you’re facing an environmental liability of hundreds of thousands of dollars, you should look into how old insurance policies could work for you.  Hundreds of business owners have used historical insurance to help pay for investigations and remediations and it doesn’t stop there.

Depending on the set of facts, known environmental insurance claims can be sold and assigned to other third parties to manage and run.  Small businesses, including their stock, insurance assets and liabilities can be bought and sold.  There are numerous permutations to the business side of managing environmental claims and a whole new industry is in front of us.  It might be encouraging to know that there are those out there still fighting the good fight.

With over 30 years of experience, Mr. Henshaw has built a leading edge environmental engineering company that specializes in finding the funding to pay for environmental liabilities.  Mr. Henshaw holds professional geology registrations in numerous states. And serves as executive manager on hundreds of environmental projects.  He specializes in managing environmental risk and liability and has been involved with complex business transactions that have included shifting environmental liabilities, insurance claim assignment and third party assumption of insurance assets and associated claims.


With 30 years of experience, Mr. Henshaw holds professional geology registrations in numerous states. As President and CEO of EnviroForensics, Mr. Henshaw serves as a client and technical manager on projects associated with site characterization, remedial design, remedial implementation and operation, litigation support and insurance coverage matters. He has acted as Project Manager or Client Manager on several hundred projects, involving dry cleaners, manufacturers, landfills, refineries, foundries, metal plating shops, food processors, wood treating facilities, chemical blenders, and transportation facilities.

Mr. Henshaw has built a leading edge environmental engineering company that specializes in finding the funding to pay for environmental liabilities. By combining responsible party searches with insurance archeology investigations, EnviroForensics has been successful at remediating and closing sites for property owners and small business owners across the country, with minimal capital outlay from clients. 

He is a regular contributing writer for several dry cleaning trade publications on environmental and regulatory issues and remains active with dry cleaning associations by providing insight on changes in law and policy.
For more information, contact Steve Henshaw at: shenshaw@enviroforensics.com

 

HOW CLEAN IS CLEAN MAY DEPEND ON HOW CLEAN YOU NEED IT TO BE

Written by Stephen R. Henshaw, President & CEO, EnviroForensics

As seen in the November 2014 issue of Cleaner & Launderer

PDF Version

“How clean is clean”, has been a phrase that has been debated for decades.  It is used in reference to determining the degree to which a site that is contaminated by chlorinated solvents such as PCE (Perc) and TCE, needs to be cleaned up and remediated before the site is deemed to be free of environmental encumbrances.   Commonly this clean up level is based on concurrence from the regulatory agency overseeing the site. When the regulatory agency determines that cleanup levels have been satisfactorily demonstrated, they will issue a No-Further-Action (or equivalent) letter.  But not all site closures are equal, nor in the best interest of the property owner.

I want to tell you this because obtaining site closure may not avail a property owner with property that can be marketed and utilized to its fullest value, even constricting future land uses.  I want to tell you this because most people are so afraid of the environmental contamination that their focus is on getting the site closed.  By putting the site closure focus ahead of the future value may leave a property owner with a long-term management problem and an under preforming asset.  If property owners do not think about the future land use and long-term monitoring requirements of a property, they could be restricted to use the property for a specific land use (e.g. industrial or commercial) by way of a deed restriction that is placed on the property for generations to come.  The property owner could be required to manage contamination left in place by having to ensure that the deed restriction is enforced. They could be required to maintain the operation and maintenance of a vapor mitigation system for as long as twenty to thirty years after site closure.  They might even find that a bank is not willing to lend on the property, restricting the use of the property as collateral for fear of future changes in the law or potential future third party personal injury or property value claims.

Continue reading “HOW CLEAN IS CLEAN MAY DEPEND ON HOW CLEAN YOU NEED IT TO BE”

Closure and Long-Term Stewardship of Contaminated Sites; Will PCE and TCE Ever Go Away?

Written by Stephen R. Henshaw, President and CEO of EnviroForensics

As Seen in the July 2014 issue of the Cleaner & Launderer

PDF Version

You’re involved with a soil and groundwater cleanup and it seems to go on and on. Month after month your lawyer and your consultant send you a bill. This month they want to drill more borings, next month they want access to collect more groundwater samples, or maybe they want access to your building to collect additional indoor air samples. It’s gone on so long that you are numb and it’s to the point that you feel everyone is on the dole at your expense. What I want to tell you today is that there is, or should be, an end game. That end game is a plan and schedule for obtaining regulatory site closure.

Every site needs a plan and a schedule that lays out the steps that will be taken to obtain site closure. Like all plans, it can change based on new information, new regulations, new requirements, and new science and technology. But, if you don’t have a plan you will be spending lots of time and money unnecessarily. Most importantly, if you don’t have a plan and a schedule, you won’t get regulatory site closure.

Most consultants understand the basics of how to conduct a site investigation and proceed toward the cleanup. The basics include determining the extent of the horizontal (length) and vertical (depth) extent of the contamination, evaluating the remedial options, and implementing the remedial options. However, that is only a part of the site closure process.

One of the most important things to understand is how long will the remediation take? That is the $64,000 question, or in your case the $500,000 question. The time it will take to obtain regulatory site closure and the cost will be greatly affected by the number of years that long-term monitoring and stewardship will be required.

Long-term stewardship applies to sites where contamination in subsurface mediums (soil, soil gas and groundwater) needs to be monitored over time to ensure that people are not adversely affected by the contamination. As a point of reference, if contamination is left in place or if residual concentrations of contamination remain in the soil and groundwater, long-term monitoring and stewardship is generally required. For example, when chlorinated solvents are remediated in soil and groundwater, it is not uncommon for some amount of contamination to remain in the subsurface. I would almost always advocate remediating the source area, even if the down gradient plume were allowed to degrade under natural conditions. But in some situations residual contamination may still exist in the source area after remediation has been completed, like when contaminated soil that is present under load bearing walls and footers that cannot be reached during excavation has to be left in place. Think of contamination in tight soils that are not porous and air and liquids do not easily move through. When contamination is left in place, long-term monitoring and stewardship will be required.

Long-term stewardship typically focuses on the physical and legal controls to prevent unacceptable exposure of the contamination to people. Examples of physical controls would include engineering controls such as asphalt caps (even parking lots), monitoring of groundwater to ensure that the contamination is not continuing to migrate and increase in concentrations, monitoring indoor air or sub-slab soil gas to ensure that vapors are not entering buildings at unacceptable concentrations, and maintaining on-going mitigation equipment such as sub-slab depressurization systems (“radon mitigation systems”). Examples of legal controls would include ensuring that the deed restrictions (environmental restrictive covenants) are being adhered to, verifying that wells are not being used for water supply, making sure that construction workers in the area are following protocol when disturbing contaminated soils, and making sure workers follow appropriate procedures when managing contaminated soils and groundwater during construction and dewatering activities.

As more and more sites will close using risk-based approaches, contaminated soil and groundwater will be left in place and long-term stewardship will be required. It is going to be critical to know what future responsibilities will be required of you in order to leave contaminated soil and groundwater behind.

Unfortunately post closure, long-term stewardship is a topic that is generally not discussed at the front end of the site investigation and remediation process. Failure to understand long-term stewardship as part of the risk based closure strategy could mean you’re on the hook a lot longer than you ever dreamed possible, leaving yourself open to liability along the way.


With 30 years of experience, Mr. Henshaw holds professional geology registrations in numerous states. As President and CEO of EnviroForensics, Mr. Henshaw serves as a client and technical manager on projects associated with site characterization, remedial design, remedial implementation and operation, litigation support and insurance coverage matters. He has acted as Project Manager or Client Manager on several hundred projects, involving dry cleaners, manufacturers, landfills, refineries, foundries, metal plating shops, food processors, wood treating facilities, chemical blenders, and transportation facilities.

Mr. Henshaw has built a leading edge environmental engineering company that specializes in finding the funding to pay for environmental liabilities. By combining responsible party searches with insurance archeology investigations, EnviroForensics has been successful at remediating and closing sites for property owners and small business owners across the country, with minimal capital outlay from clients. 

He is a regular contributing writer for several dry cleaning trade publications on environmental and regulatory issues and remains active with dry cleaning associations by providing insight on changes in law and policy.
For more information, contact Steve Henshaw at: shenshaw@enviroforensics.com

Remediation of PCE and TCE in Impacted Soil and Groundwater Requires Teamwork and Coordination

Written by Stephen R. Henshaw, President and CEO of EnviroForensics

As Seen in the May 2014 issue of the Cleaner & Launderer

PDF Version

Cleaning up soil and groundwater contamination from a release of chlorinated solvents, such as tetrachloroethylene (PCE) and trichloroethylene (TCE) can be a time consuming and complicated process.  That’s why it is so important for you to build the right team to represent you during this process.  That team should understand what your business plans are and your schedule for implementing those plans.  Dealing with environmental contamination is a crossroads of where you have been and where you are going with your business and your future.  It can be an opportunity that forces you to make decisions that you may not have considered, like, “What do I want to do with the business? What about the property?”  If you don’t develop the right team, you could spend a great deal of money addressing the cleanup without having a road map as to what to expect.  If you do not have the right team you could have business interruptions from drilling activities, and face a parade of activities that seem never ending.  With the right team, you don’t need to become an expert on environmental matters – that’s what you have them for. They’re the experts and they communicate with you so you know what’s going on without needing to take chemistry classes. You should be able to focus on your business, while your team focuses on how to move your project through the site closure process.

The most important thing to understand about this concept of building the right team, is that the team must represent the outcome that you desire, within your expectations, and the team that you rely on needs to be strong enough to give you the truth and their best professional opinions, even when the news is bad.  The second most important point is that your team needs to have a good working relationship with one another.  Your consultant and your attorney need to be on the same page as to the Site Closure strategy.  Depending on the business owner’s future plans, site closure strategies might vary significantly.  Your strategy might be to sell your business, but while the property is being remediated, you can’t.  You may own the property and want to refinance it, but most banks are reluctant to loan on the property as long as it is impaired.  You may have no immediate plans to change your business at all and you just want to control the outflow of cash while you focus on growing your business.  These are all different business scenarios that I’ve seen and they all directly affect the site closure strategy. Continue reading “Remediation of PCE and TCE in Impacted Soil and Groundwater Requires Teamwork and Coordination”

H.B. 1241 would cost jobs, livelihoods, business owners tell Senate

NEWS

Date:                   February 19, 2014

Contact:

Guy Johnson (317) 503-4605, guy-pr@sbcglobal.net

Justin Gifford (317) 972-7870, 812-371-9189 (mobile),  jgifford@enviroforensics.com

H.B. 1241 would cost jobs, livelihoods, business owners tell Senate

A coalition of Indiana business owners is asking state senators to defeat a House-passed measure that would deny insurance coverage for cleaning up pollution.

The business owners say the proposed bill (H.B. 1241) would harm small and large employers alike because it would prevent business owners from being able to use their commercial general liability policies, as written, to cover pollution damages and remediation costs. The bill draft allows an insurer to have a free hand not to cover well-known pollutants or to define pollution so vaguely as to avoid paying for clean up.

The business owners sent letters to state senators in their district and will testify against the measure at 10 a.m. Thursday (Feb. 27) before the Senate Insurance Committee. (Statehouse room 130.)

In his letter to state senators hearing the bill, and in testimony prepared for the hearing, Steve Schmitt, who owns Don’s Clayton’s Fine Drycleaning in Evansville and Newburgh, says he has owned the business started by his father for 40 years and uses modern, approved chemicals that do not cause pollution. But insurance has helped him pay for cleaning up old chemicals. “This legislation in not retroactive, but it will put pressure on us in the future. Without the help of my insurance policy, I would have had to close my business and my 106 employees would have lost their jobs. I expect to pay for business insurance, but I also expect to buy reasonable coverage that I understand at an affordable cost. HB 1241 takes that option off the table.”

Another business owner testifying before the committee says his business doesn’t use chemicals, but he lives with the legacy of pollution left from a printer and battery manufacturer who previously owned his building.

Wes Hawk, owners of Office Furniture Mart in downtown Indianapolis, says, “I don’t have an ax to grind with insurance companies. They’ve treated me fairly. But this legislation just cannot stand. Similar legislation has been tried before and has lost on its merits when wiser heads prevailed.”

Hawk says he is in the process of cleaning pollution from underneath the building he has owned since 1995. The building passed environmental inspection then, but newer technology has uncovered pollution left behind by two previous owners.

Hawk says, “You can find stuff like this in the ground almost anywhere downtown or in an industrial setting. If current owners can’t be insured — something that H.B. 1241 would virtually guarantee — how is this stuff going to be cleaned up?”

The Indiana Supreme Court has previously reviewed the contracts that the legislation would allow and held that the exclusions were ambiguous and unenforceable.

The Indiana Legislative Services Agency has said the proposed bill would increase the workload of the Indiana Department of Insurance as it pursues administrative sanctions against insurance companies that fail to define their policies adequately to customers.

H.B. 1241 was written by Rep. Martin Carbaugh (R-District 81) and passed the House 57-36. It was sent to the Senate where it is sponsored by Sen. Travis Holdman (R – District 19).

Steven Meyer, assistant administrator of Brownfield Redevelopment for the City of Indianapolis says, “Indianapolis has a long history of successfully using insurance proceeds to revitalize properties and create jobs. This legislation puts at risk our ability to address the environmental contamination at sites across the city.”