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

 

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”

Long-Tail Environmental Liabilities; That’s Why You Bought Insurance

Written by Steve Henshaw, P.G., President & CEO, EnviroForensics
As seen in the June 2013 issue of Cleaner & Launderer

 

Last month over 200 active or former dry cleaners received a letter from the State of California informing them that if they would pay money to the State, the State would settle a claim against them for contributing to environmental contamination at a long closed out solvent recycling and waste management facility.  The drycleaners followed the law and sent waste solvent and filters to a hazardous waste management facility that was licensed by the State of California to handle such material.  As part of having a license to operate, this facility was required to have a cleanup bond to pay for the removal of stored material and the cleanup of environmental contamination at the site.   Should they shut down and walk away before such cleanup activities were completed.

While this particular situation seems unfair, I assure you that it is not uncommon.   Whether it is the government, or a neighboring property owner, or a new owner of the site, environmental liability does not go away.  Environmental contamination can lay dormant for years, even decades, but at some point, more often than not, it gets cleaned up and somebody has to pay for it.  And when somebody has to pay, even if that somebody is the government, those that owned or operated the facility that generated, transported or disposed of the hazardous waste, contributing to that contamination, can be held liable for the cost of investigation and cleanup.

Today I want to tell you once again about long-tail liabilities and how they won’t go away.  In fact, like taxes, the environmental statutes were written so that they would not be discharged or forgiven through a bankruptcy, ownership transfer, possibly even estate probate.  Continue reading “Long-Tail Environmental Liabilities; That’s Why You Bought Insurance”

EnviroForensics Provides Litigation Support Services Nationwide

Written by Justin Gifford, General Counsel, EnviroForensics

Whether you’re an attorney that specializes in complex environmental tort claims or are riding herd over specialized outside counsel, environmental law is unique in its blend of science, regulation and statute. When it comes to defending against EPA claims or pursuing actions against third-party polluters in complicated class actions, few if any individual lawyers or firms are able to successfully carry the day without a strong litigation support team, and that’s where EnviroForensics comes in. Coordinating technical experts with decades of experience with insurance archaeologists and risk managers, EnviroForensics’ full-service environmental Litigation Support Services are unmatched.

EnviroForensics provides a variety of services which can be critical to achieving the desired outcome in environmental litigation. Some of the litigation support services that EnviroForensics provide include determining the fate and transport of subsurface contaminants, human health & ecological risk assessments, Confidential Insurance Archaeology ® to locate coverage, damage assessments, expert witness testimony, coordination of expert witnesses and preparation of courtroom exhibits. When cleanup bills, property damage and responsible party status are on the line, EnviroForensics’ Litigation Support Services can act as a critical part of your legal strategy.

Do You Know Your Company’s Most Valuable Assets?

Written by Steve Henshaw, P.G., President & CEO, EnviroForensics
As seen in the May 2012 issue of Cleaner & Launderer

PDF Version

When executives talk about a company’s assets, they generally refer to people, property, buildings, equipment, clients, job contracts, and intellectual property.  I’m sure there are more, but how often do executives think that some of their greatest and most valuable assets are old insurance policies that were purchased 10, 20, even 50 years ago?  It’s true – old insurance policies, normal commercial general liability (CGL) insurance policies, that were purchased to protect and cover against claims of bodily injury, other physical injury or property damage and to protect your businesses against incidents that may have occurred on your premises or at other locations where you conduct business could be worth millions of dollars.

If you already know this, then I’m sure you have all of your old insurance policies stored safely and securely.  You also have a summary that shows the coverage by year, along with the names of the insurance companies that issued the coverage, the policy numbers and the policy limits.  If you don’t have this information safely stored, protected from fire and water damage, then you should read on. Continue reading “Do You Know Your Company’s Most Valuable Assets?”