In the April issue of Waste Age, I examined insurance coverages that would help mitigate losses waste companies might be subject to in the event of a hazardous waste spill. Little did I know how topical that subject would soon become. The BP/Transocean oil platform disaster and subsequent oil spill in the Gulf of Mexico is a stark reminder that many industry activities pose threats to the environment, human health, property and livelihoods of others. As we continue to watch the companies struggle to contain the spill, the clear takeaway is that a quick and immediate response is the first line of defense in controlling damage and claims costs.
The oil industry is one thing, but how big an issue are spills for the waste industry? Picture your nice new collection unit operating in an affluent neighborhood that you just won the contract for. Imagine that truck striking a concrete barrier and splitting the saddle tank, or that a load of yard waste somehow catches fire and the fuel tank loses its integrity. Either way, you receive a frantic call from your driver reporting that fuel is spilling all over the street and down into that neighborhood's nicely landscaped retention pond filled with geese. Fuel, hydraulic fluid, antifreeze and other operating liquids do not just plop on the ground and stay there. These materials move quickly, run deep and seep into places they shouldn't be.
Think this can't happen? It can, and it has. So what associated damages can this leave for a waste business? Here are some examples:
Environmental damage: In some situations, the environmental impacts are known almost immediately. A spill can result in damage to the soil, surface water, groundwater and/or air, and can lead to significant cleanup costs. Large fines and penalties can and will be assessed against a firm responsible for damages to natural resources.
Human health consequences: The impact on human health will be greatly influenced by the toxicity of the material released, the route of exposure, the length of exposure and the predispositions of the exposed individuals.
Property damage: Even after environmental impacts have been remediated, other property damage may have been sustained.
Business interruption: While you are cleaning up a mess, you might not be able to perform your regular duties, impacting your source of revenue. Moreover, if your mess prevents others from conducting business, you may be subject to third-party claims.
Bad press/public image: Will the incident be brought up at the next bid proposal? Will it influence the next municipality board meeting?
In the event of a spill, there's no time for procrastination. Individuals on the scene need to know what to do, and the right contacts have to be made. Knowing what resources a business can call upon in an emergency can make or break response efforts. Pre-qualification of emergency response contractors and consultants, such as remediation contractors, can determine whether vendors have the proper equipment, trained personnel and appropriate insurance coverage to address a situation. This pre-qualification process also allows a business to pre-establish rates, terms and conditions, which will allow immediate mobilization of the necessary resources.
The timely reporting of claims will improve your insurance company's ability to minimize costs, limit liability and ultimately pay the claims in a timely manner. Your insurance company may also be helpful in securing quality help and clean-up assistance or other vital resources in your time of emergency, such as legal counsel, help with regulatory agencies, public relations assistance or other crisis management response help.
Consider this real-life claims scenario: A truck carrying a load of recycled oil that had been loaded by and sent from a used oil recycler overturned and spilled while en route to a customer, causing the highway to be closed in both directions. Two truck stops were impacted by materials from the truck and also had to be closed temporarily. The truck stop owners and several truckers filed damage claims.
The trucking firm's insurer retained emergency response contractors to quickly clean up the area so as to minimize any damage and mitigate potential claims. In the meantime, the insurance company's claims team acted as an intermediary with the state environmental authorities. It also managed the litigation that resulted from the truckers and truck stop owners, negotiating quick settlements to avoid protracted litigation and defense costs.
The state environmental agency was pleased with the speed and thoroughness of the cleanup, filed no enforcement actions or fines, and issued a "no further action" letter. Total cleanup costs were less than $100,000, and settlements with five different claimants were also made for less than $150,000. The trucking company's auto liability policy, which was endorsed with broadened auto pollution coverage, covered the costs of cleanup. In this case, the trucking firm's effort to engage its insurance company in the early stages of the incident resulted in a fast cleanup that mitigated damages. Quickly-negotiated settlements resulted in significant savings of defense costs and allowed the firm to focus on its business and protect its reputation.
While it's important to learn from examples like this incident, it also is important to learn through practice. Many companies that develop response plans as a regulatory requirement unfortunately fail in the event of an incident because they do not practice the protocols they worked to develop. Conducting periodic mock drills, for instance, will help assure that the emergency response plan is effective when it needs to be.
Matt Gartner works for XL Specialty Insurance Company.