Don't Be Caught off Guard: New Options in Managing Environmental Incidents

By Hobbs, Randall E. | Risk Management, August 1996 | Go to article overview

Don't Be Caught off Guard: New Options in Managing Environmental Incidents


Hobbs, Randall E., Risk Management


The extraordinary complexity of an environmental claim can cripple a company without the proper resources. Unlike traditional contract or tort claims, environmental losses do not always offer clearly defined areas of liability and damages. Resolving them can require tremendous amounts of technical support.

Depending upon the circumstances, it can take many years to resolve an environmental incident--and the accompanying costs can be substantial. Consider that Motorola, Inc., a company often praised for managerial excellence and corporate responsibility, spent $15.2 million in attorneys' fees and more than $50 million in remedial expenses to resolve an environmental claim at one of its facilities in Phoenix, Arizona. This eye-opening figure is not surprising if you consider that A.M. Best Co. projected that insurers would pay a staggering $132 billion for environmental and asbestos claims in 1995.

The dramatic rise in the volume of environmental claims--not to mention the time and expense of claims management--is causing regulatory agencies and companies to rethink the process. There are new options for companies to consider that can be more beneficial to the bottom line.

When Claims Arise

Before considering claims management options, it is important to know what to expect when confronted with an environmental incident. The first step is providing prompt notice to insurance carriers of a potential claim, because delay only increases the amount of contamination and the resulting costs. It is also critical (and usually required) to notify the appropriate federal, state, provincial and local agencies of the incident and to gain approval for the remedial action plan. During this step, be sure to identify the lead agency to avoid confusion over who has cleanup authority. In addition to the remediation, regulatory issues may exist, including public utility commission hearings, fines and penalties.

Once notice is given, the severity of the loss must be assessed and companies must begin selecting the correct remediation contractor. Environmental contractors can be consultants offering investigative, design and oversight services, firms that implement a remedial plan, or a combination of both. Asking the right questions is important to determining a contractor's qualification. Have they performed this work before? Do they have the personnel and equipment to perform this work in a timely and efficient manner? How long have they been in this type of business? Can they supply references from both private clients and regulatory agencies?

Once a contractor has been selected, a formal written contract should be executed that states the scope of the work and its estimated costs. The contract should also include indemnification provisions and liability limits and specify the insurance coverages the contractor will maintain. For environmental services, a contractor should not only have general liability, business auto and workers' compensation policies, but also professional and pollution liability coverages.

The same due diligence used to investigate and retain an environmental contractor should also be used to seek experienced counsel. Legal action resulting from an environmental claim is often likely and the costs associated with litigation can be significant.

An environmental incident may also gain the attention of the media, citizen groups and neighborhood associations. All environmental incidents require a single spokesperson to provide these groups with open and consistent communication. It is important to explain as clearly as possible what has happened and the steps that are being taken to correct any problems.

Power of the States

While the U.S. and Canadian federal governments remain influential in prosecuting environmental claims, individual states and provinces are assuming an increasing role in promulgating legislation to reduce the amount of time required to resolve incidents without compromising the public's health and safety. …

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Don't Be Caught off Guard: New Options in Managing Environmental Incidents
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