Dewey, Skinnem & Howe

Back in February of 1993, in a series on E&O Loss Prevention and a column entitled, “I'm In Charge Here,” I described poor old Joe Doaks of ABC Ins. Co., who had the misfortune to answer the phone one Friday afternoon before a three-day holiday. It was an insured for a truck line, with a $100,000 liability policy, calling in a claim of a wreck that had just occurred on the Interstate just outside town, where a tank load of methylethylgopuline was flowing down an embankment into a local creek that fed the city water reservoir, and the tank was about to BLEVE. (You hazmat guys will know what that means: a boiling liquid evaporation explosion.) The highway was shut down and the EPA was on its way. What did Joe want the insured to do? What would you do?

“Not to worry,” said Joe. “I'll take charge of it for you.” He called a local pollution clean-up firm. “Dewey, Skinnem & Howe, pollution engineers,” said the voice at the other end of the line. “You dump 'em, we pump 'em. Guaranteed to clean out your wallet along with the spill. Dewey here.”

“Oh, Mr. Dewey, this is Doaks at ABC Insurance,” said Joe, telling him about the mess on the Interstate. Dewey, of course, was quite happy to take care of everything for Joe. And he did. About two weeks later Joe was sitting at his desk when the secretary ran up and said, “Mr. Doaks, there's a delivery for you up front.” Doaks went to the reception area, and there stood a guy with a clipboard.

“You Doaks?” he asked, and Joe nodded. “Sign here,” he said, and Joe signed the form. “Okay, guys, bring it in.” Six guys came in with handcarts loaded with boxes. Meanwhile, Joe's boss was standing in his doorway, arms folded, watching all this go by. As Doaks led the way back to his cubical, the boss asked, “What the heck is all this stuff, Doaks?” Well, what was it?

It was the bill, of course. About $2.2 million for the cleanup and remediation, required to meet the EPA's and the local water department's satisfaction. And whose name was on it? Doaks and the ABC Insurance Co. Should Joe have sent it to his insured along with the insurer's $100,000 check?

What's in a Tank Car?

Few of us live very far from a railroad line. There no longer may be passenger service on whatever lines run through or near our home towns, but with the consolidation and mergers of hundreds of railroads down to about seven major systems, plus a bunch of regional or local lines, most of us will find ourselves sitting at crossings while a couple of miles of coal hoppers, box cars, auto haulers, or tank cars slowly drag themselves across the roadway. Always a big nuisance, unless you are a railroad buff.

Of railroad industry cargo and revenue, coal constitutes roughly 44 percent of the tonnage and a bit more than 21 percent of the revenue, reported Gregory D. L. Morris, formerly an editor for Chemicalweek, in the November 2004 issue of Trains. Only 9 percent of tonnage is chemicals, but petroleum increases that by 12 percent, comprising nearly 13 percent of rail revenue. Railroads haul far more chemicals, much of it considered hazmat, than do trucks, barges, or pipelines. Major chemical centers include Houston, Baton Rouge, the Delaware River area, and Sarnia/Port Huron, from which tank cars are going everywhere. What is in them? Nice delightful soups including diammonium phosphate, sodium hydroxide, sulfuric and hydrochloric acids, anhydrous ethanol, liquefied chlorine gas, and a wide variety of other explosive, flammable, and deadly gasses, liquids, and solids.

Are they safe? You bet. Sure, every now and then, we read about some area being evacuated because a train has derailed and it had chemicals aboard, but it is news because it is a rare occurrence. “With federal regulations governing movement and rolling stock, and safe-handling programs sponsored by shippers and railroads,” said Morris, “there is no safer way to move chemicals than by rail.” The Association of American Railroads “estimates that diverting hazardous materials shipments from rail to truck would increase the risk of a chemical release attributed to an accident by a factor of 16,” he noted.

The problem with all this is the grade crossing. There are thousands of grade crossing accidents annually around the country, most involving either large trucks or private passenger automobiles. (A surprising chunk are school buses.) This writer was a passenger on Amtrak's Sunset Limited on the way to Los Angeles when some idiot drove his camper into the side of the train. In broad daylight. No injuries, not much damage to the train, but the camper was a mess.

Now, let us propose that instead of my comfy passenger car, it had been a tank car full of some horrifying chemical that the idiot had crashed into, puncturing the double-lined steel tank. How far will the idiot's $25,000 property damage coverage go for the cleanup of such a mess? Can the adjuster for the idiot's insurer simply send a check to the railroad and forget about it? Will the railroad give us a release for the $25,000? (I hope that some of you readers who have handled such claims will respond and tell us what you did, or didn't, do.)

Any accident involving hazardous material is serious. Obviously, the carrier, be it a truck, railroad, or barge, has the primary responsibility. It must be “in control.” It is the local fire department, EPA, Coast Guard, or other governmental agency that is “in charge,” mandating what must be done, regardless of cost. The shipper, likewise, has exposure, and all entities are going to seek out any potential contributing tort feasor to bring to the party, if at all possible. Any insurer or self-insurer of a vehicle of any type has exposure.

The matter is one of concern for the public, hence involvement of governmental bureaucracy, federal, state, and local. It is the local fire department that will respond first, and the carrier had better have one of those diamond-shaped identification placards on the tank to tell the local guys what is leaking and whether it is explosive, flammable, or toxic so that they can contact Chemtrec and find out what to do about it. Next the state and the feds, including the EPA and the Surface Transportation Board, will get involved.

Whom should the adjuster contact for information and loss status? Morris cites the “Ballad of Texas Regulations” in his article. “Texas,” he said, “has had six different sovereign governments, and its regulatory structure is still famously convoluted, except for chemical manufacture and distribution.”

Prior to the creation in 1992 of the Texas Natural Resource Conservation Commission (the TNRCC, which, he said, is pronounced train wreck), to which any type of environmental impact situation is reported, “the bizarre jurisdictions defied the imagination.” Morris said. “If it leaked into the water, you called the Land Office. If it leaked onto land, you called the Water Board. If it leaked out of a pipeline, you called the Railroad Commission. If it leaked out of a railroad car, you called the Air Board. If it leaked into the air, you called the Board of Health.

“You cannot make this stuff up,” said Morris, “but perhaps some old railroader can set the words to a mournful harmonica tune.”

Chemtrec: 24/7 Help

For the spiller, the carrier, the local volunteer or city fire department, and for the bewildered adjuster saddled with a hazmat claim, there is a vital resource of information available, created by the U.S. chemical industry and called Chemtrec. “The American Chemistry Council, under a previous name, launched Chemtrec in 1971 as an industry resource, not a formal reporting network,” said Morris. “That task falls to the National Response Center, run by the U.S. Coast Guard. In Canada, the Chemtrec analogue is Canutec … [and in Mexico] the Asociacion Nacional de la Industria Quimica (Aniq).”

The concern over hazmat spills and accidents is international. More than 10,000 chemical industry customers subscribe to Chemtrec, which may receive up to 200 calls a day. Most of these, are minor, such as a spilled chemical drum, “but all too many were serious,” Morris noted. By the coding on those placards, Chemtrec can advise what it is, perhaps who made it, what its properties are, and how to clean it up.

The chances that hazmat losses will diminish in the 21st Century are doubtful. If anything, the United States is becoming ever more reliant on chemicals, including everything from food supplements to the ingredients of plastics. Things that we might not think of as hazardous may turn out to be. I recall one major truck/train wreck in which the truck was a tanker full of chocolate syrup. What a sweet mess that was. Try shoveling that up on a hot day.

Every issue of Firehouse Magazine (Cygnus Business Media) contains a column called “Firewire,” listing the latest month's major fire service calls. About a quarter are hazmat losses. In August of 2004, for example, these included a natural gas well explosion, an overturned tanker containing 11,400 gallons of gasoline that spilled onto the highway, a leaking propane gas tank, explosion of an underground gas storage facility, a chemical explosion in a part factory, and a collision of a ship containing 643,000 gallons of crude oil with a ferry dock. How many claims arising out of these calamities might have been excluded by the absolute pollution exclusion?

Every claim eventually will boil down to three elements: coverage, liability, and damage. Whether the claim is a bent fender or a leaking railroad tank car, the adjuster must be prepared to act, but must also keep in mind that he is not “in charge.” The ultimate responsibilities lie elsewhere, with the insured, the carrier, the fire service, or the government.

Poor Joe Doaks did not understand that. He thought that he was in charge; he took over, hence, he got the bill. Nevertheless, the adjuster must exercise control of the claim itself. That control is the investigation, evaluation, and negotiation that resolves every claim. When the phone rings on a Friday afternoon and the insured confesses to having just caused the derailment of a chemical train, do not panic. But do not promise to act, for it is doubtful, unless you are the railroad's risk manager, that you are in charge.

Ken Brownlee, CPCU, is a former adjuster and risk manager, based in Atlanta. He now authors and edits claim adjusting textbooks.