PROACTIViTY IS A PRIORITY

a company that proactively manages its Environmental risk likely will prevent and minimize losses more effectively than those that don’t, says Craig Richardson, an Atlanta-based senior vice president at Ace USA.

“Operations that adhere to proactive pollution-prevention initiatives and are able to anticipate emerging trends substantially reduce their potential Environmental exposures,” Richardson asserts. “Although complying with environmental regulation might ensure adequate cleanup of a spill, proactive Environmental risk management might prevent it from happening in the first place.”

To that end, Richardson says, there must be a commitment from top management to loss prevention, which includes a commitment of sufficient resources.

In addition, he says, waste producers should:

• Conduct periodic environmental-compliance audits.

• Implement an environmental-management system.

• Ensure that environmental-related recordkeeping and documentation is easily retrievable and not scattered throughout the organization.

• Establish a process that keeps the organization up to date on all developments in environmental regulations and laws.

• Coordinate and effectively communicate environmental activities throughout the organization, since Environmental risk rarely is controlled by one department.

Extensive communication of environmental assessments, regulations, loss-prevention and safety measures, and all best practices throughout an organization is critical, adds Gene Wingert, Environmental loss control manager at the Chubb Group of Insurance Cos.

That means managers, workers and contractors must be in the loop, Wingert stresses. For example, in a large construction project, which can involve hundreds of contractors, subcontractors and suppliers, making clear to everyone who is managing the project’s Environmental exposure is critical for ensuring “everyone is on the same page,” he says.

Risk Transfer & Transportation

risk advisor and former agribusiness risk manager Mike Benishek notes that “the biggest common Environmental risk [shared among] industries is waste disposal.”

While waste may be beyond a producer’s control while it’s being disposed of, an accident during transit still could create enormous liabilities for the producer.

Contracts with waste haulers or recyclers—which should be licensed and bonded and in sound financial shape—should include several provisions that transfer risk to the vendor, says Benishek, an account executive and risk-management advisor at Lutgert Insurance, an agency in Sarasota, Fla.

Benishek advises that the contracts stipulate:

• The waste producer is selling or giving all of its waste to the vendor.

• The vendor is solely liable for any downstream recycling, product manufacturing or disposal of the waste.

• Any future EPA charges related to remediation of landfill contamination will be the vendor’s responsibility.

• The vendor agrees to indemnify, defend and hold harmless the waste producer.

Benishek also suggests requiring the vendor to post a performance bond with adequate limits to cover a potential landfill cleanup several decades in the future.

One contract provision that a waste producer should not insist on is being named as an additional insured on a vendor’s insurance coverage, Benishek asserts. In the event of a pollution incident, that provision could create several problems for a waste producer, he says.

Even if a vendor’s Professional Liability insurer agrees to cover a waste producer’s third-party claims, the producer then might be subject to the policy’s deductible or self-insured retention (SIR), Benishek notes.

Plus, when seeking to recover compensation for its own damages, the waste producer likely would run afoul of the insured vs. insured exclusion in the vendor’s policy, Benishek explains.

Perhaps the waste producer could get itself named on all of the vendor’s insurance policies, but the coverages might be inadequate and the producer still could run into the SIR and insured vs. insured problems, according to Benishek.

Sustainability & Risk Avoidance

the most effective loss-prevention measure is risk avoidance, notes Marc D. Hindman, Atlanta-based chief risk control officer and regional practice leader of the Strategic Outcomes Practice group at Willis North America. That is the approach a small but growing number of companies are taking with sustainability programs, Hindman notes.

By implementing lean manufacturing processes, companies generate an often-unintended byproduct: reduced waste streams. Less waste means lower expenses—and “that hits the bottom line” as greater profits, Hindman notes.

Many Fortune 1000 companies have adopted a sustainability component to their lean processes in a formal effort to minimize their environmental footprint.

For example, pharmaceutical manufacturer Genentech reduced its hazardous waste by 75 percent over several years by researching and developing production processes that do not require using chemical solvents, Hindman says.

Biotech company Human Genome Sciences Inc.—where Hindman was on staff—took a similar approach to Genentech and achieved similar results, he says.

All of this is grabbing the attention of socially responsible investors, who now have a few corporate-sustainability scorecards to consult before making their investment decisions, Hindman notes.