Global seismic changes have begun to play a greater role in risk associated with the built environment. Consider recent severe flooding in New Orleans, New York and Boston, and along coastal towns in the paths of hurricanes and Nor'easters. Besides the destruction of property, such calamities also have spawned human health issues related to raw sewage mixing with flood waters. After the waters subside, indoor mold can render habitable spaces uninhabitable until costly remediation can be performed. In other circumstances, our need for more natural resources increases environmental liability risks related to these activities, whether it's siting oil wells too close to a potable aquifer, oil tanks susceptible to rupture or leaking, the derailment of liquid chemical tank cars, or the contamination of drinking water supplies. All these factors have a significant impact on the environmental insurance market and risk management. |

Recent environmental incidents

Environmental hazards can be anywhere and everywhere, from dangerous petrochemical plants to public schools, as demonstrated by the following examples. On March 17, 2019, a fire erupted at Intercontinental Terminals Company, a petrochemicals terminal in Deer Park, about 15 miles southeast of Houston. Luckily, there were no injuries. At first, the air quality tested "within normal guidelines," according to authorities. But they also warned that smoke from the fire could cause skin and eye irritation and respiratory issues. Four days later, the tanks reignited. At least one of the tanks involved in the new blaze contained xylene, which is a toxic byproduct of the oil-refining process. The Houston Ship Channel, one of the nation's busiest waterways, was closed for three days after it was polluted with benzene, known to cause cancer, and toxic runoff. Nearly two weeks later, another plant burst into flames in Crosby, Texas, a half-hour north of Deer Park. The first chemical fire had no injuries, but in the second fire, a worker was killed and two more were severely injured. According to its website, the Crosby plant is a chemicals blending facility that makes products used in brake fluid, antifreeze and in oil production and refining. Harris County Sheriff Ed Gonzalez said that a line caught fire near a tank full of isobutylene, a flammable gas, which then burst into flames. On Oct. 31, 2018, school district officials announced that Westover Magnet School in Stamford, Conn., would be closed for a week for remediation due to elevated mold levels discovered at the school. The action came two days after the city of Stamford formed a "Mold Remediation Task Force," which is charged "with investigating, developing and implementing comprehensive remediation efforts, and on-going monitoring programs," as the city's website explains. The conditions at Westover are so bad that the students were moved to a vacant office building, and they are going to stay in that building through the 2019-2020 school year. Westover Magnet School isn't an antiquated facility. It's only nine years old. But an ongoing water leak appears to have been neglected for most of that time. One report showed that mold is a problem in 11 of Stamford's 21 public schools, and parents and teachers allege that mold is a hazard that has existed through the city's schools for years. |

Flat rates

"Currently, there are approximately 40 environmental insurance carriers," explains Sarah Wirtz, area senior vice president/casualty manager, National Environmental Practice Leader, Casualty, for Risk Placement Services, Inc. "Coverage forms and rates vary by class and exposure. There is capacity, and competition is strong. We have been seeing rates from 0 to 5%." Stacy D. Brown, president and CEO, Freberg Environmental, Inc., says that segments in the market are still competitive, like contractors pollution liability (CPL) and basic environmental impairment liability (EIL). But there are signs of movement, particularly mold exposures, and fire and water restoration. Overall, Brown says, the market has not yet provided a clear signal of a major rate change, except for risks with auto exposures. In his experience, hardening for environmental risks historically trails the broader market. Tim Clegg, president, UCPM Environmental Insurance, sees the picture differently. "We negotiate on behalf of our customers, whether it's for the best coverage or the best price," he says. "Although we do try to find the best rate, we also try to get our clients the comprehensive coverage they need. We focus on getting 'value' not 'rate'." John J. Heft, senior vice president, National Environmental and Construction Professional Practice, Ryan Turner (RT) Specialty says, "Overall, rates during 2019 have remained steady in the environmental insurance marketplace." The RT Specialty Environmental and Construction Professional (EPC) Practice has seen rate increases for premises environmental coverage (PLL) in the energy sector as well as increases in minimum premiums on long policy term contaminated property re-development deals. "In contrast," he says, "PLL rates for commercial property portfolios remain aggressive. Contractors Pollution Liability (CPL) coverage rates remain aggressive as well in the construction sector of the marketplace. He notes that challenges facing environmental insurers include robust capacity, new entrants into the marketplace, and the overall number of carriers affording coverage. There are more than 50 markets offering CPL and more than 25 markets offering PLL coverage. The number of environmental casualty markets continues to rise as well. "We don't expect to see any significant rate increases during 2019 as capacity and the number of markets remain robust," Heft says. Clegg adds, "We expect the environmental liability marketplace to stay competitive with favorable rates. We are also expecting to see insurance coverage evolving to meet new and emerging areas of environmental risk." |

Mold claims increase

High frequency and severity of loss are seen across all classes of business, especially for indoor air quality exposures, says Wirtz. Mold and legionella are among the indoor air quality issues most associated with the hospitality industry that can limit or cap coverage. Apartments, healthcare facilities, schools and universities are among the industries affected, she adds. Heft agrees that the most prevalent claims over the past 18-24 months have been from mold or microbial matter impacting both CPL and PLL. "Mold claims have resulted from contractors sued for disturbance of existing structures (sewer lines, plumbing or electrical) as well as property owners in the hospitality, habitational and healthcare sectors discovering mold during renovation and construction projects," he says. Over the same period, mold claims accounted for approximately half the pollution claims encountered by RT Specialty's EPC Practice. "There appears to be an increase in legionella claims in the habitational sector over the past 18-24 months," Heft says. Legionella or legionella pneumophila is a type of bacteria that impacts the lungs via aspiration of legionella-contaminated water droplets. The result is pneumonia-like symptoms in people with suppressed immune systems. "Remediation of legionella in impacted water systems can cost hundreds of thousands of dollars, while the third-party bodily injury costs can be significantly higher," he adds. "The claims we see include mold from high humidity, plumbing issues and roof leaks in apartments and condos where mold is again the culprit. Legionella has also been a factor with claims, as has soil contamination with bulk storage," says Clegg. After a natural disaster, like a major hurricane, he sees both groundwater and soil contamination issues, especially with big storage units. "Someone not covered for such a calamity could be on the hook for a large claim," he adds. Such risks have prompted 71% of UCPM's clients to include coverage for legionella as an added value. "The frequency of pollution liability claims has increased along with all claims," Wirtz says. "And we need more environmental specialists to work on these issues. Underwriters of traditional liability coverage may be out of their comfort zone." She says "A sophisticated claims department is key." "Overall, it all goes back to the broker's knowledge and expertise," says Wirtz. "It's important to know the insured's business and exposures to adequately cover them in case of loss." Most of the claims Brown sees are mold-related, but he has also seen some high-profile tank farm claims recently. "Bodily injury is a hot spot with the rise of frivolous lawsuits driven by high-profile pollution claims," he adds. The remaining environmental claims Heft sees include discovery of soil and groundwater contamination; spills during loading or unloading, or due to poor housekeeping; contaminated run-off from construction sites; spills during transportation; and disturbance of asbestos-containing building materials. |

Emerging risk: PFAS

PFAS (polyfluoroalkyl substances) are definitely an emerging issue and carriers are reacting, says Brown. He is getting requests for PFAS coverage, which implies that there are PFAS claims happening. According to the Environmental Protection Agency, PFAS are a group of man-made chemicals that have been in use since the 1940s, and are (or have been) found in many consumer products like cookware, food packaging and stain repellants. Manufacturing and processing facilities, airports and military installations that use firefighting foams are some of the main sources of PFAS. "As underwriters, we have to be constantly looking at emerging issues and changes in regulations that may lead to changes in underwriting appetite and exclusionary language," says Brown. He has found that over the years, emerging environmental and safety issues like PFAS, silica, asbestos, and mold help drive the environmental marketplace, both good and bad. "Being an early leader on covering some of these exposures can be exceedingly painful or very profitable. Time will tell," he adds. Heft is also seeing claims related to PFAS contaminants including perfluorooctanoic acid (PFOA) and perfluorooctanesulfonic acid (PFOS). "Effects on health and the environment are numerous, including high blood pressure and certain cancers," he explains. Heft says that claims are beginning to emerge involving the investigation of areas suspected of past use of firefighting foams including fire houses and fire-training facilities, as well as airports, municipalities and former military bases. |

Climate change impact

"To my knowledge, the link between climate and claims on a typical environmental policy has not yet been established," Brown says. "However, some insurers will no longer provide coverage for coal-related facilities in support of climate change." For example, in July 2018, Swiss Re began implementing its thermal coal policy. The company won't provide insurance or reinsurance to businesses with more than 30% exposure to thermal coal across all lines of business. In January 2016, the California Department of Insurance, under the previous commissioner, Dave Jones, urged insurers to divest voluntarily from thermal coal, citing the risks of climate change and the danger of losses on assets backing policyholder obligations. In May 2018, California conducted a climate-related financial risk stress test and analysis of insurance companies' investments in fossil fuels. "Over the past year, there have been a number of significant PLL claims resulting from several natural disasters including Hurricanes Harvey and Irma as well as the California Wildfires," Heft says. Claims from Harvey included the inundation of industrial complexes leading to the overflow and breach of secondary containments for hazardous products and waste, as well as the failure of storage tanks containing hazardous chemicals impacting soil and groundwater on- and off-site. Irma had a significant impact on the agriculture and pork and poultry industries in the Carolinas. The extreme amount of rainfall led to nutrient runoff as well as breaches in pig and poultry waste lagoons. "In both cases, claims are estimated to be in the seven- to eight-figure range," he adds. Heft believes the potential impact of climate change on environmental insurance could be significant. "Natural disasters can have an immediate and acute impact on the environment, leading to shock losses in the tens of millions of dollars," he says. It remains to be seen whether this trend continues. However, he sees a few carriers introducing climate change or force majeure exclusions that limit cleanup and remediation coverage or liability resulting from use of specific products. Although these exclusions and restrictions are emerging, he doesn't anticipate the widespread use of them soon. |

What's next?

Heft is beginning to see the use of PFOA/PFOS exclusions on PLL quotes and policies but only for specific exposures. "Carriers are asking on applications and during underwriting whether the insured currently uses firefighting foams, or was aware of a historic use of this material," he explains. Mold and microbial matter exposures are addressed via the use of mold exclusions during renovations or capital improvements, especially in the healthcare, habitational and hospitality industries. Heft says, "Several carriers are also deploying higher mold deductibles or even per-door deductibles for mold for certain classes of business." Heft also points to the recent well-publicized verdicts regarding the makers of Roundup and the chemical glyphosate. Glyphosate has been shown to cause various cancers including non-Hodgkin's lymphoma. Several awards in the hundreds of millions and even billions have been won by individuals. Additional environmental exposure to soil and groundwater resulting from mis-application is possible. "We haven't seen the marketplace react to these verdicts to date as it appears the plaintiff's bar is targeting the manufacturer for now," he says. "The best trend is that the number of new environmental markets has slowed considerably," Brown says. Environmental coverage has been around for more than 30 years, but it's still not widely sold, especially for site-specific pollution. "Site pollution was formerly difficult to price and procure, and comprehensive coverage now can be affordable. Environmental coverage for large facilities is clear, but brokers need to recognize that even mundane operations need coverage." Gabriele Crognale, PE, ([email protected]) is the founder of MCG Associates, an environmental management and sustainability consultancy. See also: |

• 4 questions to identify the risk of pollution-related D&O exposure
• Identifying and managing pollution-related exposures
• Environmental risks are part of every construction project