Beacon Hill Blog

Article written by Beacon Hill’s Assistant Vice President, Michael Tighe. Featured in the August 2010 issue of Insurance Journal.

No matter which television channel or website you turn to, the Gulf oil spill has dominated the news. This is an environmental crisis that will affect the region’s economic capabilities and natural resources for years, if not decades, to come. Between 2 to 4 million barrels of oil have spilled into the gulf, compared to 257 thousand barrels during the Exxon Valdez event . The fishing and tourism industry, which was depressed before the tragedy, is now virtually non-existent. Gulf coast economies from Texas, Louisiana, Mississippi, Alabama, and Florida have all been affected, and scientists are predicting that the Gulf current may carry contaminants along the Florida Keys and up the east coast.

This disaster creates a tremendous opportunity for remediation contractors and consultants. Environmental contractors from across the country have flocked to the Gulf in search of clean-up contracts. Over twenty-four thousand people are working as part of the response to the April 20th accident and its aftermath. The spill has created a wide array of jobs from remediation/spill response contractors to ship boat captains to day laborers. Many unemployed fishermen, construction workers, and general laborers are receiving OSHA HAZOPER training and aiding in the clean up. “We have received numerous phone calls about potential start-up businesses or companies opening up new divisions in this area,” said Michael Tighe, Assistant Vice President at Beacon Hill Associates, a wholesale insurance broker and program administrator, specializing in the placement of environmental insurance.

Remediation Methods Used

More than 46,000 people – and nearly 7,000 boats – are now employed in the response1. While fishing business was struggling before the disaster, fishermen are now making $1,200 – $3,000 a day laying floating booms that contain oil once it rises to the surface . Where the oil collection is greatest they often create a “burning box”, which is a controlled burn over the water. In the marshes and other wetlands, contractors are mopping the oily sheen with absorbent oil pads, wiping each blade of grass, which can be time-consuming labor. In open water, boats are equipped with oil/water separators that skim surface water and can extract two thousand barrels of oil per day . Thousands of workers comb the beach using shovels or shifting machines collecting tarballs on the sand. Unfortunately, oil can be buried underneath the sand, between tides, which will require sand incineration or other deeper cleaning methods.

Potential Coverage Issues

Below are some coverage issues agents should consider when obtaining Pollution insurance for their clients.

Action over – not all liability policies provide action over coverage. An employee of the contractor may potentially sue the project owner directly for liabilities suffered during the work. This type of claim occurs more frequently with remediation contractors.

Time element triggers – some policies limit pollution to a sudden/accidental trigger only whereby the pollution occurrence and claim filing must occur within a limited period of time (usually 72 hours).  A policy that includes gradual pollution is more effective for emergency response contractors.

Coverage territory – The coverage territory within the policy may not include international waters.

Designated operations – Many Contractor Pollution policies provide coverage only for operations listed on the policy. If the contractor’s work expands beyond what is listed, no coverage may be afforded.

Watercraft exclusions – there are specific limitations under a package General Liability and Pollution policy pertaining to the use and length of boats allowed.

Subcontracted work and construction management exclusions – if the remediation contractor is using subcontractors, liability may extend only if the sub meets specific qualifications and insurance requirements. Also, the supervision of subcontractors may not be covered unless a Professional Liability policy is in force.

Transportation and disposal issues – if the contractor is responsible for the transportation and disposal of waste, there may be no coverage afforded under a basic Contractors Pollution policy, should an incident occur beyond the boundaries of a job site. Limited coverage is attainable in the marketplace with proper information.

Product exposures – specific Product Pollution policies are available for manufacturers and distributors of chemical dispersants, separators, containment booms, etc. used in the spill response. Coverage can be written stand alone or in conjunction with a commercial General Liability policy.

Pollution definitions – vary greatly. Some do not include “waste” in their definition of a pollutant. If waste/refuse is not included in the definition, it may lead to gaps in completed operation and disposal coverage.

Property – hurricane and wind concerns – In addition to contracting pollution exposures there has also been interest in environmental coverages from property owners.  In the midst of hurricane season, commercial property owners are becoming increasingly concerned that high winds may carry petro contaminants onto their premises. Interested parties are not only coastal, but miles away from shore. If the specified cause of loss is not the windstorm but rupture of the underwater well, many agents have found little or no pollution clean up coverage for real or personal property. The next wave of environmental contractors to the Gulf may be restoration contractors equipped to extract water and oil in and on buildings.

Due to the influx of submissions that environmental markets are receiving, they are starting to quantify the number insureds involved in the clean up effort. Additional supplemental applications may be needed to gauge the amount of on and off shore activities, as well as the amount of work subcontracted. Some carriers are limiting their exposure to coastal premises/site pollution policies, possibly offering coverage with higher retentions or without first party clean up triggers.

While agencies scramble to secure pollution coverage for their clients being affected by the oil spill in the Gulf, they should also get a clear picture of the prospective insured’s scope of operations, contractual responsibilities, and qualifications. This is crucial in order to offer effective insurance solutions, as no two policies are the same in the environmental insurance marketplace.