Michele Schroeder, Esq'

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ENVIRONMENTAL CLAIMS SCENARIOS AND RISK
MANAGEMENT SOLUTIONS Site Specific Claims
Presented By Michele Schroeder, Esq. Zurich
North America Presented For ENVIRONMENTAL
BANKERS ASSOCIATION St. Petersburg,
Florida JANUARY 21, 2003
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Claim Experience

• The purpose of the following presentation is to
  offer a representative example of claims
  experienced through the lender, real
  estate/property transfer, and various
  environmental impairment liability policies
  selectively chosen by this presenter for this
  presentation. Such policies are not mandatory
  insurance, but voluntarily entered into between
  the insured and insurance company, and therefore,
  in some cases are deal specific uniquely
  negotiated language. Further, the claims are
  influenced by a strong mergers and acquisitions
  marketplace, and a steady by rising bankruptcy
  rate and environmental regulatory enforcement
  arena, and a litigious legal environment.

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Claim Frequency v. Severity Ranking
Frequency Petrol Stations Landfills Bulk
Commodity Storage (tank farm) Waste
Incineration/Recycling General Manufacturing TSD A
griculture Mining Municipal/Waste Water
Treatment Chemical(dry cleaning) Electronics Brown
field development Light Industrial Hospitals/Labs/
University Refineries
Severity Landfills Mining Electronics Refineries W
aste Incineration/Recycling TSD Chemical(dry
cleaning) General Manufacturing Municipal Waste
Water Treatment Agriculture/Compost
Operations Petrol Stations Brownfield
development Bulk Commodity Storage (tank
farm) Hospitals, Labs, University Light
Manufacturing Operations
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Factors Influencing Claims, Site Specific

• Location - urban v. rural
• Changing Technology/Age of Equipment
• Litigious Society
• Regulatory Enforcement/Standards
• Public Sensitivity/Perceptions
• Natural Environment/Weather/Disaster
• Human Error
• Market Conditions
• Due Diligence/ Quality of Information

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Common Claim Allegations

• Negligence
• Trespass/Nuisance
• Strict Liability - Env. Statutes Products
• Conspiracy/Fraud
• Breach of Implied and Express Duty to Warn
• Violations - Punitives Fines
• Citizen Suits/Multiple Party Suits
• Environmental Justice

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Economic Damage/Property Damage/ Bodily Injury

• Property Damage
• Loss of Use of Property
• Property Devaluation
• Cleanup Cost
• Natural Resource Damages
• Bodily Injury (low level and fear)
• Delay Damages
• Other Economic Damages

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Commercial Property Development
A owns various properties which have been
remediated and provided No Further Action letters
(NFA) by the controlling environmental agencies.
During excavation petroleum solvents were
discovered. Further investigation of this
discovery revealed petroleum solvent hot spots in
two other areas of the location. The policy at
issue is a real estate liability policy with
affirmative coverage for known conditions with
NFAs.
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Vacant Property Development
A begins construction of a large scale condo
complex and discovers elevated levels of a
common natural substance. State Agencies will
not allow the normal de-watering process to
proceed. After several months officials are
convinced that the substance is present
throughout the area and remediation is
impossible. De-watering is allowed and
construction resumes. The policy at issue is a
real estate liability policy.
CLAIMS

• LIABILITY ISSUES

• 1. A,owner, title holder, is liable to
  regulators
• for investigation and costs to achieve NFA.
  
• 2. A may suffer economic damages
• due to the delay in cleanup, including
• a. project delivery - contract
  breaches- loss of rents/sale
• b. closing date delayed - interest rates
• c. contractor costs - time/materials

A reports the claim to Zurich seeking costs for
investigation and delay in construction damages,
including loss of rents.
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Electronic/Assembly
B provides lending to A, a circuit board
manufacturing/assembly plant and purchases a real
estate liability policy indicating the borrower
as the additional insured. A has detected low
level VOCs and metals in the groundwater
associated with its site. Just prior to the
finding, A enters bankruptcy.
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Property Divestiture/Portfolio
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Sewer Facility
A operates a state of the art sewer facility
designed to accommodate several large
manufacturers. The plant is located in a poor
neighborhood and operated for 15 years. A class
action litigation seeks 5M from A for
headaches, sneezing, fatigue, cold symptoms and
similar complaints. The policy at issue is an
environmental impairment liability policy.
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Apartment Complex
A owns and rents a portfolio of apartment
complexes in the United States. In 8 different
apartment complexes, tenants have brought
individual complaints and legal action against
A for bodily injury due to the existence of
mold in and about the apartment units. The
policy at issue is a real estate liability policy.
Tenants allege mold on walls, ceilings and floor
boards that has accumulated due to various leaks
in roof over the years and seek recovery for
mold damage to personal items and recovery for
bodily injury - headaches, nausea,
forgetfulness, fatigue.A investigates,
consultant issues report. A may have first
party claim for remediation of mold and submits
third party complaint by tenants to Zurich.
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Agriculture
A operates chicken processing plants, and is
invited to open such a plant in a rural
community. A wastewater facility is designed by
local engineers to accommodate this plant,
including spray fields for gray water volume.
Weather conditions and alleged design
inadequacies contribute to an alleged odor at
neighboring farms. Neighbors file suite against
A for odor (nuisance) and loss of property
value. The policy at issue is an environmental
impairment liability policy.
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Petroleum Bulk Facility
A operates a petroleum bulk facility with USTs
that are used to provide petroleum product to
over the road truck loading . 10,000 gallons of
petroleum was released from a scheduled UST and
discovered after unleaded gasoline product was
detected in an onsite monitoring well. The
policy at issue is an storage tank liability
policy.
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Auto Dealership and Repair
A operates an auto dealer and repair shop and
has received a legal notice of intent to sue from
People for Concerned Air that air emission
releases of carbon monoxide, gasoline engine
exhaust, benzene, etc., have exposed the general
public to toxins through inhalation and dermal
contact and seeking fines and penalties under
California Health and Safety Code. The policy at
issue is a dealer and repair pollution liability
policy.
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Brownfield Development
A is a lending institution that provided
funding to an LLC to purchase and pursue cleanup
of Brownfield property. LLC as part of
Brownfield purchase assumed environmental
obligations and liabilities on a contaminated
site to be re-developed for light industrial use.
LLC defaulted on its outstanding loan obligations
in excess of 20 M with A, and additional
cleanup requirements were enforced at the site.
The policy at issue is a lender environmental
collateral policy.
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Brownfield Development
LLC, as part of Brownfield purchase assumed
environmental obligations and liabilities on a
contaminated site to be re-developed for light
industrial use. A local water agency, and
environmental group initiated suit against the
LLC for exacerbation/migration of contamination
and further cleanup, and regulators enforced
additional cleanup based upon change in
quasi-regulations for perchlorates at site. The
policy at issue is an environmental liability
policy.
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Public Water Supply Company
A public water supply responsible for purveying
drinking water to approximately 4800 homes and
businesses, supplying water from approx. 20
groundwater wells, has been forced to close a
number of wells due to MTBE contamination. The
policy at issue is a storage tank liability
policy.
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Inactive Hazardous Landfill
A owns and operated a hazardous and municipal
landfill for the past 25 years. In the past 15
years the surrounding area has developed with
residential homes. In the 1980s, a Class Action
law suit alleging bi and pd was asserted against
the landfill based in groundwater contamination
and the case settled. The policy at issue is an
environmental impairment liability policy.
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Risk Management Solutions

• Capital Expenditures
• Best Available Technology/Upgraded USTs/
• Upgraded Construction/Operations Maintenance
  Plans
• QA / QC
• Safety, Health Emergency Response
• Public Relations Response
• Various Environmental Liability Insurance
  Policies
• Real Estate, Lender, TSD, Gas Service Station
• Contractual Allocations

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CLAIM LESSONS

• Class Actions are here!
• Claim re-openers for newly discovered substances
• Fear, low level bodily injury and decreased
  property value claims are costly (Perceived
  injury!)
• Consequential economic damages are common
• Even if NFA likely, investigation costs are high
• Mold claims are here!
• MTBE claims are here!
• Calif. Prop 65 notices are here!
• Perchlorate claims are lurking!