Health care facilities face unique pollution liability challenges because of their unique environmental exposures, including transportation issues, indoor air quality, waste management processes—and the fact that most of the people in those facilities have suppressed immune systems. Bill Nellen, executive vp of the environmental group at Alliant Insurance Services Inc., outlines the potential exposures and the due diligence required to help mitigate them.

While the adverse balance-sheet consequences of many business risks faced by health care facilities are relatively easy to quantify, that's not always the case for measuring the potential impact of pollution liability on these facilities.

The complex and substantially higher capital requirements of health care facilities compared with traditional industrial, commercial and office real estate holdings—combined with their unique environmental exposures—pose a major risk management challenge for health care facilities.

Pollution liabilities for health care institutions go beyond basic considerations of compliance with applicable standards and regulatory governance. Health care facilities require highly specialized heating, ventilating and cooling systems, along with process equipment, higher resultant floor loads, electrical system capacity, waste management/hazardous material storage systems, audit of disposal facilities, above and/or underground storage tanks and wastewater treatment processes.

Further impacting these facilities is the exposure pathway of third-party patient groups with suppressed immune systems. Pollution incidents can result from hard-to-define indoor air quality issues (mold, methicillin-resistant Staphylococcus aureus, Legionella, fungi and others), to more standard causes like leaking underground storage tanks and presence of dry cleaning chemicals in the subsurface due to historic laundry operations or migration from off-site sources.

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The team of professionals that is tasked with risk management responsibility for health care facilities usually consists of some combination of an environmental/health and safety director, facility manager, risk manager and engineer, as well as others. This team of multidisciplinary professionals employs a variety of administrative and engineering controls.

To recognize and fully understand the overall threat posed by environmental hazards to the health care organization, extensive hazard identification and risk management planning is critical, along with preloss and post-loss analysis. Commercially available environmental management systems also can be effective tools in this process when deployed systemwide and adequately maintained.

When tasked with integrating environmental management into the strategic direction of a health care organization, considerations must include the adequacy of the various written documentations required for compliance with regulations (spill plans, emergency contingency, countermeasures and others). Organizations also must demonstrate that adequate training has been delivered to the staff responsible for implementing such controls.

The potential for significant financial losses associated with pollution liability—combined with the broad availability of competitively priced site pollution liability insurance—makes this line of coverage an increasingly essential element in risk management planning for health care facilities.

As one of the administrative controls, environmental insurance coverage serves as a safety net against the unforeseen. For instance, when pollution liability is excluded from other lines of coverage traditionally purchased by health care risk managers—general liability, property, and directors and officers—it may result in unknown environmental exposure.

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Environmental implications for health care facilities also can include potential pollution from pre-existing conditions due to prior operations on the property. Often these come to light during due diligence preparations prior to acquisition and development (Phase I Environmental Site Assessments are helpful) or refinancings. With larger health care players consolidating the market segment by purchasing smaller regional players or utilizing sale lease-back arrangements, they often end up acquiring environmentally impaired properties.

Because only a finite amount of due diligence can be performed, the property buyer may end up with an inadequate picture of the pollution risks involved. Therefore, any type of protection that can be provided from a cost-effectiveness standpoint can be invaluable to the property buyer.

On the operational side, possible exposures can include pipe ruptures that expose workers, facility structures and neighbors (commercial, residential or industrial) to environmental injury or damage. Additionally, health care/medical facilities can generate solid or liquid waste materials and can ultimately be held liable for cradle-to-grave disposition of these materials.

Even with strong due diligence and compliance audit protocols, the generator of the wastes can be held financially responsible for cleaning up a landfill or transfer station simply because the company disposed of wastes in those facilities. There is a strong element of fortuity in pollution incidents which largely cannot be protected against or planned for. Ultimately, there may be a defense obligation to avoid a suit or allegation, not to mention potential reputational/public relation damage.

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Pollution insurance covers liabilities resulting from cleanup, bodily injury and property damage, as well as related legal defense expenses, most often within the limits of liability. As an administrative improvement, insurers recently have been willing to offer the coverage on a blanket basis. In this case, the policy effectively acts like a general liability policy for pollution losses.

Some other enhancements to the off-the-shelf offering include:

• Business interruption

• First- and third-party transportation

• Scheduled underground storage tanks financial assurance

• Historical disposal site liability

• Indoor air quality (mold, Legionella, MRSA, bacterium, fungi)

• Automatic acquisition/divestiture, including agreed-to rates

• Natural resource damages

• Facility disinfection

In addition to strong internal protocols and an environmental management system and controls, pollution liability insurance is an important consideration for any health care risk adviser dealing with complex asset ownership, operation and management, as well as acquisitions and divestitures. However, insurance is not a substitute for good management, knowledge of the exposures, and conscientious due diligence.

While environmental liability is a multiheaded beast involving legal, financial, strategic, technical, governmental, compliance and risk management challenges, harnessing these disciplines can lead to positive results while protecting the bottom line of health care provider systems and delivering wellness to the communities they serve.

Bill Nellen is executive vp of the environmental group at Alliant Insurance Services Inc. In addition to his brokerage expertise in the sector, he has broad technical knowledge about environmental issues, having earned a master's degree in environmental science. Mr. Nellen's experience in the industry niche began at the environmental engineering and consulting firm Roy F. Weston Inc. and continued with later positions with Zurich North America's risk management division and Marsh & McLennan Cos. Inc. He can be reached at 770-325-6655 or bnellen@alliantinsurance.com.