Login Register Subscribe
Current Issue

Texas fertilizer blast raises risk management, insurance questions

Reprints

Questions about the adequacy of risk management planning and insurance coverage abounded after a West, Texas, fertilizer manufacturing plant exploded last week, resulting in death and extensive destruction.

The toll as of Friday included at least 14 dead and about 200 injured. Many of the dead were volunteer firefighters and other emergency personnel who were battling a blaze at West Fertilizer Co. when the family-owned facility exploded. Authorities estimated 50 to 60 homes were damaged or leveled.

Some, but not all, Texas volunteer fire departments purchase workers compensation insurance, said Terry Frakes, senior vice president of public affairs at Austin-based workers comp underwriter Texas Mutual Insurance Co.

Texas Mutual insures 15 small businesses within the ZIP code of the blast area, and Mr. Frakes said he expected workers compensation losses would be mitigated because the explosion occurred in the evening when most employees would be away from their jobs. Yet he expects to see some workers comp claims.

The fertilizer company, which public documents say is owned by Adair Grain Inc., likely did not purchase workers comp insurance, several sources said. Texas allows employers to opt out of its workers comp system. The company could not be reached for comment.

Reports varied on the number of workers employed by the fertilizer company, ranging from eight to 20.

The event could trigger a broad range of insurance coverage that includes commercial property, business interruption, third-party liability, health and personal lines, said Joe Woods, vice president of state government relations for the Property Casualty Insurers Association of America in Austin.

%%BREAK%%

“Any time there is an explosion at a refinery or manufacturing facility, liability claims tend to follow,” Mr. Woods said.

But several observers said it would be unusual for a small company in West, Texas, to purchase enough liability insurance to cover the losses from such an event. Such companies typically purchase $1 million to $2 million in liability limits, perhaps with a $10 million umbrella, said Kathy van Eeten, president of the Austin-based Texas Surplus Lines Association.

“There are companies that have hundreds of millions of dollars (in liability limits), but not generally a company in West, Texas,” she said. “A lot of businesses in those rural areas are family-owned businesses and they don't buy that much insurance. They buy what they think they need ... but nobody plans for a disaster like this.”

Risk management planning also was questioned last week.

The Environmental Protection Agency said it inspected the fertilizer company's risk management plan, which it was required to have because of quantities of ammonia stored there, in 2006. The EPA then fined the company $2,300 for several deficiencies, including failing to update the plan and document hazards, and maintaining poor employee training records.

%%BREAK%%

The facility is required to submit an updated risk management plan at least every five years and federal documents show that it did so in 2011. The company told the EPA that it was prepared to address anhydrous ammonia mishaps.

“The owners, management, and employees of the West Fertilizer Co. are committed to the prevention of any accidental releases of anhydrous ammonia,” the company told the EPA. “If an accidental release should occur, the facility is prepared to work with the local fire company, or other authorities, to mitigate any release and minimize the impact of the release to people and the environment.”

But news reports last week questioned whether that plan adequately addressed the storage of ammonium nitrate. West Fertilizer recently notified the Texas Department of Health Services that it was storing hundreds of thousands of pounds of the more volatile substance.