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ITASCA, Ill.Companies and their environmental insurers could get visits from costly old ghosts, as the recent discovery of toxic gases from decades-old chemical spills surface in homes and businesses many years after the government pronounced the cases cleaned and closed.
Such is the case in parts of New York, for example, where the state Department of Environmental Conservation has spent the last few years re-testing and planning to re-test hundreds of homes and businesses statewide for vapor intrusion. The state had deemed many of the sites clean after decades-old chemical spills.
Julie Vasilevich, Chicago-based senior director at USI Environmental Risk Mitigation Group, said the outcome of those investigations and cleanups could spur a trend in expensive litigation, new regulations and laws for a concept that is new and evolving: vapor intrusion.
"Even on quote, unquote clean properties, they have to go back and re-test," she said. "That's going to be a huge issue once this hits environmental insurers."
Those in the industry say the evolution of the vapor intrusion risk is one that's on the radar of environmental risk managers and insurers alike.
The cost for testing for and clearing toxic vapors from homesup to $2,000 a home and countingis ultimately the responsibility of the company that caused the spill, according to Ms. Vasilevich, who presented a workshop on vapor intrusion at the Risk Management and Employee Benefits Conference and Exhibition held Oct. 26-27 in Itasca, Ill.
For the insurance industry, the risks are relatively new since the possibility of odorless, invisible toxic gases invading homes didn't start turning heads among environmental agencies until recently, she said.
In decades past, vapor intrusion was a concept often unknown or, at times, deemed not entirely dangerous. Experts, including those at the EPA, once attested that chemicals in ground water from spills and leaks were dangerous only when ingested, by way of tap water.
But in 1994, the Colorado Department of Public Health and Environment discovered and subsequently spent years cleaning more than 425 Denver homes that were found to have high levels of toxic gases. Reports show the gases seeped into homes from the groundwater, contaminated by years of chemical dumping from the nearby Redfield USA telescopic sight factory and other businesses.
Pennsylvania-based Brown Retail Group, which owned the site of the former telescopic sight factory, was sued by Denver residents who claimed the contamination, although cleared, lowered property values, caused annoyance and discomfort, among other noneconomic claims. No health issues were included. Plaintiffs sought $380 million, which included punitive damages. In 2004, a jury denied the loss of property value and punitive claims, but entered a verdict against Brown Retail for $1 million in noneconomic damages.
Ms. Vasilevich said Brown Retail managed to avoid an expensive verdict because it hired a public relations firm to provide information and to communicate with residents immediately after the gases were discovered in 1994.
What became known as the "Redfield site" was considered the largest vapor intrusion case in the country. But it wasn't the only one, she said.
In early 2002, The Denver Post attracted national attention for publishing a series of groundbreaking articles that found flaws in the way the Environmental Protection Agency protects the public from toxic gases.
The articles, which Ms. Vasilevich credited as fueling the government's interest in vapor intrusion, featured areas nationwide where chemicals from factories resulted in a laundry list of health problems among those living nearby.
The articles claimed that the EPA at the time was lax in its procedures for testing and decontaminating homes, and at times blatantly ignored health complaints of residents.
Later in 2002, the EPA began outlining stricter guidelines for testing for vapor intrusion in homes, possibly as a result of the scathing newspaper reports, Ms. Vasilevich said. In recent years, individual states have also started addressing problems with environmental testing in homes located in areas that may have been exposed to chemical leaks or spills.
As those guidelines and laws evolve, re-investigations into toxic areas once deemed "clean" according to old standards are becoming more commonplace, she said.
According to Ms. Vasilevich, companies and insurers should pay close attention to what's going on now in Endicott, N.Y., for example, where in 1979 IBM Corp. spilled 4,100 gallons of chemical solvent. At the time, the company worked to clean the areas, focusing on pumping and treating the groundwater, for fears that it could contaminate the drinking water supply.
That work, according to the state Department of Environmental Conservation's Web site on the Endicott spill, was deemed effective in preventing the chemicals from seeping into the water supply.
Then in 2004, the department discovered another threat: vapor intrusion from the ground soil under more than 470 homes and buildings in the vicinity of the plant.
The state has since ordered IBMwhich no longer operates the plantto fund that cleanup and to reimburse the state for its overhead costs.
According to a February 2006 article in the New York Times, which Ms. Vasilevich cited in her presentation, the bill was at $40 million at the time. Several calls to the department for updates on the cleanup and the costs were not returned last week.
Kenn Anderson, senior vp of the Environmental Services Group with Aon Risk Services Inc. in Chicago, said in a recent interview that the risk of vapor intrusion hasn't made huge waves in the industry or in corporations, yet.
"I have certainly monitored it with respect to the concerns that are coming from EPA (and) I know the risk side of it," he said. "But have I been asked by corporate America to look at this? No."
According to Mr. Anderson, vapor intrusion is already part of the coverage form for most policies. "We don't have to specifically go to the insurance company and say, include vapor intrusion," he said.
"I think we are going to see the costs go up...if the insurance companies start suffering losses," he said.
Meanwhile, John Reynolds, chief executive officer for Willis Group Holdings Ltd.'s environmental practice in New York, said that vapor intrusion is a growing concern.
"I would classify (vapor intrusion) as in a revolutionary state," he said. "How the industry responds will be interesting to see. From an underwriting perspective, it is being seen as a greater risk, and from a risk management standpoint, it highlights the need for environmental insurance."