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MONTCOAL, W.Va.—Last week's record $209 million settlement in the West Virginia explosion that killed 29 miners is a safety game changer for the U.S. coal industry, insurance and mine safety experts said.
The “nonprosecution” agreement between the U.S. government and Alpha Natural Resources Inc. is the “largest-ever resolution in a criminal investigation in a mine disaster,” the U.S. Attorney's Office said in a statement. It addresses Massey Energy Co.'s corporate criminal liability in the 2010 Upper Big Branch mine explosion in Montcoal, W.Va., but not potential criminal charges against individuals.
Abingdon, Va.-based Alpha acquired Massey, the mine's former owner, on June 1.
Investigators found evidence that Massey enforced a workplace culture valuing production over safety, “including practices calculated to allow it to operate in violation of the law,” according to a Mine Safety and Health Administration report also released last week. The investigation revealed aggressive efforts to avoid safety and health compliance, thwart regulators from detecting noncompliance and management intimidation of miners to keep them from raising safety concerns.
MSHA concluded that preventable methane accumulation and a massive coal dust explosion caused the miners' deaths and injured two other workers.
But Alpha has a good reputation for mine safety practices, and the settlement signals Alpha's effort to put Massey's liabilities behind it, sources said.
“I think Alpha is saying, "When we bought Massey, we bought a whole lot of problems and we bought their reputation,' so they are trying to say, "OK, let's get this settled and start off by doing it right,'” said Bruce E. Dial, a mine safety consultant at Dial Mine Safety in Pineville, N.C. He also worked 25 years as an inspector for MSHA and previously was an instructor at the National Mine Health and Safety Academy.
The largest previous mine disaster settlement involving similar accusations was about $4.5 million, Mr. Dial said. The MSHA could not be reached for comment.
But the size of last week's settlement will encourage mine operators to spend on accident prevention measures, despite a tendency to cut back on such spending in a tough economy, Mr. Dial said.
The settlement's size sends a message that ignoring safety will not be tolerated, said Roger Fries, president and CEO of Lexington, Ky.-based workers compensation underwriter Kentucky Employers' Mutual Insurance, which also covers mine operators.
“There are lessons to be learned here; and I honestly believe the safety-conscious coal operators believed in (safety measures) before, and I will say they believe in it even more now (due to the 29 deaths and size of the settlement). It touched the industry,” Mr. Fries said.
Because the agreement forces Alpha to invest heavily in health and safety research, experts said they expect resulting technology advancements and safety training improvements will spread to other mining operations.
“I think this is going to be a game changer for the coal mining industry” because of the technology research investments Alpha must make, said Ken Sloan, U.S. mining practice leader for Marsh Inc. in Knoxville, Tenn. “It signifies a renewed, if not new, commitment of mine management to focus on safety, and that compliance is a necessity regardless of the impact on productivity.”
The settlement and the tragic disaster that led to it also are reminders that coal mining has grown more hazardous, requiring greater safety protocols, Mr. Sloan said.
Feeding the nation's coal appetite has forced miners deeper into the earth, Mr. Dial agreed.
“You used to go in 1,000 or 2,000 feet at the most,” he said. “But now they are going two or three miles to get the coal and that means mines are spread out more.”
The settlement requires Alpha to pay $46.5 million to the two injured workers and the families of the workers who were killed, plus $34.8 million to resolve citations and violations.
Alpha also will invest $80 million in safety measures for its mines, including those acquired from Massey, and will establish a $48 million trust to fund research to improve overall mine safety.
Such funding will speed development of safety technology. If mine operators don't voluntarily purchase the resulting safety products, the MSHA is likely to force them to do so, Mr. Dial said.
Typically, when the government settles such a case, mine operators pay the fine and move on with their business, said Tom Morelli, president of the global energy casualty unit for New York-based Chartis Inc., which provides casualty insurance for Alpha. But he also sees this case as a “game changer.”
Under the settlement, Alpha will develop a safety curriculum and state-of-the-art training facility, which will be available to train miners at Alpha and other mining companies, according to the U.S. Attorney's office.
“Alpha is taking a leadership role to make coal mining safer,” Mr. Morelli said.
But Chartis declined to say whether insurance will pay any part of Alpha's settlement or for any liabilities resulting from lawsuits brought by the miners' families.
A criminal sanctions settlement will not affect the insurance market, Marsh's Mr. Sloan said. It does, however, “send a message to underwriters that they need to be more aware of the quality of mine management,” Mr. Sloan said. “The quality of mine management has always been on the minds of underwriters, but this event will bring that element of underwriting more to the forefront.”
Alpha issued a statement saying it is pleased that a substantial portion of the settlement will further miner safety and that it is mindful that the investigation arose from the death of 29 miners.
But some of the deceased miners' families reportedly still want criminal prosecution of individuals.
Similarly, the United Steelworkers said in a statement that the settlement does not limit civil penalties that families may seek and does not protect individual Massey managers from criminal charges.
“The criminal investigation of individuals associated with Massey remains ongoing,” according to U.S. Attorney's Office.