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Companies with coal ash facilities should review their insurance coverage as they face regulatory enforcement to safely clean up and close the sites.
While pollution exclusions may be a barrier to coverage for related coal ash liabilities, historic general liability insurance policies and in some instances current environmental policies may provide recourse, experts say.
The U.S. Environmental Protection Agency on Jan. 11 stepped up its actions to protect groundwater from coal ash contamination. The renewed regulatory focus followed the so-called CCR rule, introduced by the EPA in April 2015, that set out rules for the disposal of coal combustion residuals.
One of the EPA’s requirements was that linings be installed in coal-ash ponds. The CCR rule also established guidelines on groundwater monitoring.
CCR, or coal ash, is a byproduct of burning coal in coal-fired power plants. It contains contaminants such as mercury, cadmium and arsenic that, without proper management, can pollute waterways, groundwater, drinking water and the air.
There are around 500 unlined coal ash impoundments in the U.S., according to the EPA.
Utilities and other companies that have a coal ash facility and are obligated under state or federal law to close the site or otherwise remediate groundwater should be reviewing their historic insurance policies, said Matthew Jeweler, partner in the Washington, D.C., office of Pillsbury Winthrop Shaw Pittman LLP.
CCR liabilities related to impoundments and landfills that were in use decades ago could be covered under commercial general liability policies issued prior to 1986, he said.
“There’s a good argument for coverage,” Mr. Jeweler said.
Coal ash sites are considered potential sources of groundwater contamination, and many are old facilities that could trigger historic insurance policies, said Robert D. Chesler, shareholder in the Newark, New Jersey, office of Anderson Kill P.C.
“We’re looking principally at property damage in the form of groundwater contamination. The general liability policy provides coverage for property damage and groundwater is property, and in every state pollution of groundwater is covered property damage,” Mr. Chesler said.
However, pollution exclusion clauses are a key consideration. In 1986, the insurance industry introduced an absolute pollution exclusion into commercial general liability policies, “so there’s no coverage under policies in effect after that date,” he said.
The 1986 exclusion removed the “sudden and accidental” exception to the standard pollution exclusion that had been introduced in 1973.
Current environmental liability policies are another potential avenue of recourse, experts say.
When it’s a historic liability, typically policyholders’ minds go directly to their occurrence general liability policies issued prior to 1986, said Kimberly Mann, a senior vice president in the U.S. environmental practice at Marsh LLC in Philadelphia.
There is a robust environmental insurance market package currently that can provide “myriad environmental solutions for existing risks,” she said.
Pollution legal liability insurance may cover some of the remediation costs associated with environmental property damage arising from coal ash, for example.
From a remediation perspective, the policies can cover currently unknown pre-existing conditions, Ms. Mann said. In the case of a coal ash landfill, “if the contamination has migrated beyond the cells, whether in a sudden storm incident or over many years, and you had to remediate beyond the contained landfill cells, that’s covered and very insurable under a pollution legal liability policy,” she said.
In general, if it’s a completely known condition, putting a new pollution legal liability policy in place to cover cleanup costs is challenging, said Daniel Drennen, national environmental practice leader at Amwins Group Inc. in Atlanta.
If a company has had an environmental policy in place for several years, depending on how it’s structured, there could potentially be some coverage for first-party cleanup costs, Mr. Drennen said. “Historically, I haven’t seen a ton of large energy companies investing in those policies. Many tend to self-insure,” he said.
Meanwhile, adverse development covers, loss portfolio transfers or legacy covers can help insurers manage their long-tail exposures.
Insurers regularly undertake a ground-up study so environmental reserves at individual companies and across the industry may fluctuate every few years, said Brian O’Larte, director at A.M. Best Co. Inc. in Oldwick, New Jersey.
Hartford Financial Services Group Inc., in its Feb. 4 fourth-quarter 2021 earnings call, reported adverse reserve development of $155 million before tax for asbestos and environmental, of which $49 million was for environmental.
“For environmental, the reserve increase was primarily due to the settlement of a large legacy coal ash remediation claim, an increase in legal defense costs and higher site remediation costs,” Chief Financial Officer Beth Costello said during the call.
The $155 million reserve increase was covered under a $1.5 billion aggregate excess of loss reinsurance cover provided by National Indemnity Co., a subsidiary of Berkshire Hathaway Inc. that Hartford put in place in 2016.
Policyholders can take various steps to increase their chances of securing insurance coverage for coal ash-related liabilities, experts say.
Dating the pollution, finding historic insurance policies and providing timely notice of alleged liability are important considerations, said Robert D. Chesler, shareholder in the Newark, New Jersey, office of Anderson Kill P.C.
Companies should immediately look for their policies, and if they don’t have them on hand talk to their brokers or hire an insurance archaeologist who is trained to find old insurance policies, Mr. Chesler said.
“In one of my cases, an insurance archaeologist just found all the policies from 1974 to 1986,” he said.
Historical insurance information can be found in a variety of sources, including internal and external records, said Brian Della Torre, vice president at Insurance Archaeology Group in Rutherford, New Jersey.
Internal records related to the purchase of insurance include financial records, accounts payable and canceled checks, Mr. Della Torre said.
If a company has gone through a merger or acquisition, policy records may be subsumed into complex systems at a parent company, he said.
Outside sources such as brokers or court records can lead to outside counsel or law firms that have the certificate of insurance, Mr. Della Torre said. When records don’t exist, interviews with people who were involved in purchasing the coverage are important.
Because multiple policies could come into play for coal ash liabilities, it’s important to locate and closely review each specific policy, said Matthew Jeweler, partner in the Washington office of Pillsbury Winthrop Shaw Pittman LLP.
“Sometimes there are strict requirements on the timing of things, when the pollution happened and how far it goes back in time,” Mr. Jeweler said.