Major mining-related spills highlight that catastrophic ‘black swan’ events can take place

The clean-up costs alone of major spills in certain areas – such as British Columbia or Alberta – could be in the tens of millions of dollars, demanding that the mining companies have in place appropriate coverages, suggests a report from Marsh.

Since October 2013, there have been four high-profile environmental incidents in the North American mining sector, three in the summer of 2014 alone, notes the report, Major Spills in British Columbia, Alberta and Mexico Highlight the Potentially Catastrophic Environmental Risks Of Mining, issued last week.

These events include the 2014 failure of a tailings pond at a copper-gold mining operation in B.C. that sent 5 million cubic metres of water and tailings sludge into an adjacent lake and creek system, impacting local water supply; and in 2013, a berm failure at a coal mine tailing pond in Alberta that sent water, mud and fine coal particles into two small creeks, leaving a layer of sediment in the creeks into the Athabasca River.

“These events highlight the fact that catastrophic ‘black swan’ events can occur regardless of the quality and thoroughness of on-site engineering and environmental management controls,” Marsh reports in a statement.

Noting that these incidents represent some of the largest loss scenarios to a mining company, Marsh contends they “can impair a company’s ability to meet its financial obligations if not managed and planned for. While it may still be too early to know the full economic impact, it is safe to estimate that the clean-up costs alone may be in the tens of millions of dollars.”

Marsh recommends that mining operations consider key coverages to help the companies best manage related risks.

• Property damage and business interruption – Lost production is the larger of the two exposures. Many policies have sub-limits for tailings dam coverage that may not be adequate to cover both the repair of the berm and the impact of the resulting loss of revenue.
• Commercial general liability (CGL) – Many mining companies have a form of sudden and accidental pollution coverage built within the CGL program as an extension, which will address much of the third-party damage costs. But these events are showing that the adequacy of the limit is something to reconsider and examine. As well, the CGL policy typically does not cover costs for onsite clean-up, costs and claims related to gradual and/or historical pollution conditions, and costs related to government fines/penalties and Natural Resource Damage-type awards.

“Similar to other high-profile accidents (such as the 2013 Lac Mégantic rail disaster), government pressure can increase minimum levels of insurance to protect the public interest,” notes the report. “We suspect that this will be a topic of debate and conversation at both the provincial/territorial and federal levels of government in Canada, and perhaps abroad,” it adds.

“In the event of a disaster, only a portion of the real economic loss can be transferred to insurance companies,” the report states. “With proper planning, organizations with effective and tested business continuity and disaster management plans in place have a better chance of regaining stakeholder confidence.”

Photo: A aerial view shows the damage caused by a tailings pond breach on Lake Polley, B.C. Tuesday, August, 5, 2014. (THE CANADIAN PRESS/Jonathan Hayward)