Controlling Environmental Remediation Costs

We have all heard the horror stories of how expensive the remediation of a contaminated site can become. Even the simplest of fuel oil spills have been known to amount to well over a million dollars in clean-up costs due to overzealous contractors, inappropriate use of technologies and lack of oversight. How can those involved in property claims manage these challenges and the resultant unnecessary costs? Forensic Engineers experienced in the hands-on management of such losses and peer review of the quantum of damages in litigation can offer valuable insight to equip adjusters and insurers alike with the knowledge to control costs and remedial timelines before they get out of hand.

There are several key factors that contribute to the complexity of an environmental remediation claim, including site characteristics (e.g. depth and type of soil, depth to groundwater, presence of onsite structures and potential migration pathways, etc.), and contaminant characteristics (e.g. quantity of contaminant released and chemical/physical properties of the contaminant, etc.). As a rule of thumb, costs associated with remediation of a contaminant release increase as the degree of complexity increases. However, there are several key steps that can be taken to ensure that site remediation is completed in the most time-effective and cost-efficient method practicable, beginning with the retention of a professionally qualified independent environmental consultant.

The selected environmental professional must be either a Professional Engineer (P.Eng.) or Professional Geoscientist (P.Geo.) and may also need to be formally designated by the Province (such as Ontario’s Qualified Person designation). It is essential that the independent professional be one who is not affiliated with the remediation contractor or any of the subcontractors or suppliers that would potentially stand to profit from the remediation activities in order to maintain true ‘arm’s length’ direction of the project. The trend towards ‘turnkey solutions’ does not often mesh well with the need for the professional to be separate and independent from the contractor, given the potential for conflict of interest and bias that can result. Forensic

Engineers offer added value of being well versed in the particularities of insurance claims, subrogation and litigation and have a special eye for the particular challenges of complex environmental losses, as discussed below. Once on board, the professional environmental consultant must consider the following aspects in order to control and mitigate remedial costs.

Adequate Delineation

It is imperative that the environmental consultant carry out a thorough site investigation to determine the vertical and lateral extents of the loss-related environmental impacts. Such an investigation could be combined with limited emergency response measures to remove gross contamination from the point of loss (e.g. immediate excavation of petroleum hydrocarbon-saturated soil in the vicinity of a failed outdoor aboveground storage tank). Further remediation activities should be delayed until the consultant has developed an adequately detailed conceptual site model. Failure to adequately delineate the extents of the contamination in advance of proceeding with a chosen remediation methodology can constrain the ability to carry out the remediation in a cost effective manner and could result in longer timeframes and unnecessary duplication of efforts.

The environmental consultant should also be aware of the potential presence of pre-existing, non-loss-related contamination, and seek to provide a means of differentiating such contamination from that related to the subject loss. This matter could be straightforward if the pre-existing contamination is readily distinguishable from the contamination resulting from the subject loss (e.g. encountering high concentrations of gasoline in soil while undertaking the remediation of a fuel oil release), but more detailed analysis of the chemical ‘fingerprint’ may be required if the pre-existing contamination is similar in composition to that associated with the subject loss. This is especially important when a recent loss can be distinguished from historical spills and releases due to the ageing of the chemical profile over time. Clean-up of older and unrelated contamination can greatly increase remedial costs due to sources that may not have fallen under the loss coverages to begin with. 

Identification of the Appropriate Remediation Criteria

A long standing debate exists on the topic of ‘how clean is clean’. This debate is especially lively on the topic of remediation of fuel oil releases (a.k.a. heating oil or furnace oil) from failed storage tanks. This debate differs by jurisdiction. In Ontario, the Technical Standards and Safety Authority (TSSA) has well defined regulatory control over such releases unless there is a likelihood of an off-site adverse impact, in which case the Ontario Ministry of the Environment (MOE) would take the regulatory lead.

In the TSSA Environmental Management Protocol (EMP) for fuel handling sites in Ontario (May, 2007), it is clearly indicated that it is acceptable to use the applicable MOE site condition standards as the remedial objective. The appropriate standard is based on a variety of factors (including: soil pH, proximity to bodies of water, depth of overburden, soil grain texture, whether or not groundwater is used as a potable supply, and property use, etc.). The MOE standards, which were determined in consideration of the level of acceptable risks to both human and ecological receptors, generally allow for some detectable level of petroleum hydrocarbon-related parameters in the soil and groundwater upon completion of remediation. Given that the MOE standards allow for minor amounts of contamination to remain, the use of more stringent remedial standards (e.g. cleaning to a ‘pristine’ condition where no detectable concentration of the contaminants are present) could result in unnecessary remediation and thus unnecessary remedial costs and damages. 

Evaluation of Remedial Options

Once the extents of contamination have been determined, the environmental professional should evaluate the various methodologies available to effect the remediation of the loss-related contamination. Various options should be compared and contrasted based on the factors of cost, timeline, and certainty in order to ensure that the most appropriate remedial approach is chosen. These factors must also be weighed against the objectives, risk and cost tolerance and expectations of the stakeholders (including the insurer and the insured). Above all, the selected approach must be free of bias when those that may profit from a given technology or disposal option are the ones that will be doing the work. In instances where soil contamination is confirmed to have migrated beneath an existing site structure, the alternatives evaluation should include consideration of partial or complete demolition of the structure in order to facilitate direct access to the contamination versus temporary relocation of the structure or provision of structural support during remediation activities. In some cases, the under-supporting of a simple structure can incur far greater costs than those for the demolition and reconstruction of a building.

Summary

In order to best manage the challenges inherent in contaminated site remediation losses, insurers and adjusters should insist on the use of a truly independent environmental consultant to determine the required scope of the remediation and to oversee the remediation activities from an ‘arm’s length’ perspective, so as to avoid any conflict of interest (either real or perceived).

The environmental consultant should: endeavour to identify the vertical and lateral extents of contamination before proceeding with a chosen remediation approach; be aware of the potential presence of pre-existing contamination unrelate
d to the subject loss; ensure that the appropriate remediation standards are applied; and communicate the available remedial options and alternatives to the insurer and other stakeholders to ensure the selection of the best approach.

Following these simple strategies will help avoid many of the common pitfalls of environmental remediation claims gone awry and will help to mitigate the resultant damages while helping to streamline future subrogation and recovery efforts. Most importantly, engaging the proper independent resources removes bias and conflict of interest and ensures that a $100k loss does not become a $1M loss.

Keith Stephen, B.A.Sc., M.Eng., P.Eng., is an environmental engineer with the forensic engineering firm Giffin Koerth Inc., and has successfully managed dozens of environmental site assessments and site remediation projects, including several for Insurers.