Canadian Underwriter

Keys to Closure

November 30, 2013   by Joel Van Popta, Geoscientist

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An environmental loss can present a challenge for any adjuster or claims representative. A claim can escalate in complexity due to the circumstances of the loss and the number of stakeholders involved – the insured, the insurer, regulatory agencies, vendors, experts and concerned neighbours. We know your main goal is to close this file in a cost effective manner, and quickly. Can you see the end from here?

Picture this: the date of loss was six months ago. As you add up the invoices rolling across your desk you realize that the project spend is approaching the reserve limit and perhaps even approaching the policy limit. The latest correspondence from your environmental expert is a proposal for additional remedial or assessment work and a request for additional budget. You need to close this file. But how can you get there? The process begins when the claim comes in. Engage a seasoned and experienced team that will work with you throughout the project and provide the necessary justification for scope and budget numbers. With advice from your team, establish the end goal, select the right remedial approach and keep everyone involved throughout the process to drive the claim to closure. This process is essential to keeping the project on track and achieving file closure. The following are four keys to getting it done:

Key #1: Assemble your team

Each claim you respond to presents its own challenges and curve balls. Assembling your team of experts and contractors is your first key to ensure success. For example, a leak from a residential fuel oil tank will likely result in an Order from a regulatory agency. The Order usually requires an assessment report to be prepared by a Qualified Person, defined as either a provincially-licensed Professional Geoscientist (P.Geo.) or Professional Engineer (P.Eng.). It just makes sense to retain a qualified professional early in the process so you have access to the advice you need right from the start.

If the environmental loss is associated with a fuel oil system, there likely is an opportunity for subrogation to recover expenditures. The team needs to understand how to respond quickly to mitigate the loss, move the project forward and preserve evidence for potential subrogation. Your consultant should know when to bring in a forensic expert who could identify the cause of the fuel oil loss. Typically, intrusive testing of the tank should not be done until relevant stakeholders are given the opportunity to have their own expert involved.

Forensics can also play a part for other types of environmental losses. Consider a rail yard solvent spill. The investigation identifies a much larger impacted area than expected considering the amount of solvent alleged to have been lost. Forensic investigation reveals that some of the solvent is aged and not consistent with the current loss. The site professional has just provided an opportunity to recognize a significant cost savings by simply recognizing the two unrelated losses. Understanding the circumstances of the loss and retaining your experts early in the process is essential to adjust your claim efficiently by collecting the necessary information.

Remediation of contamination in an environmental claim should be handled by an experienced and reputable site professional and contractor that specializes in environmental remediation. Spare yourself the frustration of having an inexperienced team attempt a complicated remediation project. It sounds cliché but it pays to have the right team on the job.

Key #2: Start with the end in mind

This is an important aspect of a project. Without an end goal, a large environmental loss can easily become an expensive and aimless undertaking. A typical environmental loss investigation involves the assessment of soil and groundwater conditions. Smaller losses may not require an extensive assessment and it may be more efficient to clean up as you go with the understanding that the extent of the loss is manageable. But for larger losses with many unknowns it is prudent to complete a full assessment to understand the extent and magnitude of the impacted area. This approach will result in a reliable remedial action plan and realistic reserves.

A remedial action plan uses the assessment data to plan for the project’s end goal. Understanding the end goal involves the selection of cleanup targets to meet regulatory criteria. Selecting the appropriate environmental quality standards is an issue of managing contractual liability (policy wording), regulatory liability (meeting appropriate legislation), and civil liability (potential for third party claims now and in the future). Further, every loss or spill comes with a unique set of issues and resulting solution. Your environmental consultant should be able to assist in identifying the site specific issues related to the environmental loss and regulatory standards connected to provincial regulations; however, you should also consult your policy wording, senior staff and legal counsel to select the right clean-up targets for your claim.

Understanding the cleanup target is the driver for the remediation process.

Key #3: Select the right approach

As with most things in life, there are options. Your consultant and contractors should provide you with a few different options for remediating the environmental loss.

When reviewing options and estimates, ask your team these questions:

Have they included all potential costs for each option? Pay attention to the details! Estimates can come in missing key items (e.g., no groundwater management for a proposed excavation next to a wetland). Spend time going over each option and make sure that the costing matches each scope item.

Would gathering more site information change assumptions associated with one or more options, making them more realistic and comparable?

Have contractor markups been included in each option? Without them, your actual costs could rise by 10%-20% or more.

Who is working for whom? Can the consultant act as Project Manager and Contract Administrator rather than as General Contractor? Consultants acting as a General Contractor can add significant costs to the project as items are marked up twice as they pass through the contractor and the consultant.

Are you being creative? Think outside the box! Are there other options that would get you to the end goal? For example, does the cost of remediating exceed the building cost? It may be an option to demolish the building, reducing remedial costs by saving unrealistic restoration costs and avoiding a complicated remediation.

Have you done a Risk Analysis? What conditions could change the proposed scope and associated costs? Would winter conditions or road weight restrictions completely change your budget? Are there building code issues (expensive upgrades to electrical or plumbing) or other site issues that a municipality needs addressed prior to closing off a permit? Once you start the work, it is often too late to turn back.

Understand the limitations of each approach to avoid spending money that will not move the project towards closure. Confirm with your experts that the proposed work and expenditures are intended to meet the project cleanup goals and are part of the closure plan.

Key #4: Communicate, communicate, communicate!

The assessment and remediation of an environmental loss can extend through several months or, in some cases, years. Make sure you request regular updates from your project team, and always insist on the realization of scope changes that will affect cost.

Environmental losses are not straightforward. You are almost always dealing with unknowns, and the cost implication of these unknowns can be huge. The implementation of the right team, with a clear understanding of the insurer’s needs, will go a long way toward ensuring a satisfactory project outcome.

Joel van Popta, M.Sc., P.Geo., is a Professional Geoscientist
in the Province of Ontario and has been practicing in Environmental Assessment and Remediation since 2003. He can be reached at