The Right Focus

The stories about quick and cheap – and sometimes miraculous – resolutions to environmental claims, in addition to the lawsuits, are endless. However, the practice of suspect resolution of environmental issues raises many questions for the experienced practitioner.

The biggest concern is the potential injustice that flawed remedial implementations have on the insured and the insurance companies in the form of “dragged out” unclosed files that leave the insured frustrated and feeling helpless. Such outcomes can be avoided by engaging an experienced professional team that can communicate and implement the necessary engineering principles and regulatory requirements to provide an effective resolution to the claim.

The story usually goes like this: A leak from a furnace oil tank occurs at a house in small town Ontario. The spill results in soil and groundwater contamination under the house. The typical remediation estimates may include the relocation or underpinning of the house to expedite the removal of the contamination.

Then the consultant makes the recommendation to implement a non-intrusive approach involving the introduction of “a proprietary solution” to the ground to stimulate the natural organisms with the intendant promise to clean-up the site in three months for a fraction of the cost. An adjuster or claims manager is often faced with having to determine the most reasonable remediation approach relative to a defensible solution to obtain closure of the file, while ensuring a reasonable approach to amount of effort and cost incurred.

Cost is typically the key factor that can dictate the selection of the approach to remediation. However, does a cheaper approach make sense if it does not incorporate good science? The objective of the clean-up and subsequent claim resolution is to understand the dynamics of the loss, and provide an effective permanent resolution at a manageable cost that results in a closed file with no call backs. Where ineffective site remediation has been implemented, the claim is not resolved, and in many cases, the result includes reopening the file and perhaps the lengthy and arduous task of a second remedial effort. This not only incurs additional costs, but creates even greater frustration for the insurer and insured.

Preventative measures to ineffective remediation do exist. There are a number of factors that an the adjuster or claims manager must consider when dealing with an environmental claims.

• Has the consultant adequately assessed the subsurface conditions and impacts to soil and groundwater? In other words, is there a clear understanding of the forensics of the spill?
• Are the site stratigraphy (subsurface soil conditions) and preferential pathways for contaminant migration clearly understood?
• Have the impacts been fully delineated, both vertically and horizontally?
• Is contaminant impact to the bedrock a potential issue due to the presence of fractures that can complicate the selected remediation strategy?
• Does the insured rely on potable water (drilled or dug well) for their drinking water supply?
• Is free product an issue if considering bioremediation?
• What are the appropriate regulatory standards that should be implemented?
• Are there any triggers that may result in “non-coverage issues” or that may complicate coverage, such as an adjacent property with a problem, or another contaminant source or historical release at the site?

The questions above need to be asked.  Project details need to be considered by the consultant prior to and during the Phase II Environmental Site Assessment (ESA). A complete and thorough Phase II ESA, with scientifically defensible information will allow the consultant to advise the insurer of the factors that will affect the financial reserves and the schedule required to complete the program.

From a regulation standpoint, the Ontario Ministry of the Environment (MOE) recently amended an important environmental regulation in Ontario that resulted in more stringent soil and groundwater standards for contaminated sites. The requirements are included within the Ontario Brownfield Act, Ontario Regulation 153/04 – Records of Site Condition, Part XV.1 of the Act, as amended (O.Reg.153/04). The amendments detail more prescriptive and comprehensive requirements for environmental site assessment and remediation programs, ultimately resulting in a more robust “standard of care.” While the regulation specifically applies to the submission of a Record of Site Condition (RSC), insurance claims do not typically require an RSC. However, the increased standard of care has raised the bar of generally accepted engineering and scientific practices across the environmental consulting industry in Ontario.

The Technical Standards and Safety Authority (TSSA) fuels safety program administers the Technical Standards & Safety Act 2000, providing fuel-related safety services associated with the safe transportation, storage, handling and use of hydrocarbon fuels (such as gasoline, diesel, propane and natural gas). Under this Act, TSSA regulates fuel suppliers, storage facilities, transport trucks, pipelines, contractors and equipment or appliances that use fuels, including residential heating oil tanks.

The TSSA, through its environmental management protocol, has adopted portions of the amendments to O Reg. 153/04. The draft Environmental Management Protocol for Fuel Operating Sites in Ontario, May 2011, in accordance with O.Reg. 153/04, requires that a qualified person (P. Eng. or P. Geo.) sign submissions of a technical nature to the TSSA. Regardless of the changes to the applicable regulations that guide the assessment and remediation of fuel spills, the approach to remediation must be designed and undertaken in a manner consistent with a thorough understanding of the site conditions and the clean-up objectives that are understood and agreed upon by the concerned parties. The use of bioremediation (the introduction of microorganisms or nutrients to the subsurface to breakdown petroleum hydrocarbons to non-toxic byproducts) in the example presented above is not an unreasonable remediation option. However, the adjuster or claims manager, needs to be confident that the approaches taken to assess the site, to evaluate potential remedial options, to complete the remediation, and to confirm the remediation have, in fact, taken place and are technically sound and defensible.  Simply forging ahead with a remedial technology without a good understanding of the subsurface conditions will typically, and in most cases, prove to be unsuccessful. For example, microorganisms don’t “swim,” so they need to be strategically introduced and they are typically not comfortable being placed in an environment that is not conducive to where they were developed. Consultants are responsible for communicating the limitations of a chosen remediation technology to ensure the insured and insurer have a reasonable expectation of success based on any limitations, either with the site or with the technology. The communication will be less effective to the affected parties when after two years have passed the only thing that has changed on the file is the reserve amount.

Consultants will continue to develop site assessment and remediation strategies for environmental insurance claims. Like the insurance industry, the environmental industry is governed by regulations that can be complicated. Successful claims resolution requires the incorporation of sound engineering practices within the required regulatory process. But more importantly, the clear communication and discussions between the consulting/contractor team, the insurance company representative and the insured will certainly reduce complications associated with complex engineering solutions and within the regulatory framework.

On a go-forward basis, it is imperative that consultants engaged in environmental cla
ims have a complete understanding of the changes to the applicable regulations and comply accordingly, otherwise closure reporting, and subsequent claim resolution, will get bogged down in regulatory noncompliance related issues. Consultants that do not possess a thorough understanding of the changes to the applicable regulations, as well as how they are to be implemented, risk additional costs and pose more challenges than solutions.

Lori Festarini is the practice lead for the insurance sector within the environmental remediation group. Neil Butler is a project manager in the environmental services group. They are both with Stantec Consulting Ltd.