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Make environmental risk management part of your severe weather business plan

Learn how to protect your business from pollution risks arising out of severe storms.

Severe weather events, especially hurricanes and superstorms, can lead to catastrophic losses for both individuals and organizations. Low pressure systems that stall over areas can trigger significant flooding, while consistent, frequent, heavy rainfall or quick snow melt following a storm can cause dangerous surface water runoff. Further, persistent arid conditions or electrical storms can lead to wildfires. 

While property damage, business interruption, and third-party liability can be costly and disruptive, severe weather can also give rise to significant pollution risks. These risks can be difficult to prevent, and are often overlooked. Since most traditional insurance policies limit or exclude pollution losses, many businesses are not covered for this type of loss.

What are the environmental risks of severe weather?

Aside from damaging properties and infrastructure and posing a threat to occupants, emergency response teams, and recovery workers, severe weather events can also lead to significant environmental risks, including:

1. Storms can lead to large volumes of water entering properties or breaching containment facilities, potentially dispersing waste and contamination. Fuel that spills from ruptured tanks and wrecked vehicles can contaminate structures and land. These potential hazards to emergency responders, building occupants, and cleanup crews may hamper recovery efforts. In addition, the inundation of historically contaminated ground, such as Superfund sites, or destructive flood waters can exacerbate existing contamination or create new sources. Such events have resulted in multi-million dollar environmental losses to facilities and properties with relatively environmentally benign operations.

For example, Superstorm Sandy’s floodwaters caused generator tanks in a NYC hospital’s subterranean parking garage to burst, releasing fuel oils and disrupting asbestos within the structure. Contaminated stormwater that flooded the property led to significant mold growth throughout the facility. The environmental remediation resulted in an eight-figure loss on top of real property damage.

2. Low pressure systems or persistent heavy rain can overcome efforts to contain surface water runoff at construction sites or facilities where there has been significant ground disturbance, such as solar farms. Resulting sedimentation and turbidity in neighboring water bodies can pose third-party liability to site owners and contractors responsible for run-off mitigation.  

For example, a renewable energy company needed to grade several hundred acres. A neighboring land owner alleged that the renewable energy company owner and their contractors failed to contain rainwater runoff from the facility, causing sedimentation of wetlands, streams, and lakes. A jury awarded the neighboring landowner more than $100 million in compensatory and punitive damages, which the company said it would appeal.

3. Weather patterns that result in severe drought or dangerous electrical storms can trigger localized or widespread wildfires or facility fires that pose a significant risk of pollution and associated third-party liability. Air emissions from burning fuel or chemicals, the release of materials stored on-site, or the act of fighting the fire with aqueous film-forming foam (AFFF) can all result in on-site and off-site pollution. It’s important to note that per- and polyfluoroalkyl substances (PFAS), contained in AFFFs and elsewhere, is an emerging contaminant and a focus of regulators and plaintiff attorneys.

For example, a lightning strike caused a fire at a pesticide manufacturing facility. The local fire department and emergency response teams decided to let the fire burn itself out. The fire led to the release of stored chemicals, which caused significant pollution. The associated remediation resulted in an eight-figure cleanup and the site was subsequently added to the Superfund list.

3 actions to manage your environmental risk

As catastrophic weather events continue to increase in frequency and severity, you should consider the following actions to manage your environmental exposure:

  • Assess your exposure. Identify locations, operations, and projects that are situated in areas exposed to severe weather events. Evaluate the hazardous materials stored onsite and assess your containment measures. Take time to understand the potential pollution exposure associated with neighboring properties that could impact your business in the event of a major weather event. Understand there will be increased costs in responding to contamination events in today’s inflationary environment.
  • Bolster emergency response plans. Ensure that your emergency response plans incorporate mitigation measures and response actions to address possible pollution events triggered by severe weather. It is prudent for organizations — whether or not they have obvious potential contamination risks — to establish strong community relationships and response plans for themselves and nearby residents and businesses.
  • Evaluate risk transfer programs. Work with your risk advisor to conduct a gap analysis of your traditional property and casualty insurance programs. This can help you understand the extent of coverage available for pollution loss for severe weather events in your current company insurance program. Closely assess exclusions, sub-limits, deductibles, and other insurance provisions to quantify the extent of risk transfer available for contamination events against identified exposures.

Consider environmental insurance 

Since many environmental risks are not covered by traditional insurance, consider specific environmental impairment liability coverage, which is designed to respond to losses arising from pollution on, at, under, and migrating from or through insured properties or operations. These policies can help companies transfer risks related to the release of pollutants arising from a severe weather event, including comingling and runoff of existing contamination. 

Environmental impairment liability coverage can help mitigate the financial burden associated with the remediation costs, business interruption, third-party liabilities, and legal expenses arising from these pollution events, including:

  • Costs to remediate pollutants in soil, groundwater, surface water, and the atmosphere, including indoor environmental conditions, such as mold and legionella released through severe weather.
  • Business income loss as a result of the need to pause or modify operations during the remediation of pollution and due to indoor environmental conditions.
  • Third-party claims for bodily injury or property damage, including the loss of use or diminished value, due to contamination caused by the sudden, gradual, and comingling of pollutants released during a storm event.
  • Legal expenses associated with defending against third-party claims or regulatory actions arising from pollution incidents caused by catastrophic weather events.

With costs from catastrophic weather events on the rise and increased societal awareness of environmental contamination matters, now is the time to understand your organizations’ exposures and align your insurance program to your existing risks.

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