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Risk in Context

Elk River Spill: 4 Key Environmental Risk Management Lessons

Posted by James Vetter November 07, 2016

The recent settlement of the Elk River chemical spill lawsuit highlights several key environmental risk issues — from regulatory compliance to product liability.

Beginning on January 9, 2014, approximately 7,500 gallons of 4-methylcyclohexanemethanol (MCHM) leaked from a stainless steel aboveground storage tank (AST) at a Freedom Industries facility in West Virginia. The spill occurred one mile upstream from the drinking water intake, treatment, and distribution center and affected about 300,000 residents across nine West Virginia counties.

Freedom Industries filed for bankruptcy. Subsequently, a class-action lawsuit was filed against the manufacturer of the spilled chemical and the water services company operating the intake and treatment facility. The suit alleged in part that the water services company was not prepared for an emergency and failed to respond appropriately. It should be noted that MCMH, used to help coal burn more cleanly, was not subject to regulation.

The settlement, announced October 31, 2016, totaled $151 million, of which the chemical manufacturer will pay $25 million and the water company $126 million. As part of the settlement, the water company has agreed not to seek recovery through rates, a point insisted on by the judge hearing the case as a requirement for “there to be any justice.”

Among the takeaways for US businesses:

  1. Environmental compliance: There has been a dramatic improvement in environmental compliance and management since the 1980s. However, the Elk River incident highlights that environmental compliance and aging infrastructure cannot be taken for granted.
  2. Assessing risks: From the water company’s perspective, the event demonstrates that risk is not just from one’s own operations and activities. It brings into stark view how a neighboring business can impact your operations environmentally and stress your ability to respond to the unexpected. This highlights the need for comprehensive risk assessments and having well thought out spill response/contingency plans in place.
  3. Product liability: The chemical released was unregulated. The chemical’s manufacturer was drawn into the lawsuit simply by virtue of being its producer. Many other US companies have similar environmental product liability exposures.
  4. Corporate risk management:  Certain aspects of the losses from this event are insurable.  However, companies need to identify loss scenarios, enact risk management protocols, and where appropriate, secure explicit insurance coverage. Conducting a comprehensive risk review (including for black swan events) can be important in managing enterprise risk. The risk review should include an assessment of the adequacy and/or gaps in insurance coverage.

While it may be difficult to foresee the full range of environmental risks, you can work with your risk advisor to consider how lessons from incidents such as the Elk River spill may apply to your organization.

James Vetter

Managing Director in the National Environmental Practice