Pollution & Environmental Liability: Environmental Risk Management Concepts

1. Pollution & Environmental Liability:Environmental Risk Management Concepts Presented by John J. Heft Vice President August 17, 2007

2. Objectives of Presentation • Environmental Aptitude Test • Environmental Liability Structure • Evolution of Environmental Insurance • Environmental Risk Profiles (ERPs) • ERP Workshop • Environmental Exposures & Claims Examples • Environmental Policy Types • State of the Industry • Buying Motivators –Environmental Insurance • Selling Environmental Insurance • Questions

3. Environmental Aptitude Test Question 1. Mold dogs are: • Mold sniffing canines • Stinky feet • Samples pulled by experts from stud cavities of a building to determine if mold is present. • None of the above

4. Environmental Aptitude Test Question 2. A Parkinson’s like disease resulting from the inhalation of welding rod fumes is known as: • Sick Building Syndrome • Alzheimer's Disease • Male Menopause • Manganism

5. Environmental Aptitude Test Question 3. Because of the tremendous increase in silica related lawsuits over the past 3 years, silica and silica related exclusions are now appearing on pollution liability policies. True or False

6. Environmental Aptitude Test Question 4. In the marketplace today, we have a variety of different pollution policies available to us. Considering all the markets, how many products are out there? • 4 • 40 • 41 • Over 100

7. Environmental Aptitude Test Question 5. Actinolite, Serpentinite and Tremolite are considered forms of: • Naturally occurring asbestos • Fungi • Perfume containing Volatile Organic Compounds • Dry cleaning compounds

8. Environmental Aptitude Test BONUS!!!! In 1980 the EPA established the NPL to prioritize all the worst hazardous waste sites in the country that needed to be assessed and cleaned up. NPL is an acronym for: • National Priorities List • National Pollutants List • No Pollution Lovers • National list for Pollution Levels

9. Environmental Aptitude Test The Answers

10. Environmental Aptitude Test Question 1. Mold dogs are: • Mold sniffing canines • Stinky feet • Samples pulled by experts from stud cavities of a building to determine if mold is present. • None of the above

11. Environmental Aptitude Test Question 1. Mold dogs are: • Mold sniffing canines • Stinky feet • Samples pulled by experts from stud cavities of a building to determine if mold is present. • None of the above

12. Environmental Aptitude Test Question 2. A Parkinson’s like disease resulting from the inhalation of welding rod fumes is known as: • Sick Building Syndrome • Alzheimer's Disease • Male Menopause • Manganism

13. Environmental Aptitude Test Question 2. A Parkinson’s like disease resulting from the inhalation of welding rod fumes is known as: • Sick Building Syndrome • Alzheimer's Disease • Male Menopause • Manganism

14. Environmental Aptitude Test Question 3. Because of the tremendous increase in silica related lawsuits over the past 3 years, silica and silica related exclusions are now appearing on pollution liability policies. True or False

15. Environmental Aptitude Test Question 3. Because of the tremendous increase in silica related lawsuits over the past 3 years, silica and silica related exclusions are now appearing on pollution liability policies. True or False

16. Environmental Aptitude Test Question 4. In the marketplace today, we have a variety of different pollution policies available to us. Considering all the markets, how many products are out there? • 4 • 40 • 41 • Over 100

17. Environmental Aptitude Test Question 4. In the marketplace today, we have a variety of different pollution policies available to us. Considering all the markets, how many products are out there? • 4 • 40 • 41 • Over 100

18. Environmental Aptitude Test Question 5. Actinolite, Serpentinite and Tremolite are considered forms of: • Naturally occurring asbestos • Fungi • Perfume containing Volatile Organic Compounds • Dry cleaning compounds

19. Environmental Aptitude Test Question 5. Actinolite, Serpentinite and Tremolite are considered forms of: • Naturally occurring asbestos • Fungi • Perfume containing Volatile Organic Compounds • Dry cleaning compounds

20. Environmental Aptitude Test BONUS!!!! In 1980 the EPA established the NPL to prioritize all the worst hazardous waste sites in the country that needed to be assessed and cleaned up. NPL is an acronym for: • National Priorities List • National Pollutants List • No Pollution Lovers • National list for Pollution Levels

21. Environmental Aptitude Test BONUS!!!! In 1980 the EPA established the NPL to prioritize all the worst hazardous waste sites in the country that needed to be assessed and cleaned up. NPL is an acronym for: • National Priorities List • National Pollutants List • No Pollution Lovers • National list for Pollution Levels

22. NDU EAT IQ SCALE • All 5 Correct > Master Level – office rights • 4 out of 5 > Master “Wannabe” • 3 out of 5 > Apprentice • 2 out of 5 > Environmental Expert - NOT! You only know how to price environmental insurance! • 1 or less > What rock have you been living under? You are a “mold dog”!

23. Environmental Liability Structure

24. Environmental Liability Structure • Statutory Law • Common Law

25. Statutory Law

26. Major Environmental Statutes • Federal Clean Air Act -1970 • Federal Clean Water Act - 1977 • Federal Resource Conservation and Recovery Act (RCRA) -1976 • Motor Carrier Safety Act -1980

27. Major Environmental Statutes (continued) • Federal Comprehensive Environmental Response, Compensation & Liability Act (CERCLA or Superfund and SARA)-1980 • Various other federal and state laws • NJ, FL, AK, AZ Regulations

28. Clean Air Act (1970) • EPA set limits on levels of pollutants in the air anywhere in the US • Regulated pollutants include: • Smog (ground level ozone) • CO (carbon monoxide) • Particulates • VOCs (volatile organic compounds) • Hazardous air pollutants (HAPs)

29. Clean Water Act (1977) • Regulates discharges of pollutants into the waters of the US • EPA implements pollution control programs (setting wastewater standards for industry) • Sets water quality standards for contaminants in surface waters • NPDES Permits – Construction Sites greater than 1 acre

30. RCRA (1976) • Resource Conservation and Recovery Act (RCRA) • Regulates how current industry handles, stores, and disposes of harmful materials • Landfills • Underground Storage Tanks • Facility Disposal Areas • Imposes Remediation Liability (cradle to grave)

31. CERCLA (1980) • Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) • “aka” Superfund • Liability Regime • Strict • Joint • Retroactive

32. Motor Carrier Safety Act (1980) • Section 29 and 30 of the Motor Carrier Act • Form MCS-90 • Financial assurance mechanism on Motor Carriers policies of insurance • Not Insurance

33. Major Implication of Environmental Statutes • EPA created • Large polluted industrial sites identified • Funds provided for cleanup • Financial requirements • Transporter responsibility

34. Various State Statutes • New Jersey • Major Facilities Rule (DPCC) • ECRA (1983) • ISRA (1993) AK and FL Storage Tank Liability Coverage

35. Various State Statutes • ARIZONA (ADEQ) • Underground Storage Tank Financial Responsibility • Gas Stations (petroleum marketers) -$1M each/$1M agg. • Non-Petroleum Marketers -$500K/$1M (< 10,000 gallons) -$1M/$1M (> 10,000 gallons) • More than 100 USTs ($1M/$2M LOL)

36. EPA and the Federal/State Relationship • Environmental Protection Agency (EPA) and state officials are to be notified when a spill occurs • Cost of clean-up is transferred back to the manufacturer or generator of the material • EPA regulates manufacturing and distribution of new chemical substances • EPA uses the court system for enforcement power

37. Common Law

38. The Common Law Environment • Also established through our common law/tort liability system • Negligence • A duty of care owed to another • A breach of that duty of care • Proximate cause • Injury of another

39. Environmental Liability: Common Law Environment Law Regulated Real Estate Use • Nuisance: Interference with another’s use and enjoyment of real estate • Trespass: Physical invasion of another’s real estate • Negligence: Breach of a legal duty of care • Strict Liability: Participation in ultra hazardous activity (CERCLA)

40. Evolution of Environmental Insurance

41. Evolution of Environmental Insurance Marketplace • 1973 General Liability Exclusion (Gradual Pollution Exclusion) • Sudden & Accidental Only • Undefined Term • Determined to mean “unexpected” and “unintended”

42. Evolution of Environmental Impairment Marketplace • 1986 General Liability Exclusion (Absolute Pollution Exclusion) • Created confusion because not absolute • Still provided coverage for products/completed operations • BI/PD only -- no cleanup

43. Evolution of Environmental Insurance Marketplace • General Liability Total Pollution Exclusion • No coverage under general liability form • Umbrella –Follow Form

44. Evolution of Environmental Insurance Marketplace • In 1980……driving the need • CERCLA • RCRA (TSDF’s) • MCS • All put significance on environmental insurance and the standard market only responded by strengthening the pollution exclusion

45. Evolution of Environmental Insurance Marketplace • Early 1980’s……. • First Environmental Impairment Liability (EIL) Policy created • AIG –titled Policy Pollution Legal Liability (PLL) • Sudden/Accidental and Gradual (Limited to Third Party Cleanup) • For TSDF’s and Hazardous Waste Landfills • 1 or 2 carriers

46. Evolution of Environmental Insurance Marketplace • Mid 1980’s…….. • First Contractor’s Pollution Liability (CPL) Policy • AIG • Sudden/Accidental and Gradual • Limited to Superfund or Remediation Contractors

47. Evolution of Environmental Insurance Marketplace • 1985 -1995……… • Both PLL and CPL coverages broadened to include: • PLL- Miscellaneous manufacturing risks, commercial real estate, etc • On-Site Cleanup available as an option • CPL- General Contractors, street and road, utility, mechanicals, excavation, etc • In addition, Professional liability was added for Turnkey Environmental Firms

48. Evolution of Environmental Insurance Marketplace • 1985 -1995 (continued)……. • There is a push for other carriers to enter into the environmental marketplace • Up to 10 carriers offering some form of PLL insurance

49. Evolution of Environmental Insurance Marketplace • Over the past 10+ Years (1995-2006) • Both PLL and CPL coverages broadened to include: • PLL- habitational real estate, health care, M&A, transactions • On-Site Cleanup part of coverage form • Other enhancements such as Business Interruption, NODS, USTs available. • CPL- driven by adding professional liability for Design/Build firms • Mold Coverage available • Owned premises, Transportation, NODS available • Combined CGL/CPL/PL forms become available

50. Evolution of Environmental Insurance Marketplace • Present Day…….. • Over 20 different carriers • Over 100 different products • Over $2.5B in GWP • Market capacity excess of $300M • Easier to purchase then ever