Managing large, complex environmental/pollution claims can be extremely challenging. Whether it’s a tanker truck roll-over, chemical plant fire, or train derailment, effective management of the response and cleanup can make a substantial impact on the outcome of the loss. This edition of HETI Horizons provides an overview of specific methods and practices that can be employed to minimize liabilities, control costs, and ensure correct application of the policy.
Initial Response
Whenever an environmental emergency occurs, swift and coordinated action is crucial. Immediate mobilization of qualified representatives ensures that carriers and insured parties have the needed support on-site when it’s needed most. This is especially critical within the first 48 hours, as emergency response efforts can be extremely dynamic and costly. The goal is to establish a consistent presence, to become an advocate of the insured, and to assist with facilitating efficient communications and clear lines of responsibility. Early reporting from an “on the ground” perspective is essential to assist the insurance carrier in determining policy applicability, assessing coverage, and gaining knowledge of the overall risks associated with the loss. Understanding the risk environment, the response effort, and the regulatory expectations will guide the ability to assist the insured in streamlining the response effort – assuring the most efficient, cost effective operation possible.
Risk Evaluation
Understanding the insured’s overall risks is fundamental. A comprehensive risk evaluation should be performed immediately following the event to identify and assess on-site and off-site impacts, affected third parties, potential business interruption impact, and regulatory liability. It is also important to determine whether other insurance policies, such as property or general liability, may apply to the claim and assess the cooperation levels with other carriers. Proper subrogation and risk transfer evaluation, including the preservation of evidence and review of contracts, are essential to minimizing exposure.
Effort Optimization
Maintaining momentum throughout the claims process requires ongoing communication. Establishing expectations on day one and adhering to an operational structure throughout the remediation process are vital. Regular follow-ups and updates prevent surprises and keep the claim on track. Developing relationships with emergency response contractors, regulators and other carriers will assist in streamlining the process ensuring readiness and assuring that an efficient and cost-effective posture is maintained. Early discussions between the insured, brokers, and claims adjusters help clarify documentation requirements and potential red flags.
Establishing an organized operational structure for all phases of response and remediation efforts is critical to manage resources, maintain clear lines of technical responsibilities, and accurately segregate on-site activity among funding sources. Additionally, on-site monitoring ensures that efforts remain cost-effective and aligned with expectations. Regular communications with the insured and remedial contractors should encourage efficiencies – such as utilization of alternative methodologies for waste management, treatment, and disposal.
Cost Allocation
Cost and expense allocation is another critical component in the claim management process. Typically, not all activity taking place on-site is considered applicable to a single policy. For example, decommissioning mechanical components, de-inventory of unaffected products, and demolition of structures may not be covered by an environmental policy. Therefore, daily activity reports and other documentation are necessary for the defensible allocation of applicable costs.
Contractors should be required to submit detailed invoices that can be clearly correlated with daily activity reports, field notes, and waste inventory. The assessment of charges should also include verifying their necessity, reasonableness, and adherence to industry standards.
Proper cost allocation and accurate documentation often yields significant cost reductions by parsing reasonable and necessary costs associated with activity applicable to the policy. An Invoice Evaluation Report is an invaluable tool to illustrate the effectiveness of on-site monitoring, documentation and collaboration throughout the process, and present costs that have been determined to be reasonable, necessary and applicable to the policy.
By employing these strategies, organizations can effectively manage environmental claims, control costs, and minimize liabilities – ensuring a balanced approach to environmental emergency response and remediation claims.
Services from HETI
HETI’s staff possesses extensive experience in responding to and managing environmental incident response and remediation projects on behalf of dozens of insurance carriers – representing their interests and, indirectly, those of their clients. HETI has subsequently helped its customers in significantly reducing overall risk, both short-term and long-term, as well as assisted in significant cost savings throughout the life of environmental/pollution claims.