When an insurer determines that there might be coverage for an environmental clean up, a practical action the it can take to control costs is to oversee the clean up actions from the beginning, as potentially avoidable costs can escalate very quickly. For example, a recent claim involved a large excavation for a new building foundation. There was known contamination that was visually identifiable and the initial excavation plan involved segregating the contaminated soil from the clean soil. However, under their contract, the excavator was rewarded for removing the soil quickly and had no incentive to segregate the clean soil. Likewise, the developer was more concerned with construction timetables than soil segregation. The result was that three months after the insured provided initial notice to its carrier, a claim for upwards of $7 million was “suddenly” filed because half the soil from the excavation was disposed of as contaminated materials, though only a much smaller fraction of the materials should have been. If the insurer had had a representative present during excavation, both the claim and the impending litigation might have been avoided.

At the other end of the scale, we have seen dozens of homes where “leaking” underground tanks have been extensively over-excavated without any documentation of soil contamination. After the fact, however, if there was no on-site oversight, it is difficult to question the contractor’s assertions. A project that should cost a few thousand dollars can quickly escalate to $100,000 or more.

Whether the incident in question is an emergency spill response, a planned multi-year clean up project, or a small homeowner’s underground tank clean up, the critical first step towards controlling costs is to assign a knowledgeable person to monitor the insured’s decisions and activities. In the vast majority of cases, just knowing that someone is routinely watching the project and monitoring the decisions and progress will keep all involved contractors on their toes. Experience has shown that a few thousand dollars spent in on-site oversight routinely results in ten- to one hundred-fold savings to the insurer and their reinsurers.

This Feature item appeared in issue 107 of JTW News - July - August 2006

Author: Daniel Sullivan - Roux Environmental Management & Consulting