More than 97,000 gallons of cabernet sauvignon were spilled on January 22, when a door malfunctioned on a blending tank at Rodney Strong Vineyards in Healdsburg, California.
The winery estimated roughly half the wine spilled was captured, recovered or contained within the winery; the California Governor’s Office of Emergency Services estimated roughly 20 percent of the spilled wine was contained.
The Governor’s Office reported that roughly 46,000 to 96,000 remaining gallons flowed into Reiman Creek and then the Russian River, a 100-mile-long waterway that runs from Mendocino County into the Pacific Ocean north of San Francisco Bay.
All wine stored on the property was subsequently moved out of the area as a precaution; Rodney Strong and government officials launched an investigation into the cause and consequences of the tank malfunction and resulting spill.
Also making headlines, last month, a bright green substance oozing from a concrete barrier along a stretch of I-696 outside of Detroit, Michigan, alarmed drivers and disrupted traffic.
“A company should recognize its exposure and have a team in place to implement appropriate plans and actions before, during and after an event.” –Jude Sutton, Burns & Wilcox
State environmental authorities traced the neon green liquid to leaking industrial waste from a nearby company, Electro-Plating Services in Madison Heights. Multiple contaminants, including the highly toxic hexavalent chromium, had mixed with groundwater, polluted the surrounding soil, entered a storm sewer and made their way onto the highway.
According to Jude Sutton, Senior Broker, Environmental, Burns & Wilcox, Denver, Colorado, to mitigate losses and protect the environment, “a company should recognize its exposure and have a team in place to implement appropriate plans and actions before, during and after an event.”
Environmental incidents carry significant consequences
Although companies may implement extensive safety measures and risk management strategies, unexpected mechanical failures, accidents, weather events and human error may lead to environmental pollution events that could endanger a company’s reputation and financial standing. Fortunately, the appropriate Environmental Insurance coverage can help companies of all kinds identify and mitigate their pollution risks and liabilities.
Early environmental assessments indicate that there have been no fish deaths from the spill at Rodney Strong. Water levels were high due to recent rains, which experts believe diluted the wine and lessened environmental damage. Nevertheless, authorities are concerned that the acidity of the wine in the Russian River will kill insects fish depend on for food.
California’s Department of Fish and Wildlife has launched an investigation on the scene to further assess the long-term damage to the local ecosystem and waterways and recommend misdemeanor charges and significant penalties if it is determined that the winery violated water quality rules.
Rodney Strong lost a significant amount of stock in the spill; the leaked cabernet sauvignon could have filled 500,000 standard wine bottles or eight large tanker trucks.
Another incident occurred in 2016, when state regulators shut down Electro-Plating Services and charged its owner, Gary Sayers, with mismanagement of industrial waste. Sayers was levied a $1.5 million dollar fine and sentenced to one year in federal prison for illegal storage of hazardous materials. A year later, the U.S. Environmental Protection Agency (EPA) conducted a $2 million cleanup of the site, removing toxic chemicals and pumping an open earthen pit of industrial waste within the building.
Industries that use heavy metals and toxic chemicals are required to carry Environmental Insurance coverage, which helps mitigate liability for accidents as well as other incidents that result in environmental damage. However, exposures that are the result of intentional mismanagement or negligence are not covered by Environmental Insurance policies.
“You cannot buy an Environmental Insurance policy to cover your illegal acts,” noted Timothy Donnellon, Senior Broker, Environmental, Burns & Wilcox, Charleston, South Carolina.
Directors and Officers (D&O) Insurance may be an option for businesses to address any coverage gaps relating to deliberate wrongdoing, Donnellon said, but urged business leaders to carefully review their risks with their insurance broker or agent. “Be aware that you might not have coverage if someone in your business is behaving badly. You need to look at the specific language in your policy to ensure you have adequate coverage.”
Hefty regulatory penalties assessed for pollution, violations
According to the EPA, the penalties it has collected for violations of environmental regulations and laws have been sizable in recent fiscal years. In 2018, the agency collected nearly $70 million in civil and administrative fines and $88 million in criminal penalties. These figures do not include penalties from local or state agencies or hard costs of site remediation.
Canada has also assessed substantial penalties for violations of environmental regulations. Canadian governmental agencies collected $32.2 million in fines in 2017 and $15.7 million in 2018.
On January 22, German automaker Volkswagen AG was assessed a $196.5 million civil penalty after being found guilty on 60 criminal charges brought by the Canadian federal government for importing thousands of vehicles manipulated to cheat emissions standards and misleading investigators about the deception. The fine is the largest financial penalty levied against a company for environmental offenses in Canadian history.
Fortunately, initial tests of the drinking water in the area after the Electro-Plating Services incident did not show contamination. Federal, state and local authorities are currently conducting tests at Sayers’ other properties, including a building in Detroit where industrial waste was being stored in concrete pits.
During a state hearing on the matter, an official from the Michigan Department of Environment, Great Lakes and Energy (EGLE) estimated the site remediation cost to Michigan taxpayers to be in the tens of millions of dollars. Additional fines may be levied on Sayers in light of recent hazardous waste storage violations.
Protecting your assets and reputation
Actual costs per environmental incident range from several hundred to hundreds of millions of dollars. Nevertheless, misunderstandings about the cost and scope of environmental risks has led to less than 10 percent of environmental losses being covered by Environmental Insurance.
“Every business has an environmental exposure and recognizing that is critically important.” –Sutton
Donnellon indicated that often the biggest obstacle for any business to obtaining adequate Environmental Insurance coverage protection is recognizing the need for it.
“Many business owners believe their exposures are benign because they are not dealing with chemicals, oils or petroleum products that are typically thought of as hazardous materials,” Sutton added. “Every business has an environmental exposure and recognizing that is critically important.”
Some businesses rely on a Commercial General Liability (CGL) Insurance policy to cover any environmental exposure, but that is often inadequate, Sutton observed. “CGL Insurance may give a token amount of coverage, but it is not going to provide coverage for cleanup, which is usually the most expensive part of an environmental claim,” she explained.
According to Sutton, two areas of environmental liability often underestimated by businesses are site pollution and product pollution. Increasingly, she explained, property managers and building owners are requiring companies that handle or store hazardous chemicals, including medical and dental offices, manufacturers and distributors, to carry adequate Environmental Insurance coverage for pollution liability.
Focus on stewardship, protection
Donnellon strongly recommends that business owners—whether they own or lease property—discuss potential environmental liabilities with their insurance broker or agent to identify coverage gaps and obtain appropriate Environmental Insurance coverage.
“You need to have your own standards for environmental stewardship, irrespective of external regulation.” –Timothy Donnellon, Burns & Wilcox
He also identified a growing awareness among small-to-medium size businesses to contractually require Contractors Pollution Liability (CPL) coverage. Once only required by large corporations, more and more smaller businesses see the value of requiring contractors to be adequately covered for environmental liabilities, he said.
Donnellon asserted that being a good environmental steward offers businesses far more reliable protection against liability than operating solely focusing upon regulatory compliance.
“You need to have your own standards for environmental stewardship, irrespective of external regulation,” he asserted. “Environmental stewardship in the management of your business is cost effective in the short term as well as the long run.”
This information was provided by Burns & Wilcox, North America’s leading insurance broker and underwriting manager. As with any coverage need, an insurance broker or agent must be consulted.