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Government Intervention: Environmental Health and Safety Issues Move to the Front Burner

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We’re less than a year into the Obama administration, but the promises and early actions of the leadership in Washington seems to bode a clear agenda: Green.

The environmental movement began 40 years ago when the first Earth Day proclaimed a new relationship between people and natural resources. The grassroots environmental rhetoric faded, replaced by institutionalized environmental preservation. Reform efforts in the late 1970s centered around toxic dumpsites, especially New York’s Love Canal neighborhood in Niagara Falls, where industrial waste from the 1920s through the ’50s leached into the ground and threatened the health of residents so drastically that 800 families were relocated for many years.

Washington’s response to the Love Canal was to create Superfund sites to empower the U.S. Environmental Protection Agency (EPA) to compel “responsible parties” to clean up the affected sites or to reimburse the government for EPA-led cleanups. When enforcement led to a rash of huge, unanticipated claims and court decisions, the insurance industry responded by inserting absolute pollution exclusions in standard policies, and creating specialty policies for environmental risks.

Government Action

Today the environment is again a front-burner issue. The election of a president who campaigned heavily on an environmental platform and a congressional leadership that’s laser-focused on the environment, seems to foreshadow significant legislative and regulatory changes, especially in safeguarding air and water quality, says Marla Donovan, vice president of product development at Burns & Wilcox.

Donovan cited President Obama’s selection of former EPA Administrator Carol Browner as his senior adviser for energy and climate change, helping to lead the charge to a smart grid-digital technology that saves energy and cost in the delivery of electricity from suppliers to consumers.

Changes are evident at the EPA as well. “Right from the top, EPA Administrator Lisa Jackson has articulated that ‘the EPA is back on the job; committed to protecting environmental and human health and promising more rigorous enforcement,” says Ridgway Hall, senior counsel in the environmental and natural resources practice group of Crowell & Moring.

Jackson’s announced EPA priorities include reducing greenhouse-gas emissions, improving air quality, managing chemical risks, cleaning up hazardous-waste sites and protecting America’s water.

Reducing Greenhouse Gases

The House passed the Waxman-Markey bill that would establish a cap-and-trade system to reduce total carbon emissions over time, and Browner is working with the Senate to craft a similar bill this fall. Observers expect the president to push for some kind of climate­ change legislation this year, ahead of the December U.N. Climate Change Conference in Copenhagen, says Hall.

He notes that the EPA is moving on a parallel track with carbon reduction and has issued a reporting rule under the existing Clean Air Act to require companies to quantify their emissions during 2010 and report the results in early 2011. This will be an available tool in case Congress doesn’t pass meaningful legislation.

“Obama takes science as a given and is much more likely to base decisions on science than on political considerations,” says Hall. “The big question is how to make meaningful carbon reductions without an unnecessarily adverse impact on the economy.”

Donovan believes that this climate is right for an increase in environmental litigation.

“All the different elements are aligned right now to create the perfect storm: We have an environmentally activist administration and Congress, an economic downturn, a litigious climate and an energized plaintiffs’ bar. And people, feeling overwhelmed, want to blame society for their problems,” she says. “Can the courts be far behind?”

Moving Forward

The insurance industry is more involved than ever in environmental risk, spending a large portion of premiums upfront for inspection and engineering to help businesses mitigate polluting activities. In fact, many of today’s underwriters originally came from the soil sciences, says Donovan. Many in the industry encourage clients to conduct an environmental compliance audit to minimize risky practices and reduce or prevent fines and third-party lawsuits.

Insurers and litigators also watch for emerging environmental issues. Hall says scientists are concerned about chemicals that have the potential to cause serious human ­ health defects at relatively low levels, especially those that disrupt endocrine function. Yet only a small portion of contractors and businesses with pollution exposures actually purchase environmental coverage, and many of those have inadequate limits or features. Since general liability policies generally don’t provide pollution coverage, environmental policies are an important part of an insurance program, says Donovan.

Not Trailing Off

Larry Eisenstein, an environmental coverage lawyer and founding partner at Eisenstein Malanchuk LLP, has seen acceleration over the past five years in his practice of finding financial resources to cover liability.

Enforcement and litigation have moved from large companies with very large exposures to small and mid-size companies with liability larger than they can handle. A typical client is a mom-and-pop business with a single site that operated legally under standards predating modern regulation s. Regulations changed; pollution was discovered. They are left liable for $10 to $20 million in cleanup costs-which they can’t afford, says Eisenstein. Many of these cases date back to events that occurred 50 to 100 years ago.

He’s also observed a shift by federal and state regulators to explore insurance recovery from old and new policies as a source of supplemental funding for site cleanup. And cities and towns with tight budgets but pressured to improve their properties are looking to old policies to fund environmental remediation, says Eisenstein.

Solid precedent enables many of these cases to be settled through months of negotiation rather than years of trial, keeping transaction costs down and volume up. And given the current environment, Eisenstein expects business to keep growing.

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