Six key environmental liability trends in the US

The insurance industry needs to keep a close watch on these risks, all of which have the potential to be compounded by other, related environmental occurrences, including extreme weather events.

By Kelly Killimett, Argo Group

This article was republished with the permission of Insurance Day.

The following environmental liability trends are recognised by many insurance, claims and risk management experts as leading concerns for the market in 2018. While some of these issues – like the still-unsolved water crisis in Flint, Michigan – have received a good amount of media attention, they are continuing to have an oversized impact, thereby warranting close attention. Others, like the ugly spectre of a terrorist attack involving biological or chemical weapons, are a realistic and perhaps inevitable environmental liability scenario.

Emerging contaminants: the septic systems of US households routinely discharge consumer product chemicals, pharmaceuticals and other potentially hazardous chemicals into the environment. These contaminants of emerging concern (CECs) are commonly being found in rivers, lakes and drinking water supplies. While the Environmental Protection Agency (EPA) does not regulate them in water supplies at present, emerging contaminants could have significant health implications.

The percentage of households that rely on a septic system to process their wastewater varies across the country. In general, 20% of households in the US depend on a septic system, but the percentage rises sharply in some areas, like Cape Cod, Massachusetts, where 85% of homes use septic systems. That said, the issue of CECs warrants close consideration. It is an issue that is likely to gain more attention from scientists, regulators and the public.

Environmental compliance: in May the EPA announced its new National Enforcement Initiatives (NEIs), which focus on ensuring stricter compliance to national environmental regulations. The existing set of NEIs will focus on:

• Reducing air pollution from the largest sources
• Reducing air pollution from the largest sources
• Ensuring energy extraction activities comply with existing laws
• Reducing the risk of accidental releases of hazardous chemicals from industrial and chemical plants; and
• Preventing animal waste from contaminating surface and ground water.

Vapour intrusion: vapour intrusion occurs when vapour-forming chemicals present in the soil or groundwater beneath a building seep into the structure and affect the indoor air quality. Vapour intrusion first gained widespread attention in the 1980s, and since then, it has received increased attention from regulators. Today, most states have vapour intrusion guidance or standards and the trend is decidedly toward more aggressive enforcement. Regulators are now increasingly investigating previously remediated sites to check for vapour intrusion. Also, the EPA’s 2015 requirement to test indoor air has led to more vapour intrusion lawsuits.

Legionella: the industry is seeing more claims regarding Legionella, the bacterium that causes Legionnaires’ disease. From 2000 to 2015 Legionnaires’ cases have increased by 450%, according to the Centers for Disease Control and Prevention. About 6,000 cases were reported in 2015, with the disease proving to be fatal for one in 10 victims. It occurs naturally in freshwater environments, like rivers and lakes, but is also spread in man-made water systems like pools and hot tubs. One of the most recent outbreaks occurred in July at the Guest House at Graceland, where nine visitors to Elvis Presley’s Memphis home were infected.

Water quality: the public water crisis in Flint – which was caused by outdated regulations, inadequate testing and other factors – continues to have a huge impact on environmental liability claims. Insurers have witnessed an increase in claims about water contamination since Flint started to receive widespread media attention in 2015. Publicity about Flint’s water emergency has prompted other municipalities to test their water supply; not surprisingly, these municipalities’ investigations have discovered lead and other toxins in their water supplies.

Environmental terrorism: one of the wild cards of environmental liability is the possibility of environmental terrorism being waged by a nation or group of terrorists.

Increasingly, we see municipalities and other public entities seeking to defend themselves against the possible threats of biological, chemical and nuclear terrorism.

While the vast majority of terrorist attacks involve bombs and automatic or semi-automatic weapons, terrorism experts at the Rand Corporation and elsewhere say it is “not if, but when” biological or chemical weapons will be implemented.

All of these liability issues could be compounded by an overall increase in interconnected environment-related risks, including extreme water events, climate change and water crises, which the World Economic Forum (WEF) highlighted in its Global Risks Report 2017. Indeed, four of the top 10 risk interconnections in the WEF’s 2017 Global Risks Perception Survey involve environmental risks like “the failure of climate change mitigation and adaption”.

Looking ahead to 2018, the industry needs to keep a close watch on these risks and emerging trends and do its best to address them as they arise.

Kelly Killimett is vice-president and head of environmental at Argo Group.

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