Wastewater disposal, site cleanup and complete closure of a former phosphate mining facility in Manatee County, Florida could cost up to $200 million, said Florida state officials this week as they debated the allocation of funding to begin the cleanup process. Piney Point, which opened as a fertilizer plant in 1966 and was abandoned in 2001, has been a source of environmental concerns for decades due to its gypsum stacks and wastewater ponds but in early April made headlines when leaking contaminated water forced the temporary evacuation of hundreds of nearby residents.
While the immediate risk of a full reservoir collapse was averted, the site still stores about 300 million gallons of toxic wastewater and two stacks containing phosphogypsum, a fertilizer byproduct that is considered radioactive. On April 13, Florida Gov. Ron DeSantis said he tasked the Department of Environmental Protection with creating a plan for permanently closing Piney Point and said the state would redirect $15.4 million to pre-treat the site’s water to lessen the environmental impact of any potential future discharges. The state will also attempt to hold HRK Holdings, which purchased the property in 2006 and filed bankruptcy in 2012, accountable for the crisis.1
This problem is not at all new. It is a huge, massive global environmental issue that is manifested in this event that has happened.
“This is a complex environmental situation and one that speaks to the need for environmental insurance,” said Karim Jaroudi, Manager, Environmental, Burns & Wilcox, Toronto, Ontario. “The current proprietors of the property are saying that they do not have the resources to clean this up, but an important question when they purchased the property would have been why they did not buy or were not compelled by regulators to buy an Environmental Insurance policy that could assist in this type of situation.”
The Piney Point site is one of 27 phosphate mines in Florida, and its predicament underscores the liability associated with any site storing potentially harmful materials, said Timothy Donnellon, Senior Broker, Environmental, Burns & Wilcox, Charleston, South Carolina.2
“This problem is not at all new,” Donnellon said. “It is a huge, massive global environmental issue that is manifested in this event that has happened.”
Environmental Insurance could pay for site cleanup, third-party bodily injury
Whether a company is conducting new industrial operations or purchasing a property for redevelopment that was formerly used for mining, Site Pollution Liability Insurance is one of the most important insurance policies to consider, Jaroudi said. This type of insurance can cover sudden losses, such as the breach of a wastewater retention pond, as well as gradual incidents like slow leaks that take place over time. Covered expenses could include on-site or off-site cleanup, groundwater remediation, defense costs, third-party bodily injury or property damage, and natural resources damage.
“Natural resources damage also falls under the definition of property damage with most policies, and that certainly will very quickly become a topic of conversation when you are polluting a body of water or impacting aquatic life,” Jaroudi explained. “Civil fines and penalties, where allowable by law, is another element that could be covered.”
In 2020, Plains All American Pipeline was ordered to pay $60 million to settle a federal and state lawsuit over a 2015 incident in which its pipeline spilled about 100,000 gallons of oil onto California beaches — a disaster that cost the company an estimated $335 million without accounting for lost revenue.3 In the settlement, fines and penalties amounted to $24 million, and $22 million was included for damage to the environment.
Site Pollution Liability Insurance is one of the most common types of Environmental Insurance, Donnellon added, and it is generally obtained by manufacturing facilities, chemical plants and residential project developers, among other entities. When it comes to environmental liability, any business involved in a site or project currently or in the past could be named in a lawsuit. “Everybody who was involved in the chain of title on that property, as well as anyone who disposed of waste there if it was a disposal site, could be responsible for a loss,” Donnellon said.
Individuals can bring third-party lawsuits alleging pollution, and if you only have a CGL Insurance policy with a pollution exclusion, your carrier is not going to cover it or the defense cost.
Earlier this month, chicken processor Mountaire Farms in Delaware was ordered to pay $65 million to area residents to settle a class-action lawsuit filed in 2017 over water contamination allegations.4 The company must also make $140 million in upgrades to its wastewater system.
Commercial Property Insurance and Commercial General Liability (CGL) Insurance policies generally offer limited and sometimes inadequate environmental coverage or might exclude environmental coverage altogether, Jaroudi said, and even legacy coverages on older policies are typically extremely narrow.
As the cost of litigation goes up, particularly with regard to class-action lawsuits, defense-related expenses are often “the most valuable part of the environmental policy,” Donnellon said.5 “Individuals can bring third-party lawsuits alleging pollution, and if you only have a CGL Insurance policy with a pollution exclusion, your carrier is not going to cover it or the defense cost,” he said. “The defense costs can be significant even if you really never expected a pollution claim. The randomness of pollution claims is something you want to be protected from.”
Companies could be held liable for contractor, vendor mistakes
Contractors Pollution Liability Insurance is another important Environmental Insurance policy and should be obtained by contractors hired to operate or maintain facilities that handle wastewater or other potential pollutants, for example. If a contractor or consultant’s actions led to a loss, the contracting entity’s Contractors Pollution Liability and/or consultant’s Errors & Omissions (E&O) policies could come into play, Jaroudi said.
It is essential that all of a company’s outside contractors and vendors carry their own insurance, Donnellon emphasized. “A company can incur environmental liability through their vendor,” he said. “Companies should require that they carry Environmental Insurance and ask to see the certificates. You have to be aware of that as a business owner. Make sure you have your own coverage in place, including third-party liability for transportation, but they should have that coverage as well.”
Companies with highly sensitive operations or a broad spectrum of operations will often require higher limits, and that is where Excess Liability Insurance comes in.
A Contractors Pollution Liability Insurance “wrap” can simplify this process by insuring the general contractor and all subcontractors under one policy, Donnellon added. Similarly, Combined Policy Environmental Insurance is a popular option because it combines General Liability, Contractors Pollution Liability, and Professional Liability for contracting consulting firms. “The beauty of that product is it gives the environmental coverages that are needed, but it enables them to buy the other insurance they need all under one policy,” Donnellon said.
Certain types of companies, such as waste disposal sites, may be required by law to carry Environmental Insurance. Underground Storage Tank Insurance, meanwhile, is a specific type of policy to address the risk of storage tank leaks — a common environmental hazard that often costs between $5,000 and $50,000 per incident, he said. “Storage tank leaks are not onerous in and of themselves, but if you have a lot of them, it can add up,” Donnellon said. “However, the general pattern of an environmental lawsuit is low frequency but high severity.”
With that in mind, many companies should also consider Excess Environmental Liability Insurance, which can provide limits above and beyond other Environmental Insurance policies. In most of North America, Jaroudi said, it is increasingly rare to find one insurance carrier putting up limits beyond $50 million, yet higher limits are often needed. “Companies with highly sensitive operations or a broad spectrum of operations will often require higher limits, and that is where Excess Environmental Liability Insurance comes in,” Jaroudi said. “Heavily industrialized risks often need this solution to help them get the level of protection they require.”
Because the potential expenses of a loss can be so significant, all options should be thoroughly discussed with an experienced broker. If a loss occurs and there is no coverage, “it absolutely could bankrupt a business,” Donnellon said.
Even those who do not believe their company could face an environmental hazard may need the coverage. “Absence of loss does not equal absence of risk, and that is exactly the case here,” Jaroudi said. For example, a vineyard in Sonoma County, California became the source of an unexpected environmental hazard in January of 2020 when over 97,000 gallons of red wine spilled, a large portion of which may have reached the Russian River and put wildlife in danger.6
Former mining sites can pose environmental dangers long-term
In the U.S. and Canada, there are many abandoned mine lands and other industrial sites that could pose environmental hazards.7,8 In Canada, one of the most notable examples involved the Sydney Tar Ponds on Cape Breton Island in Nova Scotia, where more than 100 years of steel production byproducts created one of the country’s most toxic hazardous waste sites.9 The site was expected to cost $400 million in cleanup work and is now a green space and park.10
The potential for remaining environmental hazards on a property makes it crucial that companies take part in proper due diligence before purchasing or beginning development on a property. “There are a number of contaminated properties that have just been mothballed,” Donnellon said, and hazardous materials may be left behind in these areas.
Today’s companies operate under higher standards, Jaroudi said. “Up until about 30 years ago, regulators were not as ‘on the ball’ as they are now,” he said. “There is a corporate responsibility on these operators to be good corporate citizens and have a risk management and maintenance program to prevent leaks, and if leaks occur, to act quickly to mitigate and safeguard the community.”
Part of that risk management strategy may include a frequent evaluation of environmental risk and Environmental Insurance solutions, Jaroudi said. When seeking Environmental Insurance, companies should be prepared to discuss risk management protocols and how risks are mitigated in their specific line of work. “These are all things we look for when we contemplate a risk like this,” Jaroudi added. “It is not an automatic ‘yes’ or ‘no;’ we have to see how diligently the client is managing these risks and how much they are on top of their own game so that we can assess how comfortable we are partnering with them.”
1Walser, Adam. “Company that owns former Piney Point phosphate mine filed bankruptcy, sued by bank.” WFTS Tampa Bay, April 6, 2021. 2McCloud, Cheryl. “Phosphogypsum stacks in Florida: What are they and where are they located?” Herald-Tribune, April 7, 2021. 3Associated Press. “Pipeline owner agrees to pay $60M over 2015 California spill.” AP News, March 13, 2020. 4Ciolino, Nick. “Mountaire to pay $205M in water contamination settlement.” Delaware Public Media, April 12, 2021. 5Insurance Journal. “Class Action Defense Costs Rising; Wave of Cyber Actions Predicted.” Insurance Journal, April 22, 2019. 6Holcombe, Madeline. “A 97,000-gallon red wine leak made its way into a Northern California river.” CNN, January 24, 2020. 7Government of Canada. “About federal contaminated sites.” Government of Canada, January 3, 2020. 8Environmental Protection Agency. “Abandoned Mine Lands.” United States Government. 9Sydney Tar Ponds Agency. “$400 Million Committed for Tar Ponds Cleanup.” Nova Scotia, May 12, 2004. 10The Canadian Press. “Remediated Sydney tar ponds unveiled as green space.” CBC, August 30, 2014.