Environmental Pollution and Liabilities: Renewed Concerns

Environmental pollution stories seem to be dominating the headlines and with this comes renewed awareness of potential environmental liabilities among companies, municipalities and their (re)insurers.

An ongoing gas leak at the Southern California Gas Co Aliso Canyon natural gas storage facility near the Porter Ranch suburb of Los Angeles, has forced thousands of residents to evacuate, many of whom have been experiencing health problems.

The Los Angeles Times reports that so far, the gas company has spent more than $50 million to combat the methane leak that began October 23, and more than 25 lawsuits have been filed against the utility.

A securities filing last week stated that the cost of defending the lawsuits, and any damages, if awarded, could be significant.

As the LA Times reports:

The utility has told the U.S. Securities and Exchange Commission that it had “at least four types of insurance policies that it believes will cover many of the current and expected claims, losses and litigation…associated with the natural gas leak at Aliso Canyon.”

Those insurance policies are understood to have a combined available limit in excess of $1 billion, though legal experts suggest the ultimate costs could run much higher.

Meanwhile, officials in Flint, Michigan, made a cost-saving decision to switch the source of their drinking water to the Flint River from Lake Huron in April 2014, a move  that has exposed thousands of children to dangerous levels of lead.

While the city has since switched back to Lake Huron water, and started distributing water filters and bottled water to the city’s residents, The New York Times reports that many have called for state money to replace Flint’s aging pipe infrastructure (at an estimated cost of $1.5 billion) and a fund to address any developmental impact on children.

Last week Michigan governor Rick Snyder declared the city to be in a state of emergency just as federal officials opened an investigation into the water contamination.

Other environmental pollution stories in the news include one lawyer’s fight against DuPont’s decades-long history of chemical pollution and further away the recent Samarco dam burst in Brazil–described as the worst environmental disaster in the country’s history.

In a recent note AIG Environmental Insurance said that environmental pollution continues to be a major source of concern for the (re)insurance market.

AIG noted that the potential environmental liability impact of the Samarco dam burst remains the unknown factor, with market sources putting the overall insured coverage at in excess of $600 million.

Taken together with the property and business interruption elements of the cover, the (re)insurance market is facing a potential overall loss that could be in excess of $1 billion.”

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