the unique pollution exposures on farms - irmi

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Pollution can be a significant exposure for a farm/agricultural opera-tion. This session will review the definition of pollution, outline thesources of exposure for farm and agricultural operations, and dis-cuss how the exposures can be managed or transferred. The conse-quences of a pollution incident and potential damages will also bediscussed, along with a review of the important federal environmen-tal statutes. The session will also discuss the extent of coverage instandard insurance policies and specialty environmental policies toaddress exposures.

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The Unique PollutionExposures on Farms

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The Unique PollutionExposures on Farms

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Pollution Defined

To contaminate the soil, air, or To contaminate the sowater with noxious water with nwater with nsubstances

• Black’s Law Dictionary, Seventh Edition

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ISO Property and Liability “Pollutants” Definition

“Pollutants” means any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.

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AAIS Property and Liability “Pollutants” Definition

� 15. “Pollutant” means:a. any solid, liquid, gaseous, thermal or radioactive irritant or contaminant, including acids, alkalis, chemicals, fumes, smoke, soot, vapor, and waste. Waste includes materials to be recycled, reclaimed or reconditioned, as well as disposed of.

b. electrical or magnetic emissions, whether visible or invisible, and sound emissions.

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© Insurance Services Office, Inc. 2012

Copyright MCMXCIV, American Association of Insurance Services

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Ag Operations

Above or underground tanks • Propane/gas/diesel

Chemical spray y –– ground or air• Fertilizers• Herbicides/pesticidesp

Lagoons

Crop/stubble burning

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Ag Operations

Products

Methane gas emissions

Concentrated animal feeding operations (CAFOs)

Landfills/waste disposal areas/runoff

Wastewater treatment operations (including RO)6

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Operations at Risk

Farming/ranching

Cold storage and processing

Transportation

Disposal sites of hazardous waste

Warehousing

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Nonpoint Source (NPS) Pollution

“Comes from many diffuse sources. Nonpoint Source (NPS) pollution is caused by rainfall or snowmelt moving over and through the ground. As the runoff moves, it picks up and carries away natural and human-made pollutants, finally depositing them into lakes, rivers, wetlands, coastal waters, and even our underground sources of drinking water.”

�EPA-841-F-94-005, 1994

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NPS Pollution

� These pollutants include: � Fertilizers, herbicides, insecticides, pesticides, etc.

� Oil, grease, and chemicals from urban runoff and energy production

� Sediment from crop, rangelands and forestlands

� Irrigation practices

� Bacteria and nutrients from livestock, pet wastes and faulty septic systems

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Consequences of Pollution Event

Property damage (PD) claims (pollution legal liability)

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Property damage (PD) claimp yNeighbor’s

g ( )’s ’s product

ms (pollution legal liability)m gNeighbor’s

y)g’s’s property

Bodily injury (BI) claims (pollution legal liability)y j y (Product buyer

( ) (py (Employees

g y)Otherer third party

Clean up of neighboring property (offf -ff-site remediation)

Clean up of owned property (onon-n-site remediation)

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Potential Damages

Environmental Environmental restoration costs

• Site cleanup, remediation, & other measures (capping, testing, monitoring, etc.)

• Disposal costs

BI/PD

• Pain and suffering

• Loss of income• Evacuation/

relocation• Diminution of

value

Criminal and Criminal and civil penalties civil penalties civil penalties

by statuteyy

• Adverse publicity

• Shutdown of operations

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Legal Liability

Negligence

Contractual assumption

Statute or regulation

Strict liability

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Negligence

� Four criteria, that when met, means one “ENJOYS” liability � Duty Owed

� Duty Breached

� Injury/Damages

� Causal Connection

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More Negligence

Failure to exercise care of

reasonable person

Trespass: entering

property of another

Nuisance: interference

with right to use or enjoy property

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Strict Liability

Imposed without regard to fault•• Lower bar•

Lower barL•• Negligence not required•

Negligence not requiredN•• Defense is allowed but restricted

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Absolute Liability

Imposed without regard to fault

• No defense or escape from the responsibility imposed by law

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Statutes / Regulations

CERCLA (Superfund) imposes CERCLA (Superfuabsolute liability

Many states impose either absolute Many states impoor strict liability

Commonly retroactive: past owners Commonly retroactive: por operators are liable

17CERCLA: Comprehensive Environmental Response, Compensation, and Liability Act.

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Multiple Regulators & Laws

� Agriculture – Laws/Regs that apply to your Ag Op (EPA site 2016)� Clean Water Act (CWA)/Safe Drinking Water Act (SDWA)

� Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA)

� Resource Conservation & Recovery Act (RCRA)

� Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA/Superfund)

� Clean Air Act (CAA)

� Emergency Planning & Community Right to Know Act (EPCRA)

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Today

� Laws and new regulations or frequent occurrences

� The EPA oversees all federal environmental impact guidelines and implementation of those guidelines

� Some states have their own EPAs to oversee, e.g., CalEPA

� Some states have similar agencies using multiple names – EG: Departments of: Natural Resources, Public Health & Environment, Environmental Quality, Environmental Management, Environmental Services, et al.

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NEVER Want To Be a PRP

� PRP – Potentially Responsible Party

� Current owners/operators a facility that once� Handled or Treated or had in its/their possession pollutants

� Past owners or operators of hazardous waste facilities

� Generators of hazardous waste

� Transporters of hazardous waste

� Liability is also joint and several

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Insurable / Uninsurable Loss

Risk ManagementRisk Transfer

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Fortuity of Loss Doctrine

� A loss must be fortuitous to be covered� Insurance covers risks of loss

� Insurance does not cover certainties

� First-party property loss� No coverage for losses in progress or a loss that has already happened

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� Liability loss: coverage based upon an “occurrence”� Means an accident, including continuous and repeated exposure to

substantially the same general, harmful conditions

� Current split in authority between state and federal courts regarding what constitutes an "accident"

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� Application of doctrine regarding the known loss or the loss in progress� Known loss doctrine: knowledge of past pollution may void coverage, as

the injury or damage is a known loss

� Loss-in-progress doctrine: knowledge of ongoing pollution may void coverage, as the injury or damage is a loss in progress

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Some Recent Examples and Other Considerations To Assist Us in

Understanding

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Changing Exposures

Some 39% of farms are located in metropolitan areas Farmers are increasingly more likely to have a residential

neighbor rather than a farm family next door - What’s it smell like when a farmer spreads manure on her land

A study found that 75 percent of the total cost of nitrogen pollution from all human sources came from farming practices such as spreading fertilizer and manure on farm fields. This means that nitrogen pollution from farming costs us about $157 billion a year, on average, in damages.

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(Anne Weir, “Farm Nitrogen Pollution Damage Estimated at $157 Billion Yearly” AgMag Blog (June 9, 2015);cited from Environmental Research Letters.)

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Iowa Egg Farm Wastewater

� March 21, 2016 – Sunrise Farms of Iowa has been referred to the attorney general by the Environmental Protection Commission for a wastewater spill that fouled 18 miles of stream and killed over 163,000 fish

� This follows an avian flu disaster that hit the farm and caused them to lose some 3.8 million hens in 2015

� Iowa - 67 manure spills from large scale animal operations – 2015

� “It doesn’t take much common sense to realize that Iowa has too much manure” (Barb Kalbach, local farmer)

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New Salida Ditch Company

� October 28, 2010, U.S. Court of Appeals – New Salida Ditch Co. operates an irrigation ditch in Salida, Co. adjacent to the Arkansas river. They were performing maintenance next to their ditch and caused dirt, rock, soil & fill material to come into contact with the river and riverbank. Various governmental agencies required New Salida to take corrective action to remediate the damage.

� They turned a claim into United Fire Ins. Co. seeking coverage. They were declined citing the Total Pollution Exclusion in their CGL. UPHELD by the Court – dirt, rocks, et al was a “pollutant”

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Pollution and the Family Farm

� Dec. 30, 2014 – Wisconsin Supreme Court, standard ISO pollution language EXCLUDES losses caused by bacteria seeping into wells after a farmer spread manure on his fields. (Wilson Mutual v. Falk)

� Wisconsin had earlier passed a law saying that manure applied to fields was a product not a pollutant.

� However – it was the bacteria in the manure that caused the damage and triggered the pollution exclusion.

� They also had a “Farm Chemicals Limited Liability Endorsement” – deemed “useless” by one judge as it did not pay for cleaning up, assessing or responding to the effects of pollutants

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What “Pollution” Coverage Is Provided By ISO & AAIS?

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ISO FP 0090 Coverage Basics

� Provides coverage to extract “pollutants” from land or water at the “insured location” ONLY

o “Insured location” means any location, including its private approaches, described in the Farm Property Declarations

� Limited to $10,000 aggregate limit in a 12 month period

� Must be from one of the “specified causes of loss”

� Can purchase a higher limit

� No testing or monitoring once the cleanup has been completed

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ISO FL 0020 Coverage Basics

� BI within a building caused by smoke, fumes, vapor, or soot coming from HVAC equipment or from items used to heat water for building occupants or guests

� BI/PD arising from a “hostile fire”o Means one which becomes uncontrollable or breaks out from where it was

intended to be

� BI/PD from a fire set by the “insured” on the “insured location” to burn off crop stubble or other vegetation as long as it is a normal/usual ag practice & is not in violation of an ordinance or law

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ISO FL 0020 Coverage Basics

� Chemical Drift (unendorsed limit of $25,000) more is available� Pays for injury to another’s crops or animals only

� Limited Crop Dusting Coverage (if endorsed, FL 04 44)� Must be applied by an independent contractor

� Pays for injury to another’s crops or animals only

� Limit of $25,000 – more can be purchased (to $1,000,000?)

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AAIS FO-6 Coverage Basics

� Provides coverage to extract “pollutants” from land or water at the “insured premises” ONLY

o “Insured premises” means the location shown on the declarations, other land you use for “farming” and new premises acquired or leased during the policy period

� Limited to $10,000 aggregate limit in a 12 month period

� Subject to the selected “Causes of loss” provided

� Can purchase a higher limit

� No testing or monitoring once the cleanup has been completed

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AAIS GL-2 Coverage Basics

� BI/PD resulting from a fire on the “insured premises” which becomes uncontrollable or breaks out from where it was intended to be

� Is set for the purposes of burning off crop stubble or other vegetation in normal & usual farming operations

� Crop Dusting & Spraying Ops (if endorsed, GL-92)o Must be applied by an independent contractor

o Pays BI & PD

o Selected limit applies

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How To Fill The Coverage Void

…Some Considerations

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Some Carriers Provide Endorsements

EXAMPLE:

� Pollution Liability Coverage Form (endorsement to policy provided by their Commercial Division – not Farm/Ranch yet)� Claims made & reported basis

� Limit of $250,000 or $500,000 available

� Provides for:o Emergency Response

o Legal defense within the limit of liability

o Legal defense is subject to the Self Insured Retention (SIR)37ACE Pollution Liability Coverage From, LD 41540 (10-14)

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Insuring Agreement

� Pays for BI & PD and Remediation Costs (RC) – Coverage applies if:� BI/PD/RC arises out of a “pollution condition” on, at, under or migrating

from a “covered location”

� The “pollution condition” first commenced after the Retroactive date

� A claim for damages is first made and reported during policy period/ERP

� Such “claim” is reported, in writing, to the carrier during the policy period

38ACE Pollution Liability Coverage From, LD 41540 (10-14)

ACE Pollution Liability Coverage Form, LD 41540 (10-14)


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“Pollution Condition” Defined

a. The presence of “fungi” within or on a building or structure or the air within buildings or structures or legionella pneumophila;

b. The discharge, dispersal, release, escape, migration, or seepage of any solid, liquid, gaseous or thermal irritant, including smoke, soot, vapors, fumes, alkalis, chemicals, hazardous substances, hazardous materials, or waste materials, on, in, into, or upon land and structures thereupon, the atmosphere, surface water or groundwater.

Movement via “vehicle” from the “covered location” to another location shall not be considered a discharge, dispersal, release, escape, migration or seepage.


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“Covered Location” Defined

�Means any locations specifically identified or described on the SCHEDULE above.




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“Claim” Defined

� Means the written assertion of a legal right received by the insured from a third-party, including but not limited to a “government action”, “suits” or other actions alleging responsibility or liability on the part of the insured for “bodily injury”, “property damage” or “remediation costs” arising out of “pollution conditions” to which this insurance applies.


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“Remediation Costs” Defined

Means reasonable expenses incurred to investigate, quantify, monitor, abate, remove, dispose, treat, neutralize, or immobilize “pollution conditions” to the extent required by “environmental laws.”

“Remediation Costs” shall also include reasonable expenses required to restore, repair or replace real or personal property, to substantially the same condition it was in prior to being damaged during the course of responding to a “pollution condition.”

ACE Pollution Liability Coverage From, LD 41540 (10-14) 42



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“Environmental Laws” Defined

� Means any federal, state, commonwealth, municipal or other local laws, statutes, directive, ordinances, rules, guidance documents, regulations, and all amendments thereto, including voluntary cleanup or risk-based corrective action guidance, governing the liability or responsibilities of the insured with respect to a “pollution condition”.


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BI & PD Defined

� “Bodily Injury” means bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time.

� Property Damage Means:o Physical injury to tangible property, including all resulting loss of use of that property;

o Loss of use of tangible property that is not physically injured;

o Diminished value of property; or

o Natural resource damages




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Stand Alone Pollution Policy

…Another Option

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Premises Pollution Liability Policy

� Claims Made & Reported basis

� Provides first party & third party coverage for the following:� A “pollution condition” on, at, under or migrating from a “covered

location”

� An “indoor environmental condition” at a “covered location”

� “transportation” coverage

� Provides third party coverage for claims arising out of a “pollution condition” on, at, under or migrating from a “non-owned disposal site”

46ACE Premises Pollution Liability Insurance Policy, PF-44887 (09-14)

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Some Differences From Endorsement

� “Pollution condition” includes what we saw previously & adds:

� “Illicit abandonment” for “covered locations” & “transportation”� This essentially adds coverage for “covered locations” when someone

other than an insured places or abandons pollutants there

� Transportation of “pollutants” by someone other than an insured when they leave the pollutants at a place other than a “covered location”

� Adds “silt, sedimentation, electromagnetic fields (EMFs), “low level radioactive waste”, “mixed waste”, medical, red bag, infectious or pathological wastes” to the definition


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“Bodily injury” means physical injury, illness, disease, mental anguish, emotional distress, or shock, sustained by any person, including death resulting therefrom, and any prospective medical monitoring costs that are intended to confirm any such physical injury, illness or disease.


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� “Covered location” means what we saw previously

� Adds: “any location that meets the prerequisites to coverage identified in the Automatic Acquisition and Due Diligence Endorsement attached to this policy, if any”


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“Claim” means the written assertion of a legal right received by the “insured” from a third-party, or from another “insured” that is party to an “environmental indemnity obligation”, including but not limited to, a “government action”, suits or other actions alleging responsibility or liability on the part of the “insured” for “bodily injury”, “property damage” or “remediation costs” arising out of “pollution conditions” or “indoor environmental conditions” to which this insurance applies.


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� “Remediation costs” adds the phrase “indoor environmental conditions” to covered expenses

� “Indoor Environmental Conditions” means:� The presence of “fungi” in a building or structure, or the ambient air

within such building or structure

� Discharge, dispersal, release, escape, migration or seepage of legionella pneumophila in a building or structure or the ambient air withino Provided that the “fungi” and the legionella are not naturally occurring in the

environment in those concentrations found within said building or structure


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“Environmental Law” means any Federal, state, commonwealth, municipal or other local laws, statutes, directive, ordinances, rules, guidance documents, regulations, and all amendments thereto (collectively Laws), including voluntary cleanup or risk-based corrective action guidance, or the direction of an “environmental professional” acting pursuant to the authority provided by such Laws, along with any governmental, judicial or administrative order or directive, governing the liability or responsibilities of the insured with respect to a “pollution condition” or “indoor environmental condition”.


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Exclusions Seen In Both Approaches

AsbestosWorkers’ Workers

Compensation & mpensationmpensationRelated

Intentional and Intentional and willful violation of willful violation of willful violation offederal, state, local, federal, state, local, federal, state, local,statutes, notices, statutes, notices, statutes, notices,regulations, etc.

To property or locations sold, given away, abandoned or

subleased

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Exclusions Seen In Both Approaches

11stst party PD, but not party PD, but nop“remediation remediation remediation

expenses”

Fraud or Fraud or misrepresentation

Underground Underground storage tanksg

(USTs)

Releases that Releases that commenced prior to commenced prior to ommenced prior tpolicy inception date policy inception date policy inception dateor retroactive date

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Risk Assessment Considerations

A. Identify the materials present, quantities of the materials, and the potential harmful properties of each

B. Identify the environmental routes these items could take if they were to escape: air, streams, sewers, other

C. Target populations of living things that could be affected if these routes of escape were followed

D. Reminder: these items do not need to be “hazardous wastes” to be considered “pollutants”

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Conclusion

� Most (if not all) ag clients have pollution risk

� Most do not purchase any form of pollution coverage

� Agents/brokers: � Contact a specialty market underwriter

� Offer specific solutions to your clients

� Obtain signoffs if coverage is rejected

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the unique pollution exposures on farms - irmi

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