Owners of Waste Shipped to N.C. Plant Are Potential Litigation Targets in Blaze

Owners of Waste Shipped to N.C. Plant Are Potential Litigation Targets in Blaze

Source: BestWire Services, October 10, 2006
By David Dankwa

Companies that transported hazardous chemicals to a North Carolina waste plant that exploded Oct. 5, sending a mushroom cloud of noxious gases and flames into the night sky, could find themselves defending against potential lawsuits stemming from the incident, experts say.

That’s because under the Resource Conservation and Recovery Act (RCRA) of 1976, a federal law regulating the storage and transportation of hazardous waste, companies that generate waste are responsible for it from cradle to grave, says Peter Breitstone, chief executive officer of Aon’s Environmental Services Group.

“Arguably, the people that shipped their chemicals are watching nervously to see what the claims are going to be,” Breitstone said. “You have what is a witch’s brew of chemicals; no one knows who’s been injured and who hasn’t or whose chemicals are there and whose aren’t.”

EQ Industrial Services’ North Carolina facility was used as a consolidation point for smaller batches of hazardous material, which are processed and shipped to other EQ plants in the Midwest, according to experts.

Roughly 17,000 people have had to be evacuated from Apex, N.C., where the facility is based. The parent company, EQ Holding Co., according to an insurance certificate, has a $24 million limit per claim and $28 million aggregate in pollution liability insurance issued by American International Specialty Lines Insurance Co., a unit of American International Group Inc.

An AIG spokesman declined to comment on the incident.

Bodily injury and property damage claims resulting from the explosion likely would be covered under the pollution liability policy, although it would be difficult and may take years to determine who among the thousands actually sustained injuries, Breitstone said.

“Where historically people have to show how they’ve been injured before damages are paid, the courts are now allowing an interim step, which is medical monitoring,” he said. “What’s likely going to happen in this case is the lawyers would go down there, aggregate a series of class-action lawsuits, and in the complaint state that the plaintiffs have been injured, have a fear of being injured, and need to be monitored for unusual things which demonstrate injury.”

The long-tail nature of such claims could be extended further if, “five years from now, there’s an unusually high number of cancer victims in that area,” he added. “They’d tie it back to this event.”

Third-party property-damage claims could include homeowners who may say their properties have diminished in value as a result of any potential environmental contamination. “There’s the stigma claim — which is usually a coverage that’s in a pollution liability policy,” Breitstone said. “The property owner needs to show some physical exposure to have that covered.”

Rodney Taylor, a managing director at Aon, said to show direct physical exposure to environmental discharge, there has to be evidence of chemicals that are measurable and determined to be at harmful levels under state law.

All this means the Environmental Protection Agency’s findings and investigations would be crucial to insurers, said Judi Martinez, a senior director with the environmental insurance practice at Integro and a former Willis practice leader who worked on EQ Holdings’ account. Willis of Michigan is currently the broker on the account. “The pollution legal liability policies only respond to cleanup that’s required by law, and the EPA is the one that determines what needs to be done,” she said.

In addition to potentially paying for the cost of medical monitoring, Martinez said the insurer may have to pay for the cost of monitoring air quality to determine whether it’s safe for residents to return. Businesses that have had to shut down operations may file business-interruption claims, although without direct physical property damage or loss, coverage would be denied.

This is the second explosion at an EQ Holdings plant in less than two years, according to Martinez. The first occurred at the company’s plant in Michigan. AIG provided the company’s liability coverage at the time of the first incident.

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