Source: http://www.businessinsurance.com, January 17, 2014
By: Bill Kenealy
The recent release of a hazardous chemical in a river near Charleston, W.Va., has set the stage for a protracted legal battle for the companies involved in the spill and their respective insurers, experts say.
The leakage of thousands of gallons of coal-processing chemical methylcyclohexane methanol from the Etowah River Terminal of Freedom Industries Inc. has already generated several lawsuits.
While unaware of the particulars of the insurance carried by Freedom Industries, Rod Taylor, New York-based managing director of Aon Risk Solutions’ environmental services group, said Tuesday that the majority of any coverage is likely to be consumed by the cost of defending the suits.
“Freedom doesn’t have a very good story to tell and, if they have insurance at all, even something like a $5 million limit probably won’t pay for the defense costs they will incur,” Mr. Taylor said.
Jeff Kingsley, Buffalo, N.Y.-based partner in the global insurance services group and the environmental litigation and regulatory practice at law firm Goldberg Segalla L.L.P., said Wednesday that the types of lawsuits will vary given the estimated 300,000 people deprived of drinking water in the days following the spill.
In addition to business interruption lawsuits from aggrieved business owners in the area, several of which have already been filed, Mr. Kingsley said he expects personal injury lawsuits. This is marked contrast to the Gulf of Mexico oil spill in 2010, where most of the lawsuits were filed by businesses, he said.
“Because it affected drinking water, in West Virginia you are talking about a much higher percentage of personal injury claims; and when you are dealing with personal injury, the dollar values can be very high,” Mr. Kingsley said.
While businesses such as restaurants and hospitals will have a relatively straightforward time linking the lack of water to quantifiable businesses losses, people alleging personal injury will have a tougher time proving they were harmed by ingesting the synthetic alcohol patented in 1990 that is used to wash coal.
“What are long-term injuries that were sustained by people that did drink the water? The chemical is fairly new and the studies related to it don’t say anything about long-term exposure,” Mr. Kingsley said.
Given the limited resources of privately held Freedom Industries, which merged with several other private firms at the end of last year, Mr. Taylor said plaintiff attorneys will target their insurance coverage.
“Litigation could take a couple of years, but they will pretty quickly figure out what insurance assets are available,” Mr. Taylor said. “The test is whether or not any of these entities go bankrupt in the next few weeks.”
Mr. Taylor said lawyers will look at the “deep-pocketed” business partners of Freedom Industries for payouts.
“The assets that these private companies have are hard to get a hold of, but there were a lot of parties involved in operating the facility and there may be resources beyond the direct party responsible,” he said. “You start looking at how wide will the net go when the primary company does not have the resources to satisfy the claimants.”
Indeed, against Kingsport, Tenn.-based Eastman Chemical Co., a manufacturer of MCHM, was named with Freedom Industries in a lawsuit filed Jan. 10 U.S. District Court for the Southern District of West Virginia.
“Eastman as the manufacturer and producer of the product bears legal responsibility for damages stemming from the leak of 4-MCHM on Jan. 9, 2014,” states the lawsuit brought by eight local businesses and residents.
Likewise, the water treatment facility located a mile from the site of spill, owned by West Virginia American Water, a unit of American Water Works Co. Inc., is a target of lawsuits.
On Jan 10, bar owner Scott Miller filed a civil suit in Kanawha Circuit Court in West Virginia against Freedom and West Virginia American Water on behalf of businesses and West Virginia American Water customers.
“There’s real liability exposure based on what the water treatment plant did or did not do,” Mr. Kingsley said. “Did they follow their own protocols to make sure the water they were distributing was safe?”