Managing environmental risk can take many different forms as organizations wrestle with challenges that vary widely depending on the industry they are in, the rules under which they operate and the loss-prevention strategies that work best for the specific perils they face.

At one company, regulatory changes could mean a risk manager will need to retool his organization’s insurance program. At another entity, the risk manager might focus on making Pollution insurers comfortable with his company’s risk profile. And at some companies, having the right Environmental program in place is crucial to securing clients.

Here’s a look at how some risk managers approach Environmental insurance.

REGULATORY CONCERN AT ELECTRIC UTILITY

Tucson Electric Power (TEP), like other electric utilities, is awaiting the Obama administration’s decision on the U.S. Environmental Protection Agency’s (EPA) proposal to reclassify coal ash as hazardous waste.

This byproduct of the electricity-generation process currently is considered a solid waste. With that solid-waste label, utilities can sell much of their coal ash to manufacturers such as cement and drywall producers for use in their products. Of the more than 130 million tons of coal ash generated annually in the United States, 43.5 percent is recycled today, the American Coal Ash Association reports.

The EPA, however, is concerned the heavy-metal content in coal ash is dangerous to human health—especially if the waste migrates from a disposal area into drinking water. If coal ash were to be reclassified as hazardous waste, then the agency would have authority under the Resource Conservation and Recovery Act to regulate the byproduct from its generation to its disposal.

Critics of the proposal say it would drive away users of the byproduct, nearly doubling the amount of waste that would have to be disposed of.

TEP discards its coal ash in clay-lined pits on its own several-hundred-acre site in rural northwest Arizona, where the utility’s power-generation facility also is located.

For TEP’s Karl Zimmel, manager of risk-management services, the main concern is the impact the regulatory change would have on the utility’s Pollution insurance program.

As part of his annual examination of emerging risks, Zimmel plans on conducting a “deep dive” into TEP’s Environmental exposure and current Pollution Liability insurance program this year to determine whether TEP is adequately covered, given the financial-responsibility provisions in the Resource Conservation and Recovery Act (RCRA).

Under RCRA, hazardous-waste generators and various waste-handlers must prove they have the financial wherewithal to cover the cost of cleaning up environmental contamination and to compensate third parties for their related bodily injuries and property damage.

Since the mid-1980s, TEP has purchased its General Liability coverage from Bermuda-based mutual Associated Electric & Gas Insurance Services Ltd. (AEGIS). The AEGIS policy covers third-party Pollution claims above TEP’s $2 million self-insured retention as long as a loss is attributable to a pollution incident at TEP’s power facility. If a pollution incident occurs during transportation of a contaminant or after its disposal, the policy does not respond.

Even if the EPA’s coal-ash proposal is not adopted, TEP will analyze whether a stand-alone Pollution Liability insurance policy “makes sense” for the utility, says Zimmel.

ACE-ING ENVIRONMENTAL COVERAGE

ace hardware corp. has not had any Pollution losses, and Director of Risk Management Bill Montanez says the company’s Environmental risk is very small.

Still, Ace has purchased a three-year Environmental policy that covers 14 or so distribution centers throughout the United States as well as Ace’s two paint-production facilities, both located in Illinois. Ace’s main exposures are its 350 tractor-trailer trucks and the above-ground tanks that hold chemical solvents at the paint-production facilities, Montanez says.

Despite Ace’s successful loss-prevention measures, it purchases coverage because it is “a very conservative company,” Montanez explains. “At the end of the day, I don’t want to be delivering any surprises to the CEO and shareholders.”

Meanwhile, each owner of Ace’s 4,100 U.S. franchise stores determines individually whether to purchase the coverage. Few do, Montanez says.

INCREASING INSURER COMFORT WITH HCA’S RISKS

the hospital corp. of America (HCA), the largest private operator of health-care facilities in the U.S., has had minimal Environmental losses over the past 10 years—a fact that has allowed HCA to gradually purchase broader coverage as underwriters have become more comfortable with the company’s risks, according to risk-management officials Joe Haase and Shirley Fuller Cooper.

A decade ago, HCA could purchase only Underground Storage Tank coverage, notes Fuller Cooper, assistant vice president of insurance.

But HCA’s coverage today is extremely broad, covering risks that include medical waste, says Haase, vice president of risk and insurance.

HCA’s policy, for example, would cover even the environmental damage that could result from a crash at a hospital helicopter ambulance pad, Haase notes.

COVERAGE IS KEY TO SECURING CLIENTS AT CANADIAN CONTRACTOR

clients of edmonton, Alberta-based PCL Constructors Inc., which works on industrial and commercial projects in the United States and Canada, “quite frequently” demand that the contractor obtain Pollution coverage, says Hugh McLellan, vice president of risk management.

PCL tiers its coverage, and “no one insurer takes a significant amount of risk,” McLellan says.

Project owners in Canada routinely have been requiring Pollution insurance over the past 15 to 20 years, but increasing numbers of U.S. clients began demanding the coverage in the past five to 10 years, he says.

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