Filed Under:Agent Broker, Commercial Business

Companies Like West Fertilizer Should Carry Ample Liability Coverage: Testimony

Hazardous chemical operations should carry insurance for a worst-case scenario, an industry consultant has testified before Congress in outlining a host of critical issues exposed by the West Fertilizer plant explosion in April.

Amongst the problems is that while West Fertilizer had $1 million in liability insurance, the cost of the disaster could reach as high as $230 million, according to Rafael Moure-Eraso, chairman of the U.S. Chemical Safety Board.

This is “an unimaginable blow to a town of just 2800 residents—more than $80,000 for each man, woman, and child living in West, [Texas],” he said.

The Insurance Council of Texas estimates the insured property losses at about $100 million. That figure includes estimated insurance payments for the plant, 140 homes, an apartment complex, a middle school and a retirement center.

Read PC360's coverage of the West Fertilizer explosion here and look for the feature story, based on our visit to West, in the July edition of PropertyCasualty360-National Underwriter.

Paul Orum, a consultant to the Coalition to Prevent Chemical Disasters, also testified June 27 before the Senate Environment and Public Works Committee chaired by Sen. Barbara Boxer, D-Calif.

Orum said companies holding large amounts of extremely hazardous substances should be required to maintain sufficient liability insurance to cover a worst-case chemical release.

“Such a requirement would provide a reasonable cost incentive for companies to develop and use feasible alternatives,” Orum said.

In addition, transportation obligations encourage widespread overuse of railcars for shipping and storing extremely hazardous substances.

“Railroads have sought to have shippers share liability risks associated with extremely hazardous substances (which they are required to carry) and to have shippers develop safer substitutes,” he said.

Orum testified that sustained improvement in chemical hazard prevention, preparedness, and response is long term and involves a range of actions.

“Among the most immediate lessons from the West Fertilizer explosion are for Environmental Protection Agency to make sure major recognized hazards are 1) included in the programs designed to address them, 2) subject to safer alternatives analysis by the companies that hold them, 3) covered by appropriate lists and thresholds, and by the general duty to operate safely,” he said.

Besides the insurance issues, testimony made clear that the loss of life was mitigated by the fact the explosion occurred at night, after a nearby school had closed.

West Fertilizer was storing hundreds of tons of ammonium nitrate, which was ignited by an intense fire at the retailer. Federal and state authorities could not determine the cause of the fire.

Two schools—the high school and the intermediate school—were structurally damaged beyond repair and will be torn down, and a third school was also badly damaged.

“Because of the hour of day, all the schools were unoccupied. Had the explosion taken place during the day, severe casualties could have occurred in the intermediate school, which was devastated by both blast and fire,” Moure-Eraso said.

“Post-explosion damage assessments indicate that it would have been difficult for children and others to escape from the building,” Moure-Eraso added.

He said the CSB is currently evaluating the vulnerability of this structure, to understand the potential consequences had the explosion occurred when children were present, and to inform future siting decisions.

“Nearly 200 homes were severely damaged or destroyed, a sizeable fraction of all the houses in West,” said Moure-Eraso, adding that although 15 people have been officially listed as killed in the disaster, the toll is actually much higher.

For example, “Residents of the [nearby] West Rest Haven nursing home were severely affected, and according to nursing home officials 14 patients have passed away since the April 17 explosion, dying at twice the expected rate,” Moure-Eraso said.

Moure-Eraso said the ammonium nitrate that was the cause of the explosion was stored in wood-framed bins with wooden walls in the West’s fertilizer warehouse building.

He said that both the warehouse building and the bins were constructed of combustible wooden material, and the building also contained significant quantities of combustible materials such as seeds stored near the bins of ammonium nitrate.

The building had no automatic sprinkler or fire suppression features, Moure-Eraso said.

He also said that the facility straddles the city limit in the northeast section of West, Texas.

When it was first built, in 1961, the area was rural and there were few other structures nearby but the nursing home, apartment complex, high school and intermediate school were constructed with a 200-foot radius of the fertilizer retailer.

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