Insurers have long wrestled with claims for soil and groundwater pollution under both pre-1986 commercial general liability (CGL) policies and modern environmental impairment liability policies, but recently a new trend in environmental claims has picked up steam — vapor intrusion (VI).
Vapor intrusion is the migration of underground contaminants in soil gas (often volatile organic compounds [VOCs], such as PCE or TCE, or gasoline constituents such as benzene) into a structure above. Contaminated soil vapor enters a building through cracks or other openings in the building's foundation. Even low levels of such contaminants may harm human health and impact property values. Think naturally occurring radon gas seeping into a basement, but from a manmade source.
Regulators now focus on VI and regularly reopen previously remediated sites to investigate VI. The plaintiff's bar is on the scent, and defending VI cases often requires expensive experts and counsel. As VI continues to garner increased attention from scientists, regulators and lawyers, insurers should be aware of the issues associated with VI and employ strategies to help mitigate their VI liabilities.
A short history of vapor intrusion
Scientists have been aware of VI since at least the 1960s. However, it was only in the 1990s that regulators began to evaluate VI, particularly at petroleum-contaminated properties.
When the U.S. EPA first published draft guidance on VI in 2002, only a few states had their own guidance. Since then, VI has come of age.
In 2008, the U.S. won one of the first major VI lawsuits against Apex Oil in a case involving significant petroleum VI in a small Illinois town. As a result, Apex could be liable for remediation costs exceeding $100 million. Since 2013, Phase I environmental site assessments (used in many property transactions) must include VI assessment. Last year, the U.S. EPA added VI as a criterion for Superfund sites.
Most states now have VI guidance or standards. The trend is toward more aggressive regulation. California, New York, and Illinois have implemented some of the strictest standards in the nation. In 2016, the Ohio EPA released guidance which required action within days of discovery of high levels of TCE in a building.
Regulators don't spare smaller targets. In Wisconsin, the state directed the unwitting purchaser of a small property where a dry cleaner had operated in the 1970s to pay for testing and mitigation systems for nearby homes – which could cost him hundreds of thousands of dollars. The owner has tried, unsuccessfully, to find out whether the former dry cleaner had CGL insurance.
States are focusing on VI issues at previously remediated sites. “Sites closed by government agencies with engineered and institutional controls that address other exposure pathways, like direct contact with soil and ingestion of groundwater, can be reopened by the government, or citizen plaintiffs, for VI,” explains Matthew Cohn, an environmental attorney with Chicago law firm Greensfelder, Hemker & Gale, P.C.
The story of a former property owner in New York illustrates the risk of reopeners. The owner paid $4 million to remediate contaminated soil, then sold the property, but retained the liabilities. Five years later, the state reopened the site and sought $2.1 million from the former owner for VI investigation, abatement and mitigation systems for more than 120 affected properties. The former owner then sued other prior owners of the property, and owners of other nearby properties, claiming that they had also contributed to the contamination.
Scott Glash, a New York-based principal hydrogeologist with Roux Associates, explains why VI bubbles up at closed sites. “Traditionally in the remediation industry, the focus of clean-up was on soil and groundwater, while most clean-ups disregarded the potential presence of soil vapor. Soil vapor began to get on the radars of the regulators in the early to mid-2000s, and since has taken a seat at the table as a major media of concern for investigation and remediation,” says Glash.
According to Glash, reopeners usually occur when a new condition is discovered, or a regulator reviews the past clean-up and identifies a risk to human health. A regulator may even consider risks to human health arising out of future uses of a property, such as a potential apartment building.
Glash also notes that the EPA's 2015 requirement of actual testing of indoor air — as opposed to calculated ‘models’— has also triggered VI reopeners. Eventually, the number of VI reopeners should wind down because more recent remediation projects addressed VI. But in the near term, more reopeners are likely.
The plaintiff's bar is right behind the regulators. Plaintiffs are suing for damages associated with VI based on common law theories such as negligence, strict liability, nuisance and trespass.
Plaintiffs are also bringing statutory claims, including citizen suits under RCRA's Section 6972 (a)(1)(b). “Plaintiffs, standing in the shoes of the government in RCRA ‘imminent and substantial endangerment’ citizen suits, will find courts willing to order parties to investigate, remediate and abate chlorinated solvent and petroleum contamination in situations in which government agencies are unwilling or lack the resources to act,” says Cohn.
Examples abound. In New York, more than 1,000 plaintiffs sued IBM for $100 million over VI caused by TCE contamination. After six years of costly litigation, the case settled for an undisclosed amount.
In Wisconsin, a manufacturer faced regulatory action and class actions filed by 85 homeowners impacted by VI. The manufacturer paid more than $7 million to settle the class actions. Homeowners received payments for diminution in value of their homes and costs to install vapor mitigation systems. The manufacturer still has to deal with the regulatory action.
In Las Vegas, a mile-long PCE plume originating at a shopping center resulted in protracted litigation between hundreds of homeowners, the regulator and current and past property owners and operators. On top of the short-term costs to install mitigation systems in homes, long-term costs to remediating the source contamination may exceed $8 million.
The risks for insurers
Responsible parties are seeking coverage for VI under several types of policies.
Pre-1986 CGL policies are a popular target largely because dry cleaners were a ubiquitous source of PCE and TCE releases. Also, “reopeners” frequently occur on sites where CGL insurers previously paid claims associated with groundwater or soil contamination.
VI claims under CGL policies can implicate complex coverage questions such as whether an occurrence, for trigger purposes, happened when the initial source contamination occurred or when a plaintiff inhaled the contaminated air. The answers vary significantly by state.
Modern environmental impairment and pollution legal liability policies may provide coverage for VI. However, many pollution insurers restrict coverage for operations associated with VI, such as current or former dry cleaners, gas stations, garages and other operations which use solvents.
Successfully defending a VI lawsuit often requires specialized environmental counsel and expert testimony. Whether exposures harmed a plaintiff is usually heavily contested, as there is no scientific consensus on the effects of exposure to common contaminants. Even where contaminants are below regulatory levels, courts have suggested claims may proceed anyway based only on expert testimony regarding harm.
It can also be important to distinguish VI from other sources of indoor air contamination, such as commonly used chemicals, fuels, or outside sources. Experts in geology, soil physics, industrial hygiene, chemistry and toxicology testify on these issues.
Diminution in value claims can be very large depending on the number and type of affected properties and extent of contamination. Again, experts are required. In rare instances, vapors and associated odors can directly damage property, requiring clean-up or replacement.
Insurers may be asked to pay to install and maintain ventilation, depressurization or barrier systems to mitigate VI or remediate underground source contamination.
Compared to the costs of mitigation systems, remediating source contamination is often more costly. “Mitigation for vapor intrusion can be like mitigation for radon, with costs that are relatively modest or manageable,” says Cohn. “Proactively managing VI with vapor barriers can help reduce damages and settle or avoid litigation.”
Glash concurs. “For example, once the remediation of a brownfield site is complete, an inexpensive piece of plastic from a construction supply store could be placed beneath the foundation as a vapor barrier to prevent VI in response to any residual impacts remaining in the soil,” says Glash. “A system to actively remove contaminants would cost much more.”
For these reasons, developers building structures at high-risk sites (and their pollution insurers) often include VI mitigation in their plans.
Vapor intrusion claims are a trend that will not blow over any time soon. These strategies can help claims professionals assess and resolve VI claims:
Carefully assess whether coverage exists (and whether any other policies may offer coverage).
Promptly assemble the right team of environmental and legal experts to assess and mitigate VI issues. The science of VI is still evolving. Make sure the environmental consultants and contractors have experience successfully addressing VI issues. This is not a situation in which you want someone learning on the job.
Consider whether proactively offering to install mitigation systems in affected homes could avoid litigation or reduce claims costs.
Be sure to analyze whether other sources inside affected buildings may have contributed to the indoor air contamination.
Identify and seek recoveries or contributions from other parties who may have contributed to or have legal responsibility for the source contamination.
Larry Griffin (firstname.lastname@example.org) leads Beazley's environmental claims focus group, working closely with Beazley's insureds to develop and implement innovative strategies to resolve their environmental exposures. Griffin also has experience evaluating and resolving complex professional liability claims for environmental consultants, lawyers and accountants.