Colorado business owners could face unexpected financial repercussions for environmental hazards that settled on their property after the recent flooding in the state, an environmental expert says.

And a Sept. 9 spill of some 233,000 gallons of molasses into Hawaii's Honolulu Harbor near Sand Island has caused one of the worst environmental destructions to sea life in the island state's history, according to news reports.

Both incidents, says William McElroy, senior vice president of environmental for Liberty International Underwriters, New York, serve as examples of the environmental exposures lurking in the shadows for U.S. businesses, although the events are “two very distinctly different things,” he notes.

One event is an industrial-size activity involving an otherwise benign, natural substance; the other is a natural disaster creating numerous small events. One occurred in the waters of Pacific Ocean; the other, high up in the Rocky Mountains.

In Colorado, what geologists are terming a “100-year flood” caused by more than 15 inches of rainfall in eight days, sent walls of water up to 20 feet high rushing down the streets of Boulder and surrounding areas. In the end, eight people lost their lives while scores of others remain missing or homeless.

A secondary toll from the flood was damage to the state's pristine waterways, which are now contaminated with runoff from oil wells, smashed vehicles, torn up fuel pipes and whatever residents may have stored in flooded out homes, garages and tool sheds.

For business owners in the state, McElroy explains that, legally, the property owner where an environmental spill settles is liable for the cleanup.

“If you're in an industry operation that has hazardous materials as far as processes, you bought pollution cover in case you create a problem to cover damages,” he says. Yet firms not actively in the business of creating potential pollutants should insure against the risk that they become passively involved with migration of a pollutant onto their property.

“Once you have a chemical or toxic event on your property, it's not necessarily a matter of fault, but you have to do something about it,” McElroy says. “You have to clean up an event on your property whether it's your cause or not, or your material or not.”

Luckily, environmental insurance protects clients that are actively involved in a spill as well as those that are passively involved, yet remain liable, McElroy says, adding that many U.S. businesses are recognizing the risks for being passively involved in an environmental hazard, making this type of insurance “a far more common purchase today” than it was 25 years ago.

“It's events like [these] that are always reinforcing in people's minds the need for this type of cover,” McElroy says

In Hawaii, the molasses spill occurred as the substance was being loaded via pipeline onto a container ship owned by Matson Inc., a major carrier in the Pacific with business in Hawaii, Guam, Micronesia and China.

“To me, the lesson of the Hawaii molasses spill is that it doesn't necessarily have to be hazardous waste to be an environmental problem,” McElroy says. Molasses is a refined natural product made from sugar, not a man-made pollutant. “But if you put it in the wrong place at the wrong time, it has consequences.”

That's true for any benign substance or commodity: put enough of it someplace where it's not supposed to be, and “there are going to be consequences,” he says. “That's true of any industrial size operation.”

Thousands of fish, crabs and other native animals have already died, and the Hawaii State Health Department told local news outlets that the harm could spread to humans by way of an increase in predatory animals such as sharks, barracuda and eels, which have lost their food sources.

Given the thick, liquid form of molasses, such a sizeable spill as occurred in Honolulu Harbor can cause a unique amount of damage. One of the biological or chemical processes of molasses is that by nature, it sucks up all the available oxygen in the water, causing fish and other sea life to suffocate; in some cases, the sticky mass simply blocked creatures' airways, not permitting them to breathe, McElroy says.

The molasses could also cause unusual growth in marine algae, and because the spill happened in a harbor where there's less circulation than the open ocean, it could be months or even years before the molasses completely washes away.

Matson immediately ceased its molasses operations and said in a press conference and ensuing press release that it would “fully cooperate with the state” on cleanup response.

It's not yet known if Matson carried environmental insurance. That may not matter in this type of spill, McElroy says, as the federal government does provide assistance for damages and cleanup costs.

The Natural Resource Damage Assessment and Restoration Program, a project of the U.S. Department of the Interior, works to restore natural resources that have been “injured” by oil spills or other hazardous releases into the environment, according to the government website. The NRDA Restoration Program assesses the damages and negotiates legal settlements or other legal actions with responsible parties, using this money—rather than taxpayers'—to restore the damaged resources. The amount of funds used for the restoration depends on details specific to the loss and materials needed for the cleanup.

The NRDA Restoration Program could also assist in the Colorado cleanup. According to The Guardian, the state's 17 gas-and-oil inspectors were “completely overwhelmed” at the task of assessing the state's 50,000 oil wells after the mid-September flooding. Further assessment of the pollution damages along Colorado's waterways depends on a lot of different things in play, McElroy says.

“Rather than a single, discreet event, you're talking about any number of small events, which are aggravated by moving water,” he says. Leaks from fuel oil tanks, gas stations, or chemicals stored in a neighbor's garage were all carried downstream by floodwaters.

“In many cases, it may be very difficult to identify a single source [of pollutant],” McElroy says.

“It's the kind of thing you don't necessarily think of as the first problem when you have a natural disaster of this type,” he says.

LIU insures industry and commercial businesses, large contractors, and people in the gasoline business, he says. “Among the more common people that we take for granted every day are those who handle significant volumes of materials at the local gas station.”

The same scenarios could be true for other natural disasters, such as a windstorm or earthquake, which is another reason why so many U.S. businesses are—or should be—taking a closer look at Environmental coverage.

“Certainly, Hurricane Sandy had any number of environmental events associated with it,” McElroy states.

The market for environment Insurance is basically a niche market, but the capacity and business have expanded quite a bit over the last few years, McElroy says.

“We're starting to see some correction related to rate, and modest price improvement over the last year,” he says.

Over his nearly 30 years in the market, Environmental coverage has grown “dramatically,” McElroy says.

“When I got into the business, people who bought environmental cover were really precisely the people you would expect to buy environmental cover: large-scale industrial operations that handle large volumes of toxic and potentially toxic materials,” he says. “Now it is much more common to see people who are not obviously in the business of handling dangerous stuff buy coverage, because of the awareness that develops from events like the Colorado floods, and hurricane Sandy, and things along those lines.”

The general public is also “much more sensitive” to the consequences of environmental events than 30 years ago, he adds. Such catastrophically environmental events “capture the imagination of the public.”

Special Reports /

September Environmental Disasters Highlight Various Ways Insurance Can Respond

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