Insurers May See Little Exposure To TVA Coal-Ash Cleanup

Insurers may see little or no exposure to the tens of millions of dollars in cleanup costs the Tennessee Valley Authority faces after a retention wall break spilled coal ash over more than 300 acres, according to a government spokesman.

On Dec. 22, a retention wall holding tons of coal ash, the waste product from a coal-burning electricity generating plant near Kingston, Tenn., broke, spilling 5.4 million cubic yards of fly ash over the countryside and depositing some of the waste into the Emory and Clinch Rivers.

No one was hurt from the release, but approximately 15 residences were affected by the spill and at least three homes were made uninhabitable.

Jim Allen, a media representative with TVA, said in an e-mail that "as a primary matter, TVA is self-insured and also has other carrier policies."

Since the spill, the TVA, an independent agency created by the federal government, along with the Environmental Protection Agency and state environmental officials, have tested and performed cleanup of the contaminated area. Spraying to keep the powder from flying into the air continues, as crews work to reopen a nearby road and repair a rail link into the plant that delivered coal.

The TVA has not issued any estimates on how much the cleanup will eventually cost the public utility, which receives all its income from the generation of electricity without taxpayer assistance.

Ken Ayers, managing director for Aon Environmental Services Group, said the cleanup could eventually cost tens of millions of dollars. He based his estimate on the cost of cleanup from similar events in the past, adding that Aon has no relationship with TVA.

His estimate did not include defense costs and settlements from landowners affected by the contamination.

Overall, the event would probably not have any effect on environmental insurance coverage, which is primarily written by the major carriers in the excess and surplus lines area, said Mr. Ayers, and underwriters would consider each risk independently from the others. He said there would probably be close examination by insurers of any similar facilities.

"It will all depend on how well the facilities are constructed and maintained," he said.

According to the TVA's filings with the Securities and Exchange Commission, the company, as required, has insurance for its nuclear power plants, but there is no mention of the application of insurance to cover its exposures to other environmental events.

Amongst these are $15 million to clean up environmental contamination in the closing of its Watts Bar Fossil Plant. As of Sept. 30, 2008, the TVA said it estimated its liability for cleanup stood at $18 million, including the Watts Bar Fossil Plan. The estimate did not include pending allegations that it was responsible for cleanup at some non-TVA facilities.

For the homeowners, the major question would be if this is considered a flood event, which would not be covered under their homeowners insurance, noted Christine Barlow, editor for FC&S, a unit of Summit Business Media Company that also owns National Underwriter.

However, if the homeowner does have flood insurance there would be coverage, she said, noting that there is no standard pollution exclusion under the flood insurance policy.

Kelly Maheu, another FC&S editor, said that, generally, TVA would need special event or pollution coverage for indemnification purposes, since pollution events are normally excluded under a general liability policy.

Tom Kilgore, president and chief executive officer of TVA, has said the TVA would perform "extensive outreach" to contact residents, place people in temporary housing, and provide them with meal gift cards and shopping cards as necessary.

He said during a press conference that those homeowners with homes that were extensively damaged were being put in touch with real estate agents to find new housing.