The recent contamination of the water supply system in Charleston, West
Virginia, and the 9 counties surrounding it disrupted the lives
of 300,000 people for more than 5 days. Fortunately, the amount
of chemicals spilled into the water supply was relatively small.
Incidents like this raise questions about the hazards of storing,
using, and transporting toxic materials in urban areas and the vulnerability
of contaminating water supplies in US cities through accidental
releases of pollutants.
The West Virginia Chemical Spill
In January 2014, Charleston residents reported an unusual odor
and taste in their drinking water supply to the State Environmental
Protection Agency, which led to the discovery of a leaking
chemical storage tank at Freedom Industries' Etowah Terminal. Freedom
Industries reported the spill as involving 5,000 gallons of 4-methylcyclohexane
methanol, a greasy liquid used to wash coal.
The 35,000-gallon tank that leaked was constructed in the 1950s
to store gasoline at what was then a petroleum refinery. There was
a breach in the secondary containment that had not been repaired.
Almost 3 weeks after the contamination was discovered, Freedom reported
that the leaking tank contained a second chemical or a mixture of
polyglycol ethers and that it might have leaked 10,000 gallons.
The spill was contained in the Elk River with absorbent booms.
Soil around the tank was cleaned up and the water system piping
was decontaminated. Within 10 days of the discovery of the
spill, levels of contaminants in the Charleston water system tested far
lower than the Center for Disease Control's (CDC's) safe concentrations.
Therefore, the water was declared to be safe for all uses, including
bathing and drinking. Many residents continued drinking bottled
water and claimed they could taste the contaminants in the public supply.
Impact of the Contamination on Charleston Residents
Food services, restaurants, and schools were impacted by the
tainted water. Schools were closed and people were forced to use
water trucked in by local governments and the National Guard.
Industrial companies that depended on water for manufacturing or
cooling were not able to operate during the period that the
water supply was shut down. While no one was seriously injured by the contaminated
water, the incident disrupted the lives of 300,000 people living
in the nine-county area surrounding Charleston.
Charleston residents still seem unsure of the information being
provided by the Environmental Protection Agency (EPA), CDC, and
local authorities. Dozens of lawsuits have been filed against Freedom
Industries, American Water, and the manufacturers of the
materials that were released. The EPA ordered
Freedom Industries to move the materials from the leaking tank and
then from all of the tanks at the terminal.
Legal Ramifications
Within weeks after the spill, Freedom Industries sought
protection under bankruptcy laws, asserting that claims from
third parties, if successful, would exceed its assets. American
Water, the private operator of the Charleston water system, is
also named in the legal actions by Charleston area residents and
businesses for its alleged
negligence in not testing for contamination of its water and not
closing down the system fast enough when the problem was first reported.
Beyond Freedom and the water company, lawyers have also looked at
the manufacturers of the chemicals, transportation companies that
pumped them into the leaking tanks, and entities that owned and
operated the Etowah Terminal facility before its sale to Freedom.
The amount of damages that will ultimately be assessed as a result
of the contamination of the Charleston water system is difficult
to predict. Business interruption losses suffered when operations
were suspended seem to be the most straightforward type of damages.
Even those are subject to significant variations that will require
speculative evaluations. Bodily injury claims by people who were
sickened by drinking contaminated water will have to be resolved
at trial or via settlement.
Cleanup costs for this release were relatively modest in comparison
to other cases where chemicals escaped into rivers. The most expensive
part of the process was the decontamination of the pipes in the
water supply network, and that took less than 5 days. No additional
remediation of remaining pollutants has been ordered by state or
federal governments at this time.
Insurance for Contamination Claims
Even if Freedom Industries has no assets, it may still have insurance
policies that may respond to third-party claims for bodily injury
and property damage as a result of the contamination of water supplies
in West Virginia. Commercial general liability (CGL) and excess
liability insurance policies typically purchased by industrial corporations
contain pollution exclusions that are likely to preclude coverage
for the water contamination incident. If the claims are clearly
not covered, these policies may not pay defense costs.
If the company has purchased environmental liability insurance,
that policy may respond to the pollution claims for bodily injury
and property damage. It might also pay for remediation costs incurred
to clean up the Elk River, the water supply pipes, and the area
around the tank at the Etowah Terminal. Not all chemical distributors
buy pollution insurance, and those that do might not have procured
enough limits to pay all of the incurred damages and cleanup costs.
American Water may have insurance for its operations, which could
include protection for the claims filed against it for its alleged
negligence in distributing contaminated water. This could come from
CGL and excess liability policies or from products liability insurance
if purchased separately. Plaintiffs seeking recoveries in court
will have to prove that negligence of the company was responsible
for the bodily injury or property damage they suffered. They will
also have to prove the amount they are owed for damages.
If a court determines that the chemical company that allowed
the release into the river, and not American Water, is responsible
for the majority of the losses, plaintiffs may not be fully compensated
for all damages once the liability is apportioned among responsible
parties. The same factors that are applied to the potential liability
of American Water will also be applied to other defendants that
are named in individual and class action lawsuits.
Lessons Learned
By the time the lawsuits are settled, millions of dollars will
have been spent to pay for bodily injury, property damage, and cleanup
claims. One of the complaints about the Charleston incident was
the lack of control regulators had over the operations of Freedom
Industries. It is alleged that its facilities were not inspected
by any state or federal agency in more than 2 decades, and it was
not required to demonstrate financial responsibility before it stored
millions of gallons of hazardous chemicals within 200 feet of a
river that supplies water to a city and 9 counties.
The Charleston water contamination incident also demonstrates
the vulnerability of water supplies in the United States to disruption
even where the quantities of chemicals spilled are small and the
material not highly toxic. This incident makes us aware that chemicals
could be released into rivers intentionally by vandals or terrorists.
While the security of water supplies and chemical plants was a national
concern after the terrorist attacks of September 11, 2001, little
has been done in the intervening years to actually improve the safety
or security of either. The involuntary distribution of the costs
of pollution events to parties that were not primarily responsible
for the losses or damage is also a wake-up call for people who have
considered insurance for environmental risks unnecessary.
Parties that have not purchased environmental liability insurance
should evaluate their exposure. An assessment of these risks and
an evaluation of the protection available is not just a good idea
but may be essential to the survival of entities that are exposed
to either direct or indirect losses from chemical and oil spills.
The information contained in this article
is for general informational purposes only and is not intended to
provide individualized business or legal advice. The information
contained herein was compiled from sources that Aon considers to
be reliable; however, Aon does not warrant the accuracy or completeness
of any information herein. Should you have any questions regarding
how the subject matter of this article may impact you, please contact
your appropriate legal or business advisers.