A utility contractor was retrofitting relay equipment when a switching gear
was damaged, resulting in a mercury spill. The contractor allowed the mercury
to sit, which volatilized and migrated into a heating, ventilating, and air-conditioning
(HVAC) system. The contractor was held responsible for cleanup and disposal
of the mercury as well as decontaminating the entire building. Costs exceeded
$200,000.
A contractor was repairing leaks on fuel lines at a shipyard. An unknown
party opened the valve that separated the inactive lines the contractor was
repairing from the active lines. Fuel began to flow through the lines under
repair, releasing 3,500 gallons of fuel. The result was a $500,000 cleanup,
including soil and groundwater remediation.
A residential contractor disposed of sealants and solvents containing toluene
in a covered dumpster located onsite. Two 10-year-old boys came onsite and climbed
in the dumpster. They were soon overcome by the fumes and were asphyxiated.
The contractor is subject to a lawsuit that exceeded $1 million due to inadequate
disposal of waste toluene.
A general contractor was performing renovation work in a hospital. After
autopsies found traces of Aspergillus (a ubiquitous fungus with a 75 percent
fatality rate in people with compromised immune systems), it is alleged that
the contractor either brought the fungus into the building via the drywall it
installed and never properly sealed the ventilation system, or that it dislodged
the fungus from the ventilation system during their course of work. The contractor
faces a multimillion dollar lawsuit alleging that it contributed to the death
of two immunosuppressed patients.
You Don’t Have To Be an Environmental Contractor To Create Environmental
Liability
Clinging to the idea that if you don’t perform environmental services, you
don’t have an environmental exposure, many contractors convince themselves that
environmental litigation is not a problem. Contrary to that belief, it is—and
it’s growing. To succeed in today’s world, contractors must incorporate environmental
risk management into every facet of their business operations. To do otherwise
invites disaster.
In the 1990s, courts imposed substantial liability on contractors traditionally
not known to have environmental exposures. For example, in Marathon Oil Company v Chicago Bridge and Iron Company,
the contractor, Chicago Bridge and Iron Company, was primarily tasked to relocate
heavy machinery on a Marathon Oil site in Texas. During the course of the work,
a crane lifting a piece of heavy machinery inadvertently dropped its load. As
the machinery fell, it hit a pipe leading to an aboveground tank storing hydrofluoric
acid. Subsequently, the pipe separated from the tank causing a gap between the
tank and the pipe.
The result was devastating. Approximately 6,000 pounds of hydrofluoric acid
was released into the atmosphere. Some 3,000 residents were evacuated from the
surrounding areas. Despite all efforts to reduce the impact, approximately 1,000
residents were still treated for respiratory injuries. As a result, numerous
lawsuits were filed alleging bodily injury and property damage, including loss
of use of property and cleanup expense. The court entered judgment holding the
contractor 95 percent liable for $23 million. The question may now be: What
can we expect in the 2000s?
Reducing the Impact
To further understand the environmental exposure, it is important to realize
that pollution incidents are low-frequency, high-severity type events. Because
these incidents are few and far between, they leave little data to forecast
losses. As a result, a contractor may only cause a pollution incident once,
but that incident could prove catastrophic.
However, there are numerous loss control techniques that can be applied with
little out-of-pocket expense to reduce this potential impact. Shown below are
some general loss control practices that can be utilized by any contractor.
Education
Education must be the first and single most important step in any process.
The contractor must educate employees to identify the environmental exposures
inherent in day-to-day operations. There are a variety of training courses offered
by many consulting firms that will assist employees in visualizing the exposure
during the site walk-through.
Currently, employees performing the site walk-through may not realize the
impact of oil-stained areas or stressed vegetation. They may be able to identify
a vent pipe from an underground storage tank and understand that it will have
to be removed. But do they understand that if the tank has been in the ground
for any length of time, it may have leaked and caused not only subsurface soil
contamination but also groundwater contamination?
Furthermore, employees must also learn to assess the areas on the perimeter
of the job site. In one particular case, a road contractor was asked to construct
a road in conditions where the water table had to be lowered. Wells were drilled
at strategic locations throughout the site, and “dewatering” operations were
performed. As the force creating the draw on the groundwater started lowering
the water table, workers began to notice a petroleum smell in the water being
pumped out of the wells. The project was shut down.
It was later discovered that the force from the dewatering operations also
drew petroleum-contaminated groundwater from a leaking underground storage tank
at a gas station on the perimeter of the site. If the contractor had realized
the importance of investigating not only what was onsite, but also around the
site, many headaches could have been prevented.
Education is also important in crisis and emergency response situations.
In the event of a pollution incident, employees must know how to respond. They
must first know how to characterize an incident and be careful not to create
or enter unsafe environments. They must notify the appropriate authorities who
have the ability to respond to pollution or hazardous incidents. (Each state
has a list of emergency response contractors for use in these particular situations.)
Lastly, provided the environment is conducive to worker conditions, the contractor
must utilize onsite resources to prevent further spreading of contamination.
Environmental Assessments
Even though every site does not require an environmental assessment, most
owners perform such assessments when they believe there is a problem. Surprisingly,
many contractors do not routinely ask their owners if such an assessment has
been performed. Just ask! If one has not been performed, so be it. But if one
has been completed, it will provide all the essential information needed to
take appropriate action. A good assessment provides the contractor with important
information on the surrounding land use, groundwater conditions, and past uses
of the property, as well as areas of concern identified onsite.
Tips on Contracts
A contractor can also reduce its environmental risk through contractual transfer.
Indemnification is probably the most widely used method and, therefore, should
include environmental issues. The contractor must negotiate indemnification
language into the contract that prevents the contractor from being held liable
for preexisting contamination. Often the issue is addressed in the indemnity
section of the contract, and many times it is a stand-alone clause in the contract
referred to as a “Preexisting Contamination Clause.” It is essential to have
a copy of an environmental assessment identifying existing contamination to
create this clause.
To further protect a contractor from identifying or “finding” unknown contamination,
a “Change in Conditions Clause” should be utilized. This clause will enable
the contractor to make appropriate contract modifications (i.e., change orders,
etc.) in the event contamination is uncovered or found. The contractor’s attorney
should prepare these type of contract items, and they should be executed within
the contractor/client agreement.
A contractor also faces tremendous pollution liability as a result of subcontracted
operations and, therefore, should give some attention to contractually controlling
such vicarious liability. Probably the most frequently used method is insurance
requirements. Many general contractors make a good faith effort to ensure that
their subcontractors purchase appropriate insurance and that they are named
as additional insureds on those policies. Usually, general liability, auto liability,
and workers compensation are required. However, seldom, if ever, is Contractors
Pollution Legal Liability (CPL) coverage necessary.
It was once thought that CPL coverage could not be a general requirement,
but today more and more contracts are requiring it. The provision can be removed
if you decide it may not be applicable, but otherwise, it should be present.
At a minimum, it should be explored on a case-by-case basis.
Exposures Go Beyond the Job Site
It is important to realize that environmental exposures do not exist exclusively
at the job site. Contractors face other environmental exposures through transportation,
disposal, and owned premises.
Nearly every contractor at one point or another has used refueling vehicles
to refuel equipment at a job site. This presents over-the-road environmental
exposures. Also, street and road or paving contractors may face the environmental
exposures associated with transporting asphaltic cement. Environmental disasters
can also arise from collisions with structures, such as tank trucks, transformers,
unprotected fuel tanks, and so forth.
When it comes to disposal practices, the web of liability expands. Many contractors
have disposed of materials for years in “licensed” or permitted landfills. Now
the Environmental Protection Agency (EPA) under the Superfund program pursues
potentially responsible parties (PRPs) to assist in the cleanup of abandoned
landfills or disposal facilities.
The issue here is that if a contractor is identified as a PRP, in all likelihood
they will be given a “de minimus” status. De minimus contributors are those that have
contributed little volume of waste or materials. Although they will be asked
to only contribute 2 to 5 percent of the total cleanup, that could mean hundreds
of thousands of dollars if the total cleanup is only $20 million.
Lastly, consider the real estate that contractors currently own. This is
another source of environmental liability. For example, contractors own maintenance
yards with underground storage tanks (USTs). Have those tanks ever leaked? What
are they used for? The site could have been owned for 25 years, providing routine
maintenance on a variety of vehicles. Where did the waste fluids go?
Some contractors own batch plants, asphalt plants, and some even own quarries
that can have a tremendous impact on groundwater in a particular area. Owned
premises is another area a contractor must address to reduce the impact that
environmental liability can have on a company.
Conclusion
Environmental liability need not be a frightening encounter. There are risk
control techniques that, when effectively integrated into the contractor’s risk
management program, will help reduce the impact environmental liability can
have on its operations. Most importantly though, contractors must open their
eyes and realize that there are environmental exposures in their day-to-day
operations. Remember, you don’t have to be an environmental contractor to have
an environmental exposure!