The incredible complexity and variety of environ­mental claims challenge the most seasoned claims professionals. Simply interpreting the policy and determining the actual facts are tasks fraught with ob­stacles that can lead to a bad faith claim. How can you turn the chaos of multiple antagonistic experts and in­surers into a symphony of steady movement toward a favorable resolution? This article examines what makes environmental claims more challenging (and intellectually rewarding), and offers five tips that claims professionals can use to navigate these claims to successful resolution.

Environmental claims present complex issues

There are countless types of claims that fall under the large umbrella of the term “environmental claims” and insurers’ own interpretations of what constitutes such a claim vary. Environmental claims can be broadly categorized as contamination/ pollution, property damage, or bodily injury claims, but even the definition of these simple-sounding terms can become a contentious dispute.

A few examples of classic environmen­tal claims include oil spills, storage tank leaks, dry cleaning chemical releases, landfill contamination and odor, labora­tory waste, contaminated water, and water loss/mold claims. Sometimes toxic tort claims, based on bodily injury or wrongful death allegedly caused by industry-made chemicals (e.g., benzene, Bisphenol-A, and diacetyl) or even natural substanc­es (e.g., asbestos, mold, and lead), are thought of as environmental claims. All of these classic and non-traditional “envi­ronmental” claims present similar types of challenges for the claims professional.

A variety of factors make environmen­tal claims challenging. By definition, they typically involve complicated scientific, medical and legal/regulatory issues.

For example, to assess the source, extent and remediation options for a pollution claim at an industrial site, environmental professionals, geologists, chemists, struc­tural or mechanical engineers, as well as other consultants or contractors may need to be retained. Some of the remediation work should be handled by a licensed pro­fessional to be in compliance with appli­cable state and federal laws, which likely require specific steps including notifica­tion, assessment and disposal to be taken before a site can be “closed,” with or with­out conditions for future handling.

In many claims, decades can elapse between the action that caused the con­tamination, and the alleged harm. Sorting out the facts to determine who did what to cause the claim now being made can require a virtual archeological dig, the interpretation of decades-old laws and standards, as well as the impact of poten­tially crucial intervening events. Assess­ing the precise triggering event and its consequences, in bodily injury claims for example, frequently requires the retention of a team of experts such as industrial hy­gienists, epidemiologists, and occupation­al health physicians. The claims handling process can look like an episode of CSI.

Environmental claims present a multi-dimensional challenge in that they typical­ly involve many parties, all of whom look to shift the responsibility for the cost of cleanup to someone else. Even the simplest of oil spills may involve the homeowner, the fuel delivery company, the heating ser­vice company, valve and boiler manufac­turers, and others. Larger contamination claims, such as landfill sites, typically in­volve many parties, sometimes hundreds, including the site owners, waste depositors and other potentially responsible entities.

Lastly, insurance coverage issues in en­vironmental claims are common and hot­ly contested. Pollution claims involving activities that occurred over decades have the potential to trigger many insurance policies, both at primary and excess lev­els, and generate complex risk allocation issues. Questions may also arise about whether the policyholder must contrib­ute to the cost of cleanup for periods of time when insurance either was not pur­chased or is otherwise unavailable.

Apart from allocation, there are numer­ous exclusions — such as those related to pollution or owned property — that may apply to limit or eliminate coverage. Even the term “pollutant” has been hotly con­tested. Beware of this minefield and avoid trouble by knowing the policy and the gov­erning law, and carefully crafting coverage positions and reservation of rights letters.

Five tips for environmental claims professionals

With this background, it is recommended that claims professionals follow these five tips to bring environmental claims to suc­cessful resolution:

1. Investigate and move the claim forward promptly

A basic tenet of all claims handling is prompt investigation; this is especially true with environmental claims. First, a pollu­tion event will likely trigger a formal re­sponse process under federal and state law, which requires that specific steps be taken on a set schedule. Second, prompt han­dling may assist in mitigating damages by quickly limiting the scope to the contami­nation. Third, prompt responsive action helps to avoid bad faith claims by eliminat­ing a common bad faith argument — un­necessary delay — and by maintaining a positive relationship with the claimant.

2. Utilize professional expertise

With a pollution incident such as an oil spill, it is important to get an environmen­tal professional to the site as quickly as possible. Your consultant may determine the cause of the claim at the outset, assess whether anything can be done to limit the scope of the problem, and help meet the regulatory compliance requirements. The professional can document important in­formation through photographs, identify key witnesses, and preserve evidence to reduce the risk of a spoliation claim.

Most importantly, a trusted environ­mental professional can provide assis­tance throughout the claim with advice on alternative causes and remediation tech­niques. This individual also has the abil­ity to monitor costs to ensure that other professionals and contractors’ approaches and charges are reasonable. Beware of how communication with a consultant is handled. Texting may be easy, but infor­mal messages are easily misinterpreted. Assume everything sent to an expert will be available to the policyholder’s attorney and carefully craft any communications.

3. Communicate effectively with the policyholder

Prompt, professional and responsive communication throughout the claim is key to effective claims handling. Cover­age letters should be sent as soon as pos­sible. Reservation of rights letters should specify all the potential bases on which coverage might reasonably be denied. The determination of whether there is cover­age for an environmental claim under a specific state’s law may be complicated. In instances where there is uncertainty, uti­lization of resources in-house or through coverage counsel is essential.

Be sure to communicate the scope of the insurer’s duty to the policyholder. Particularly when many consultants are involved and the damages have the po­tential to extend beyond coverage limits, the failure to communicate and document who is responsible for what often leads to problems that could have been avoided.

4. Carefully document the file

Successfully documenting the file with important information is more difficult as claims get larger and involve more parties, consultants and money. Be sure to stick to the facts and avoid comments that could be misinterpreted to support a bad faith claim. For example, if there is a note in the file to investigate something, do it or state why it became unnecessary. The entire claim file has the potential to be read by attorneys seeking to second-guess an adjuster’s actions.

Sometimes frustrations and emotions show through. Consider the tone and content of any communications. Even voicemail messages, commonly saved as data files, have the potential to be played as evidence at trial later. Exercise keen discretion in documenting each file.

5. Exercise creativity

The fifth and final tip is an unusual one — be creative. It sounds trite, but stop and think. Each environmental claim is unique and requires a custom-tailored solution. For example, what is really mo­tivating the person to make the claim? Most people want someone to listen to and care about them.

Think about the non-financial compo­nents of the situation and use these to help resolve a claim. In one case the firm was successful in settling a contentious claim only after insisting that the client offer the claimant a free dinner at the client’s res­taurant! This small personal touch made all the difference in getting the claimant to accept the offer and saved tens of thou­sands of dollars in additional expense.

Handling complex environmental claims is difficult and stressful. Understanding and accepting the multiple and simultane­ously challenging aspects of these claims is the key component in being successful. The top environmental claims profession­als are those who appreciate the complex­ity while focusing on the fundamentals: understanding the coverage, investigating the facts and using sound judgment to ne­gotiate prompt and fair resolutions.