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.