Utilities Workshop – Today’s Hot Issues
RIMS Annual Conference
April 29, 2014
Moderator:
Mark J. Plumer, Esq., Partner
Chair, Policyholder Insurance Practice Group
Orrick Herrington & Sutcliffe LLP
David S. Nalepka
Director, Insurance Services
Integrys Business Support LLC
John L. O’Marra
Managing Director
Marsh
Recording of this session via any media type is strictly prohibited.
Page 1
Legal Notice
This presentation is for informational purposes only,
and is not offered as legal advice. No attendee
should act or refrain from acting on the basis of any
matter contained herein without seeking appropriate
legal or other professional advice on the particular
facts and circumstances at issue. The views
expressed herein are the authors’ own and do not
necessarily represent the views of their respective
firms, attorneys and/or clients.
Recording of this session via any media type is strictly prohibited.
Page 2
Agenda
•
Introduction
•
Claims
•

Utility Losses that Keep Risk Managers Awake at Night (A Review of the Worst)

Cyber-Risk – A Review of the Claims and Available Coverage
Nuts and Bolts


•
»
OCIPS
»
Vendor Endorsements
Joint Venture Insurance
Up and Coming Issues

•
Project Insurance
Coal-Fired Power Plants
»
Decommissioning
»
RCRA Corrective Action for Coal Combustion Residuals
Questions and Discussion
Recording of this session via any media type is strictly prohibited.
Page 3
Claims
Utility Losses that Keep Risk Managers Awake at Night
(A Review of the Worst)
Recording of this session via any media type is strictly prohibited.
Page 4
Civil Claims
Recording of this session via any media type is strictly prohibited.
Page 5
Civil Claims
$39.6M verdict, Colorado, 2004
Plaintiff, an employee of a utility, climbed a telephone pole owned by a telecommunications company. The pole broke
approximately 6 inches below the ground, causing the plaintiff to fall approximately 25 feet to the ground. Plaintiff suffered severe
and catastrophic injuries, including permanent spinal cord injuries resulting in paraplegia. Plaintiffs sued the telecommunications
company for negligence for failure to maintain, inspect, repair, and replace the telephone pole. The telecommunications company
asserted third-party claims against the utility. The breakdown of the $39.6M verdict is as follows:

$9.9M for economic losses.

$1M for noneconomic losses.

$10M for potential impairment.

$18M for exemplary damages.

$750k for loss of consortium to plaintiff’s wife.
$45M settlement, 1996-2006
Utility placed coal ash in 2 quarries, with permission from the Maryland Department of the Environment, in order to reclaim
excavated portions of the site for future development. The coal ash originated from the utility power plants. The plaintiffs
brought a class action maintaining that the waste material discharged hazardous substances, including arsenic, lead, cadmium,
nickel, zinc and radium, which contaminated the drinking water supplies in the area
$48M in cleanup costs, Pennsylvania, 2005
In 2005, approximately 100 million gallons of ash spilled from a utility plant in Pennsylvania, into the Delaware River. The cleanup
of the incident cost $48M. In 2008, the company reached a settlement with state regulators for a $1.5M civil penalty.
Recording of this session via any media type is strictly prohibited.
Page 6
Civil Claims
$105M verdict, Pennsylvania, 2009
In December 2012, a utility sustained a $105M verdict after a mother of two died when a power line fell on her
in 2009. According to testimony during the 4 week trial, the deceased plaintiff suffered severe burns over 85%
of her body after a 7,200-volt power line fell on her. Plaintiff went outside with her cell phone to alert the
utility that power lines were burning in trees in her back yard. Plaintiff’s 2 young daughters, and her mother in
law, witnessed the tragedy. This is reportedly the largest personal injury case in Pennsylvania history.
$180M settlement, Missouri, 2005
In January 2008, a court approved a $180M settlement from a utility in the state of Missouri over the collapse
of a reservoir at a hydroelectric plant. The collapse injured a family of 5 and devastated a popular state park.
On December 14, 2005, the reservoir collapsed allegedly due to faulty instruments that the utility delayed
repairing, which caused the basin to overflow, sending a wall of water down a mountain into Johnson’s Shut-Ins
State Park. The deluge injured 5 members of the park superintendent’s family, and devastated much of the
tourist destination. The bulk of the settlement, roughly $103M, will go toward rebuilding the state park.
$565M settlement, California, 2010
A utility will pay $565M in legal settlements and other claims stemming from a gas explosion, which killed 8
people, injured dozens, and destroyed 38 homes in 2010. The pipeline in question was 54 years old. After
investigating the incident, The National Transportation Safety Board cited several failures, including inaccurate
record keeping, insufficient pipeline welds, a failure to spend $50M collected by ratepayers on promised safety
improvements, and other factors.
Recording of this session via any media type is strictly prohibited.
Page 7
Civil Claims
$940M (projected), California, 2007
In 2010 a utility filed a document with the Securities and Exchange Commission indicating that it had already
allocated $940M of its $1.1 billion in insurance coverage to settle lawsuits connected to wildfires in 2007.
According to regulators and fire officials, the utility’s power lines caused three of those fires.
$1.1 billion to $1.2 Billion (expected), Tennessee, 2008
A utility is expected to spend between $1.1 billion and $1.2 billion on its cleanup and recovery program in
connection with damages sustained when a dike ruptured in December 2008. As a result of the rupture, over
1.1 billion gallons of coal fly ash slurry spilled into the Emory river and its Swan Pond embayment. The utility
had used the pond for a half century to store coal ash and other sediments leftover from the burning of coal
used to fuel a fossil plant.
Recording of this session via any media type is strictly prohibited.
Page 8
Civil Claims – Additional Claims Information
AEGIS has for its insureds additional information on its website,
this includes the information on major losses and lessons
learned from these events.
Recording of this session via any media type is strictly prohibited.
Page 9
Claims
Cyber-Risk – A Review of the Claims and Available Coverage
Recording of this session via any media type is strictly prohibited.
Page 10
Cyber-Risk – The Threat
In 2012, two New York state utilities, experienced a data security incident that affected approximately 1.8
million utility customers. In addition to its costs in responding to regulatory inquiries, the breach also involved
costs related to forensic investigations, notifications to customers and credit monitoring services.
In 2013, two US power generation facilities were found infected with computer malware according to the US
Industrial Control Systems Cyber Emergency Response Team. Both infections were spread by USB drives that
were plugged into critical systems used to control power generation equipment. The WSJ reported that
Iranian-backed hackers have escalated a campaign of cyber assaults against U.S. corporations by launching
infiltration and surveillance missions against the computer networks running energy companies, according to
current and former U.S. officials. President Obama’s recent signing of the Improving Critical Infrastructure
Cyber Security order in February 2013 is also an example of the continued attention of regulators on cyber
concern.
Recording of this session via any media type is strictly prohibited.
Page 11
Cyber-Risk – The Threat
•
Trends Giving Risk to Cyber-Risk

Near-universal reliance on electronic data, communication, and ecommerce

New technologies pose special risks (e.g., cloud storage, social
media)

New products create risks (e.g., smart phone apps)

Hackers are growing bolder and more sophisticated

Utility industry is particularly vulnerable given the massive
volume of customer data collected and stored
According To One Survey, 76% Of Energy Utilities Experienced A Data Breach Of Some Kind In
2011. (Source: http://www.informationweek.com/attacks/76--of-energy-utilities-breached-inpast-year/d/d-id/1097030?, last visited Feb. 28, 2014)
12
Recording of this session via any media type is strictly prohibited.
Page 12
Cyber-Risk – The Threat
It could happen to you… - consider the following hypothetical
Cyber-criminals have hacked into your company’s database! Personal and financial
information (e.g., home addresses, birthdates, Social Security numbers, credit card
and bank information) of thousands of customers has been exposed. Within days of
the cyber-attack, the following occurs:
 The database must be taken off-line and vulnerabilities repaired, disrupting your
company’s business; customers and authorities must be notified of cyber-attack
 Plaintiffs’ firms file putative class action lawsuits against your company seeking damages
 Credit card companies demand forensic investigation pursuant to their security
standards, above and beyond your company’s internal investigation – vendors must
be vetted, retained, etc.
 Law enforcement and regulatory authorities launch investigations
 It appears necessary to offer credit monitoring and other services or incentives to
assuage angry customers
Recording of this session via any media type is strictly prohibited.
Page 13
Cyber-Risk – The Threat
Data breaches can become high-profile events with significant costs
•
•
•
•
•
•
•
•
Restoring services
Security consultants
Forensic imaging
Security upgrades
Notifying customers
Identity theft protection
Credit monitoring
Card brand penalties or
indemnification
•
•
•
•
•
•
•
Lost revenue
Drop in stock value
Loss of customer confidence
Public relations fees expenses
Legal fees for third-party lawsuits
Legal fees for government
investigations
Government fines or penalties
Insurance Is Available For Many Of These Categories Of Costs.
14
Recording of this session via any media type is strictly prohibited.
Page 14
Cyber-Risk – The Legal Landscape
•
15
Patchwork of legislative and administrative standards

Federal statutes, e.g., U.S. Electronic Communications Privacy Act
(18 U.S.C. §2510 et seq.)

State statutes governing the handling and dissemination of data

Breach notification statutes requiring mandatory disclosure to
consumers

FTC privacy rules

State Attorneys General

SEC reporting requirements – Division of Corporate Finance has
published guidelines for public corporations who suffer cyber
attack or data breaches
Recording of this session via any media type is strictly prohibited.
Page 15
Cyber-Risk – The Legal Landscape
•
Civil Litigation: class action lawsuits routinely filed alleging
failure to protect personal information, including claims such as:


Negligence – e.g., breach of duty to
»
exercise reasonable care in protecting and safeguarding personal and
financial information
»
promptly disclose that personal and financial information has been
compromised
»
have procedures in place to detect and prevent the loss or
unauthorized dissemination of personal and financial information
Business torts – e.g.,
»
intentional and negligent misrepresentation of adequacy of data
security system
»
Breach of fiduciary duty to protect personal and financial information
Recording of this session via any media type is strictly prohibited.
Page 16
Cyber-Risk – The Legal Landscape
•
Civil litigation (cont’d)

Invasion of privacy – most American jurisdictions recognize a
common law cause of action for invasion of the right to privacy

Statutory causes of action, e.g.,
»
California Consumer Legal Remedies Act (Cal. Civ. Code §1750 et
seq.)
»
New York Deceptive Trade Practices law (N.Y. Gen. Bus. Law §349 et
seq.)
»
U.S. Electronic Communications Privacy Act (18 U.S. C. §2510 et
seq.)
Recording of this session via any media type is strictly prohibited.
Page 17
Cyber-Risk – The Legal Landscape
•
Card Brand Claims

Any breach that compromises credit card information will trigger
investigations by credit card brands (e.g., Visa, MasterCard)

Detailed forensic investigation into breach and Payment Card
Industry data security compliance issues

Possible fines and penalties

Obligation to indemnify banks and card brands for actual losses

Disputes resolved by arbitration pursuant to card brand rules
Recording of this session via any media type is strictly prohibited.
Page 18
Cyber-Risk – Coverage for Data Breach Costs
•
•
We are seeing a fundamental shift in the way the insurance
industry covers cyber exposures

Insurers are vigorously contesting coverage under traditional
policies

Offering replacement “cyber” policies (Tech E&O and Medial E&O)
Coverage nevertheless may be available under traditional
policies

GL

Property

D&O

Crime
Coverage For Cyber Events Increasingly Is Being Endorsed Out Of Traditional Policies.
Recording of this session via any media type is strictly prohibited.
Page 19
Cyber-Risk – Cyber Coverage for Data Breach Costs
•
“Cyber” policies may cover five major categories of costs:

Costs of internal forensic investigations

Remedial measures

»
Privacy notification costs
»
Identity theft protection services for consumers
First-party coverage
»
Cost of restoring systems
»
Business interruption/lost revenue

Third-party claims: coverage for defense costs, settlement, or
judgment

Government and regulatory investigations: coverage for defense,
fines, or penalties
Recording of this session via any media type is strictly prohibited.
Page 20
Cyber-Risk – Coverage for Data Breach Costs
•
“Cyber” policies contain numerous standard exclusions:

Exclusion for certain types of fines, penalties, and punitive
damages

Exclusion barring coverage for costs arising out of failure to comply
with PCI standards and rules

Intentional act exclusion

Prior act exclusion

Terrorism exclusion, with exception for narrowly defined “Cyber
Terrorism” (requiring a “political, religious, or ideological”
purpose)
Cyber Policies Tend To Be Modular In Nature And Vary By Insurer; The Market For
These Policies Is Not Fully Developed.
Recording of this session via any media type is strictly prohibited.
Page 21
Cyber-Risk – Traditional Coverage for Data Breach Costs
•
General Liability Policies

Personal and Advertising injury coverage insures against claims for
privacy violations (“written publication, in any manner, of material
that violates a person’s right of privacy)

Courts have recognized broad privacy interests in this context,
including (i) the “right to be free from disclosure of personal or
confidential information,” also known as a “right of secrecy,” and
(ii) “the right to seclusion or to be free from unwanted intrusions.”

Courts interpret “publication” broadly
Some Courts Have Refused To Find That The Acts Of Third-Party Hackers Triggers
Coverage
E.g., Zurich Am. Ins. Co. v. Sony, No. 651982/2011 (N.Y. Sup. Ct. Feb. 21, 2014)
Recording of this session via any media type is strictly prohibited.
Page 22
Cyber-Risk – Traditional Coverage for Data Breach Costs
•
Property Policies


Commercial property policies typically cover “direct physical loss of or damage to
Covered Property”
»
Electronic data often is specifically excluded but may be covered under an “additional
coverage” provision
»
Coverage may be subject to an exclusion for “loss or damage caused by or resulting
from manipulation of a computer system . . . by any employee . . . or by an entity
retained by you or for you to inspect, design, install, modify, maintain, repair or
replace that system.”
Business interruption coverage
»
Protects a policyholder from (i) loss of income as a result of interrupted business
operations; and (ii) additional expenses incurred as a result of efforts to continue
business operations
»
May require that the disruption of the business operation be caused by a “direct
physical loss or damage” – insurers may argue that security breaches do not
constitute a “physical loss”
Recording of this session via any media type is strictly prohibited.
Page 23
Cyber-Risk – Traditional Coverage for Data Breach Costs
•
•
D&O Policies

Lawsuits alleging wrongful acts and negligence may trigger Side C
“entity” coverage.

However, policy may exclude coverage for claims involving invasion
of privacy or, specifically, data breaches
Crime Policies

First-party losses may be covered under computer fraud
extensions

E.g., Retail Ventures Inc. et al. v. National Union Fire Insurance, 691
F.3d 821 (6th Cir. 2012) (finding coverage for hacker’s theft of debit
and credit card information of millions of DSW customers)
Recording of this session via any media type is strictly prohibited.
Page 24
Nuts and Bolts
Joint Venture Insurance
Recording of this session via any media type is strictly prohibited.
Page 25
Joint Venture Insurance Issues
•
Who Manages JV? Which partner buys insurance?
•
Risk Tolerance – Deductibles & Limits
•
JV’s contracts & insurance requirements (Occurrence or Claims made
based policies)
•
D&O Insurance coverage

Must provide coverage for D&Os from both JV partners
Recording of this session via any media type is strictly prohibited.
Page 26
Include within Corporate Program or Separate Policies
Positives
Negatives
Corporate Program
• Reasonably high limits
available
• Lower cost
• Exposure of corporate
program aggregate limit
• JV members interest in
higher deductible?
Separate Policies
• Limits dedicated to JV
• Can purchase lower
deductibles
• No effect on corporate
policy aggregate limits
• Likely higher cost option
(minimum premium
applied)
• Likely less limits compared
to corporate program
Recording of this session via any media type is strictly prohibited.
Page 27
Nuts and Bolts
Project Insurance – OCIPS
Recording of this session via any media type is strictly prohibited.
Page 28
Project Insurance
Recording of this session via any media type is strictly prohibited.
Page 29
Insurance in Context
What Insurance Can and Can’t Do
•
Not all risk is insurable
•
There is an interplay between insurable and uninsurable risk
•
Regardless of insurance in place, loss avoidance and mitigation are
preferable to an insurance settlement
•
Insurance can remove barriers to collaboration
•
Insurers provide their best terms and conditions to projects where risk is
managed
Recording of this session via any media type is strictly prohibited.
Page 30
Insurance in Context
Consider/Anticipate all Stakeholders
•
Owners
•
Equity Investors/Partners
•
Lenders
•
Engineering, Procurement and Construction (EPC) Contractors
•
Engineers
•
Trade Contractors
•
Insurers
•
Original Equipment Manufacturers (OEM’s)
Recording of this session via any media type is strictly prohibited.
Page 31
Insurance in Context
Construction Risk Management
•
Identify/Quantify the risk to all stakeholders
•
Determine the most effective methods to control and mitigate risk
•
Assign/Define contractual responsibilities
•
Determine the coverage and limits necessary to protect the parties and
the work
•
Identify which party is in the best position to provide each coverage
•
Communicate/Collaborate
Recording of this session via any media type is strictly prohibited.
Page 32
Controlled Insurance Program (CIP)
Benefits
•
Secure coverage and high limits
•
Coverage for all participants
•
Removes barriers to small/disadvantaged contractors
•
Insurer loss control services supplement those of Contractor and
Owner
•
Supported by contractual safety requirements, site safety plan
•
Completed operations extended through statute of repose
•
Growing popularity of GL Wraps in states with antiindemnification statutes
•
Control over the claims process
Recording of this session via any media type is strictly prohibited.
Page 33
OCIP vs. CCIP
Practical Considerations
•
Coverage
•
Price
•
Market relationships
•
Cash flow
•
Risk / rewards
•
Long-tail claims
•
Adjustment of contract price
•
Program administration
•
Coverage for multiple contracts
•
CIP from the subcontractors’ point of view
Recording of this session via any media type is strictly prohibited.
Page 34
Nuts and Bolts
Project Insurance – Vendor Endorsements
Recording of this session via any media type is strictly prohibited.
Page 35
Vendor Endorsements – The Basic Issues
•
Contractual risk transfer is used to shift financial responsibility
from one contracting party to another through a variety of
different mechanisms

Contractual indemnity provisions

Insurance
Recording of this session via any media type is strictly prohibited.
Page 36
Vendor Endorsements – Indemnity
•
Indemnity Agreements

Contract provision that requires one party to assume financial responsibility for the
liability of another party
»
May include defense obligations
»
May include time limit for giving notice of claims

Requirements can flow in either direction (to or from contractor), or both

Scope generally may be agreed by the parties

»
Degree of fault of indemnitor (triggered by gross negligence, negligence, or strict liability
claims?)
»
Degree of fault of indemnitee (is there an exception for indemnified party’s gross
negligence, sole negligence, etc.?)
»
Knock for knock (oil and gas, railroads, etc.)
Legal principles: express indemnity obligations generally supported by common law
except state statutes may make it illegal to indemnify another party for intentional
misconduct or for its sole negligence (e.g., Cal. Civ. Code§2782; 740 Ill. Comp. Stat.
35/1; Mich. Comp. Laws Ann. § 691.991)
Recording of this session via any media type is strictly prohibited.
Page 37
Vendor Endorsements – Indemnity
•
Indemnity Agreements (cont’d)

Example: Deepwater Horizon Explosion – BP contracted with Transocean to conduct
exploratory offshore drilling with the Deepwater Horizon, a drilling unit owned by
Transocean. In April 2010, after an onboard explosion, the unit sank and a massive oil
spill resulted.

Drilling contract contained the following indemnification provisions:
»
Article 24.1: CONTRACTOR [Transocean] shall assume full responsibility for and shall
protect, release, defend, indemnify, and hold COMPANY [BP] and its joint owners harmless
from and against any loss, damage, expense, claim, fine, penalty, demand, or liability for
pollution or contamination, including control and removal thereof, originating on or above
the surface of the land or water, from spills, leaks, or discharges of fuels, lubricants, motor
oils, pipe dope, paints, solvents, ballast, air emissions, bilge sludge, garbage, or any other
liquid or solid whatsoever in possession and control of CONTRACTOR….
»
Article 24.2: COMPANY [BP] shall assume full responsibility for and shall protect, release,
defend, indemnify, and hold CONTRACTOR [Transocean] harmless from and against any loss,
damage, expense, claim, fine, penalty, demand, or liability for pollution or contamination,
including control and removal thereof, arising out of or connected with the operations
under this CONTRACT hereunder and not assumed by CONTRACTOR in Article 24.1
above….
Recording of this session via any media type is strictly prohibited.
Page 38
Vendor Endorsements – Insurance
•
Insurance Requirements – Contract provision that specifies the types
and minimum amounts of insurance that parties are required to obtain
to cover risks related to their performance under the contract

Coverage for the work the contractor is performing

Coverage for contractor’s indemnity obligation

May specify types of insurance required (e.g., GL; products liability;
professional liability; cyber), specific coverages, minimum policy limits,
maximum SIR/deductible)

May specify that contractor’s insurance will apply on a primary (first-inline) and non-contributing basis vis-á-vis company’s insurance

May name company as additional insured under contractor’s policy
(specifically or by way of “blanket” Additional Insured endorsement)
Recording of this session via any media type is strictly prohibited.
Page 39
Vendor Endorsements – Insurance
•
Example: Deepwater Horizon drilling contract contained the following provisions:

20.1 INSURANCE – “Without limiting the indemnity obligations or liabilities of
CONTRACTOR [Transocean] or its insurer, at all times during the term of this
CONTRACT, CONTRACTOR shall maintain insurance covering the operations to be
performed under this CONTRACT as set forth in Exhibit C.”

Exhibit C: “Insurance Requirements”
»
Established the types and minimum level of coverage that Transocean was
obligated to maintain
»
Provided that Transocean was required to carry all insurance at its own expense
and that the policies “shall be endorsed to provide that there will be no recourse
against [BP] for payment of premium.”
»
Stated: “[BP], its subsidiaries and affiliated companies, co-owners, and joint
venturers, if any, and their employees, officers and agents shall be named as
additional insureds in each of [Transocean’s] policies, except Workers’
Compensation for liabilities assumed by [Transocean] under the terms of this
Contract.”
Recording of this session via any media type is strictly prohibited.
Page 40
Vendor Endorsements – Interplay Between Indemnity and Insurance
•
Indemnity and insurance requirements are distinct obligations that can
differ in scope and application


Example: Deepwater Horizon
»
Trial court found that since Transocean did not assume liability for an
oil spill beneath the surface of the water, under indemnity agreement
quoted earlier, BP was not an “additional insured” under Transocean’s
policies. In re Deepwater Horizon, 2011 WL 5547259 (E.D. La. Nov.
15, 2011)
»
Fifth Circuit reversed, construing drilling contract’s indemnity and
insurance requirements as “separate and independent” despite the
clear intent of the indemnity, thus allowing BP direct access to
Transocean’s $750 million insurance tower. In re Deepwater Horizon,
750 F.3d 338 (5th Cir. 2013).
»
On re-hearing, Fifth Circuit withdrew its opinion and certified
questions of contract construction to the Texas Supreme Court
Takeaway: Clear drafting and description of interplay between indemnity
and insurance is crucial
Recording of this session via any media type is strictly prohibited.
Page 41
Up and Coming Issues
Coal-Fired Power Plants
Recording of this session via any media type is strictly prohibited.
Page 42
Up and Coming Issues
Coal-Fired Power Plants – Decommissioning
Recording of this session via any media type is strictly prohibited.
Page 43
Up and Coming Issues -- Decommissioning
•
Environmental standards (EPA) effect on existing coal plants?
•
Plants nearing end of design life.
•
Upgrade Environmental Controls, Repower, or shutdown?
•
Project insurance for major upgrades (OCIPs, Builders Risk, etc.).
Recording of this session via any media type is strictly prohibited.
Page 44
Up and Coming Issues – Decommissioning
•
•
Coverage options for plants nearing end of life:

Full Replacement Cost

Full Replacement Cost w/ sublimit for specific plants

Actual Cash Value

No insurance – fully self-insured
Insurance requirements may exist in:

Mortgages

Lease, Purchase Power, Interconnection, or Joint Plant agreements

Contracts with third parties
Recording of this session via any media type is strictly prohibited.
Page 45
Up and Coming Issues
RCRA Corrective Action for Coal Combustion Residuals
Recording of this session via any media type is strictly prohibited.
Page 46
Coal-Fired Power Plants
Groundwater Contamination from Coal Combustion Residuals
•
•
Coal combustion residuals (“CCRs”) are the materials that remain after burning
coal for electricity: fly ash, bottom ash, slag, and flue gas desulfurization waste

CCRs are one of the largest waste streams generated in the United States

CCRs typically contain metals, including arsenic, mercury, boron, and cadmium

CCRs are disposed of in wet form (sluiced to surface pond) or dry form (trucked to a
landfill).

Coal combustion products (“CCPs”) are CCRs that are not disposed of, but instead
beneficially used in such things as cement, concrete, road base, wallboard, and
agriculture
Historically disposed CCRs may have caused groundwater contamination

Existing state-based regulations may not have required groundwater characterization
and remediation

New federal regulations WILL require groundwater characterization and remediation
Recording of this session via any media type is strictly prohibited.
Page 47
Coal-Fired Power Plants
Groundwater Contamination from Coal Combustion Residuals
•
•
1976 – Resource Conservation and Recovery Act (“RCRA”)

Subtitle C provides standards for hazardous waste, with federal and state enforcement

Subtitle D provides guidance for non-hazardous wastes, for state and local enforcement and through citizen suits
1980 – RCRA amended by the Solid Waste Disposal Act Amendments

•
1984 – RCRA amended by the Hazardous and Solid Waste Act Amendments (“HWSA”)

•
Temporarily excluded CCRs from regulation, pending special studies (completed in 1988 and 1999)
Heightened standards for landfills and surface impoundments (double liners, leachate collection systems, leak detection
systems, groundwater monitoring)
2010 – EPA issues two proposals, regulation of CCR under Subtitle C and Subtitle D

Subtitle C wastes already have groundwater regulations in 40 CFR 264.90-101

Subtitle D wastes will have groundwater regulations in new section, 40 CFR 257.90-101, which are detailed and lack
flexibility by the States
•
2012 – Lawsuits from private parties seek to compel EPA to finalize a decision
•
2013 – Court granted summary judgment on the merits to Plaintiff’s claims
•
2014 – In a January Consent Decree, EPA agreed to issue a “notice taking final action” by December 14, 2014.
At that time, EPA will announce whether Subtitle C or Subtitle D will be selected.
Recording of this session via any media type is strictly prohibited.
Page 48
Coal-Fired Power Plants – RCRA Corrective Action for Coal Combustion
Residuals – Potential Insurance Recovery
•
Groundwater contamination from historical CCRs may be an insurable
event

Historic CGL policies typically provide coverage for “damages . . . arising
from an occurrence [or accident] . . . including . . . a continuous or repeated
exposure to conditions. . . .”

General-liability policies typically cover liability arising out of (i) bodily
injury, (ii) property damage, (iii) personal injury, and (iv) advertising injury
»
Courts in most jurisdictions have held that damage to groundwater constitutes
damage to a public resource (i.e., damage to third-party property for purposes
of insurance coverage)

Question is whether a process of contamination was in progress during
relevant policy periods

To the extent historical leaching of CCRs gives rise to liabilities – even
liabilities imposed retroactively due to a change in regulation – those
liabilities are potentially covered under historic CGL policies
Recording of this session via any media type is strictly prohibited.
Page 49
Coal-Fired Power Plants – RCRA Corrective Action for Coal Combustion
Residuals – Recovery Obstacles
•
Insurers may argue that the cost of performing a statutory obligation (i.e., investigation and
cleanup under CERCLA or RCRA) should not be considered recoverable

•
Insurers may argue that the cost of investigating and remediating ash landfills is an ordinary
cost of doing business

•
The question is whether the costs are remedial in nature
Notice of claim is complicated by the fact that environmental liabilities evolve over time

•
The vast majority of courts now hold that CERCLA-type clean-up costs and RCRA-type corrective action
are “damages”
Notice under historic policies is ordinarily not due until a claim is asserted. In many states, “late”
notice does not preclude coverage unless and to the extent an insurer is prejudiced
Pollution exclusions

Since 1985, CGL form includes “absolute” pollution exclusion

Prior exclusions had exceptions that allowed coverage for “sudden and accidental” releases or for
“sudden, unexpected, and unintended” events
»
The meaning of “sudden” has been heavily litigated: does sudden mean “short in duration,” or “unanticipated?”
Recording of this session via any media type is strictly prohibited.
Page 50
Questions
Recording of this session via any media type is strictly prohibited.
Page 51
Thank You
Recording of this session via any media type is strictly prohibited.
Page 52