Insurance Recovery for Manufactured Gas Plant Liabilities
by various companies extending back as far as the 1800s. An insurance archaeologist can assist in the reconstruction of policy histories.
Once all relevant policies are located, they must be examined carefully to identify the features that will bear upon potential coverage. This includes identifying the insurer, the period covered, the coverage layer (e.g., primary, excess, umbrella) and the responsibility for coverage within a level (e.g., quota share, joint and several). In addition, companies should determine the following: the deductible, per-occurrence limit, aggregate limits, occurrence definition, pollution exclusion language, treatment-of-defense costs versus damages and self-insured retention level.
Evaluating Site Facts Relevant to Coverage
A number of site-specific facts will affect coverage. Dates of site events combined with policy trigger arguments will determine which policies are pertinent for a particular site. Other site features will determine whether policy criteria for coverage have been met. Consequently, site records and knowledgeable individuals must provide site information that relates to the following issues:
• Potential trigger dates. When did the site operate? When were shipments made or contaminants released? When was a problem discovered? When was a claim made?
• The owned property exclusion. Is there damage or the threat of damage to public property or to the property of others?
• "Unintended or unexpected occurrence" language. Were damages foreseeable?
• "Sudden and accidental"
language. What caused the contamination? Were there abrupt contamination events at the site? %n3%n
• Notice requirements. When was each carrier notified?
• Existence of claim or suit. Has a suit been filed that would trigger defense obligations? What incurred expenses are considered defense costs?
Estimating Site Costs
The expected recovery for any site clearly depends on its potential environmental costs which may include studies, mobilization, construction, operation and maintenance, project oversight, natural resource damages, toxic tort and third-party property damage awards, government oversight and legal costs. Past costs are documented through existing records and the knowledge of company employees, technical consultants and attorneys familiar with the site.
Estimating future costs is often more complicated because of substantial uncertainties regarding key cost factors. These factors include the type and extent of soil remediation, the type and duration of groundwater treatment, the timing of remedial expenditures and the company's ultimate share of total site costs for unowned sites.
In cases where there is substantial uncertainty, a decision analysis approach enables development of future cost estimates. A cost decision tree can prove useful. (Exhibit 1 provides a simplified example of a remedial cost decision tree for an MGP site.) Once costs and probabilities are attached to each branch of the tree, a probability-weighted expected value can be calculated, capturing the full distribution of potential costs at the site. The tree is developed to reflect all major uncertainties such as the timing of expenditures, cleanup goals, allocation of costs among responsible parties and other cost issues.
Estimating Coverage Likelihoods
An insurance carrier typically raises a number of defenses as to why it should not provide coverage. For a utility to be successful, all of the applicable coverage issues must end up resolved in its favor.