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County Reinsurance, Limited Environmental Coverage

Raleigh, North CarolinaNovember 15, 2011

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Sudden/Accidental vs. Gradual Events

Sudden and Accidental Events

- Begins, ends and is typically discovered within a prescribed time frame.

- Often the result of named perils (explosions, fire, lightning), power outages, equipment failure. Sudden/Accidental

releases may or may not migrate off-site.

Examples

- Releases of hazardous materials resulting from sudden tank failure, leaking drums, pesticide overspray, improperly treated

wastewater discharges.

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Sudden/Accidental vs. Gradual Events

Gradual Events

- Continuous, ongoing seepage or release that may commence as a sudden/accidental event but which does not have a

defined end point. Gradual releases often involve off-site migration of contaminants.

Examples

- releases of hazardous materials from underground storage tanks, migration of uncontrolled leachate and methane from landfills, improperly treated wastewater discharges.

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Public Entity Operations: Potential Environmental Exposures

Wastewater treatment: – Sewer lines degradation– Land application of sludge– Pre-treatment by industries– Loading and unloading of chemicals– Uncontrolled odors– Inadequately treated effluent being discharged– Poor compliance record with NPDES permit

Water treatment/supply:– Storage of large volumes of chlorine gas and/or chlorine based

chemicals used for disinfection– Previously undetected contaminants– Pharmaceuticals

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Public Entity Operations: Landfills

Inadequate landfill liner, leachate collection system and cap

No well survey to identify local users of ground water.

Insufficient daily cover material.

Absent or inadequate methane collection or venting.

Inadequate screening of incoming wastes for hazardous constituents.

Inadequate methane collection and venting.

Residential encroachment / redevelopment.

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Public Entity Operations: Vehicle and Road Maintenance Facilities / Miscellaneous Operations

Poor management of underground storage tanks.

Waste oils and solvents improperly disposed.

Lack of proper secondary containment for oil storage areas.

Floor drains through which spilled fuels and oils can flow directly to local surface waters.

Improperly maintained oil/water separator systems.

Past spills and on-site disposal of waste oils and solvents.

Household Hazardous waste collection days.

Pesticide / herbicide spraying.

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Public Entity Operations: Airports, Parks and Golf Courses

Airport:

– Fueling operations, fuel tank farms and pipelines, FBOs, tenant operations, expansion plans

– Historical use by military?

Parks/golf courses:

– Chemical and pesticide usage (arsenic)– Illegal dumping of abandoned materials– Using contaminated groundwater/surface water for irrigation

purposes

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Public Entity Operations: Real Estate and Hospitals

Property Acquisitions/Divestitures- improper due diligence- inability to provide indemnification

Trust Property Donations- gifts of unknown potentially contaminated property / previously remediated property

Indoor Air Quality- mold- legionella- asbestos / lead based paint

Improper disposal of medical waste and laboratory chemicals (hospitals)

Stormwater runoff from all facilities (ie. parking lots, construction projects)

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Environmental Claims: Real Estate

Midnight Dumping: Gradual Release

A municipal park served as a convenient illegal disposal site for a recycling contractor. The contractor dumped five 55- gallon drums, releasing 275 gallons of used mineral spirits into the municipal park. When the drums were dumped, the hazardous contents leaked into the soil. In

addition, the contractor emptied the contents of the vacuum truck into a nearby community lake. Total cleanup expenses amounted to $475,000.

Improper Disposal of Regulated Substances: Gradual Release

A maintenance garage that used solvents for parts washing performed the work over a drain leading to an on-site septic system. Over time, the septic system leach field migrated into the

surrounding soils and groundwater. At the time of the septic system closure and conversion to a public sewer system, the contamination was discovered. Site remediation involved soil removal

and the installation of a groundwater recovery system. The costs exceeded $720,000.

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Environmental Claims: Water/Wastewater

Chlorine Gas Release – Sudden and Accidental

A chlorine release at a wastewater treatment plant resulted in toxic air emissions. Area residents and businesses were evacuated and several people were hospitalized for inhalation of fumes. A total of 12 businesses were forced to shut down for the better part of a day. Bodily injury claims amounted to $70,000 and business interruption claims totaled $120,000.

Groundwater Contamination – Gradual Release

A wastewater treatment plant that was 25 years old had been upgraded several times over the years. Improper closure of an old clarifier and on-site surface impoundment had allowed gradual seepage into the groundwater. These constituents contaminated the underlying groundwater which was a potable water supply for the neighboring community. The costs for groundwater cleanup and emergency water supply for residents totaled $550,000.

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Environmental Claims: Landfills

Abandoned Landfill – Gradual Release

A municipal property was selected as the site for a new library. Construction was halted after the discovery of an unknown landfill location at the site. As a result of haphazard disposal techniques, there had been a wide array of materials disposed at this site. An investigation revealed that the landfill occupied about three acres and the refuse was approximately 20 feet deep. The cost to exhume all buried materials and sort them for proper disposal exceeded $1 million. Additionally, further investigation turned up soil contaminated with pesticides, petroleum hydrocarbons and various volatile organic compounds. Soil investigation, cleanup and disposal amounted to approximately $500,000, bringing total costs to $1.5 million.

Contaminated Water and Methane Migration from Closed LandfillGradual Release

Two class-action pollution lawsuits against a County government and the landfill operator alleged the source of explosive gas leaks and contaminated drinking water was the closed County landfill. The cases involved 365 households. One $5.5 million settlement compensated residents whose drinking wells were contaminated by vinyl chloride. A second $2.5 million agreement involves methane gas seeping underground from the landfill into a neighborhood.

The landfill operator was responsible for all payments. The County was a defendant so legal defense expense was incurred.

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Transferring Environmental RisksToday’s Environmental Insurance Marketplace

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Coverage Availability

Association or Pooling Programs

- GL Pollution Extension - Coverage typically limited to third-party claims with a sudden/accidental or time element/named peril trigger for (ie. 72 hours for even t to begin and end – 30 days to report.

- Property Extension - Pollutant Cleanup and Removal (ie. $100k Occurrence & Aggregate).

- Decontamination Costs and Land and Water Contaminant or Pollutant Cleanup (ie. $500k Occurrence and Aggregate).

Popular Exclusions/Restrictions – Gradual pollution, known/legacy issues, Mold and asbestos, waste disposal (although limited givebacks may be available for mold and asbestos)

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Specialty Coverage

Separate Private Pollution Programs - Group programs often priced based upon populations. Premiums start at approximately $5,000 - $10,000 for basic sudden and accidental coverage.

- Gradual coverage may potentially be secured for pools/associations with a retro-date of policy inception and specific underwriting assessment (ie. Groundwater monitoring from landfills, info. On underground storage tanks). - Additional premium applies based upon risk and number of landfills,

wastewater treatment plants and USTs.

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Environmental Insurance Marketplace: More Competitive Than Ever

Coverage– “Blanket coverage” – no need to schedule locations– “Blanket Non-Owned Disposal Sites” – no need to schedule– Mold, Bioterrorism, Legionnaires– Third-party liability for Asbestos & Lead-based Paint– Midnight dumping

Pricing– 12 carriers, including mainstays: Chartis, ACE, Chubb, Great American,

XL Environmental, Zurich– 20-40% decline in premiums since 2007, depending on policy

Underwriting – for “operational” coverage, carriers are willing to do Phone Surveys and/or conduct visit

Service– Most carriers provide “On-Call” release reporting services– Water Intrusion/Mold Prevention Plans: Carriers will assist in developing,

may pay for one to be developed

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Pollution Legal Liability – Covers Sudden/Gradual “Unknowns”

Designed to provide protection for:

Clean-up of unknown pre-existing contamination, on/off-site

Clean-up of new contamination, spills, releases, on/off-site

Third-party claims for bodily injury/toxic tort, property damage, diminution in property value, third-party business interruption

Regulatory “re-openers”

Natural Resources Damages claims

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In Summary . . . .

Environmental issues “hot button” issues for the public; Public Entities are viewed as protectors of the public.

Public Entities face many environmental risks, but lack of centralization and resources makes identifying, managing them difficult.

Environmental coverage can be provided for sudden/accidental events while offering gradual coverage, while not impossible, may be more difficult based upon the ability to provide specific underwriting information.