To give this complete justice - refer to the lengthy discussions from my former post on Kiddie Kollege.  And for the saga click here.

An appeals court (8/11/11) reverses a lower court opinion and holds the individual, Jim Sullivan, who purchased the Kiddie Kollege building liable to reimburse the state for the costs associated with demolishing and cleaning up the site.  The site was a former thermometer factory.

Jim Sullivan is ordered to pay $1 million for the ineptitude of multiple state and federal officials and agencies.

• Health Department Official - Chip Woods received an "alarming report in 1995 that a defunct thermometer factory had so much mercury no one should have enter [the building] without a respirator."  Woods ignored requests from MidLantic National Bank (mortgage holder) to post a sign;
• Zoning Officials - authorized construction, zoning, and septic systems for a daycare;
• Franklin's Township's Office of Emergency Response - vollied it back to Woods. 
• OSHA issued a letter to Franklin's Township in 1990 indicating the building was a "serious health threat" and that an "unsuspecting buyer" might acquire it.
• EPA - found site to be not an "imminent threat."
• State DEP - "failed to rank [the site] so that it could get in line for a state-funded cleanup or demolition." And the final statement in the DEP report sated "the building posed "no immediate threat to human health." DEP records custodian, Matt Coefer, stated that: He did not know why Jim Sullivan did not receive the entire file on the building; that "the records could have gotten misplaced"; and that "the files go through many hands before they are mailed out."  Finally Coefer stated he did not know why the Midlantic Bank and OSHA letters which were in the files, were not provided."

Liable Parties for Medical Monitoring of 100 Children.  A previous settlement regarding the children's monitoring of $1.5 million is to be paid by various parties including: Franklin Township, Gloucester County, the state and of course Jim Sullivan.  Subsequent legislation/regulations have been passed in direct response to this case.  Seek legal advice from a lawyer for the details on how it affects your client.

Commentary

Classic example of why due diligence alone is a failure to provide a client with complete services they need.  First, one can never rely on governmental records to be fail-safe.  The government is like a box of chocolates "you never know what you are going to get" (however, you are most likely to get inept responses and "passing the buck") - not sure what flavor chocolate that is...).  The databases of all environmental reports are comprised of local, state and federal reports.  Coefer [state DEP records custodian], "records could have gotten misplaced," "...files go through many hands."  You cannot make this stuff up!  So if my 8 year old child attended this daycare (I too assume if a daycare that looks like the one in the picture - it's safe), go sick, and some DEP official basically callously states, 'stuff happens' and moves on - I guess I would be on the war-path.

Insurance and ERM

The report states that the "purchasers and the day-care operators settled with the children's lawyers for $1MM to be paid for by insurance."

Enterprise Risk Management (ERM) is to advise a client on a "holistic" approach or simply put: a comprehensive review of the operations. So whether the client is involved in "real estate" (development, transfer, mergers & acquisitions, finance) or the day-to-day business operations (manufacturers, energy companies, high tech) 'due diligence' is only a part of the process and a hope to identify risk.  However, then what?  So even with the best possible ASTM 1527-05 report (which excludes a litany of real environmental/business risks) - what then?  What does a client do?  Are you prepared to inform them?

Under ERM, a company (individual/entrepreneur) has to make informed decisions with the desired outcome to: minimize risk and maximize return.  However, in some cases, risk and return go hand in hand. 

In most cases, ERM is much more complex and an environmental report is important to the process; but it is not a solution.  Solutions and business decisions come from a totality of industry knowledge, experience; which in turn requires an understanding of compliance (law, regulations, liability, liability exemptions), finance, and again, ultimately risk tolerance (a 'holistic approach').  Risk tolerance can then be broken down into a plethora of solutions - including insurance as a means of risk transfer.

Bringing this discussion full circle, environmental reports are fallible and business operations (whether it be simply purchasing property or operating a complex manufacturing facility) requires a breadth of knowledge designed to give the client a variety of solutions.  Simply identifying (or in the Kiddie Kollege case - not identifying) "recognized environmental solutions" by rote recommending a Phase II - is not ERM.  

What could Jim Sullivan done to avoid this liability (hint: it involves knowledge of law and insurance: trusts & estates)?

What could have the former factory owner done? (hint: Not a Phase II).

Barton County, MO.  The judge instructed the jury to award damages they needed to find that "odors, flies or other emissions," had to "substantially impair" the plaintiffs' use of their properties before they could award damages.

Punitive damages were available if the jury found the defendants exhibited "evil motive" or "reckless indifference."

The jury awarded 12 plaintiffs a total of $1.95MM for the foul odors from the farm (basically a nuisance/trespass common law claim).  There were no allegations in the plaintiffs complaint regarding water contamination or property damage.  Just plain smelliness.

Like I said, this case stinks....

$8MM in insurance coverage is what Arch and Liberty Mutual have agreed to pay on behalf of their insured, Interior/Exterior Building Supply, from homeowner claims stemming from Chinese Dry Wall defects. 

$72 Million in insurance proceeds are still in the balance from North River Insurance Company.

This case illustrates numerous important issues:

1). The value a quality insurance program to a company (including Umbrella coverage).

2). The value of a quality insurance program to include the financial strength of the insurers chosen:  Arch and Liberty have an AM Best Financial Strength Rating of A (excellent).

3). The liability of companies in the Supply chain; and how appropriate risk management and insurance can assist in managing vendors' actions impacting your operations as well as your potential liability.

4). The need to know how your potential liaiblities; how it can effect your operations and profitability; and the need for quality risk management and risk transfer through insurance by a knowledgeable insurance provider.

• The same Judge - Judge Fallon ruled in favor of 10 homeowners insurers stating that coverage was barred under the faulty materials and corrosion exclusion contained in the policy.

Temporarily gone; but hopefully not forgotten ... And yes Larry the Sox are 0-5; make that 0-6!... (gave my Sunday night tickets against NY away...).

I have 'rejoined' the insurance industry as an insurance agent/broker with The Sadler Insurance Agency, Inc.  I hope to share informative developments in the insurance industry, case law, environmental regulations driving these changes; new carriers, products as well as secondary commentary on trends in 'all things insurance' that are affecting your companies and/or your clients.

Consultants and Contractors 

ACE Insurance recently wrote a white paper entitled, "Contractors and Consultants Face Increasingly Strict Environmental Laws" by Barbara Deas and Bill Hazelton (whom I know and have done work with).  The article describes consultants & contractors increased environmental liability and insurance to cover these increased risks.  For example, due to the recession, a lot of firms have turned to government contracts.  The government is increasingly requiring contractors to have evidence of environmental contractors insurance in order to even bid on their projects.  Also the EPA is getting more aggressive in fining contractors at industrial and construction sites for water run-off.  A ready mix contractor was fined $2.75 million for storm water run-off violations at 23 sites in MA and NH under the CWA.  The EPA also fined a home-builder $1 million for storm water run-off from construction sites in 18 states.  The City of Norwalk, CT requires contractors bidding on projects that involve hazardous waste to show evidence of environmental insurance of $1MM in coverage.  Fire and water restoration contractors, many of which are franchisees, are required by their franchiser to carry environmental insurance.

Green Buildings

Every business that owns, leases or has significant property/personal property should have (must have) Property Insurance.  We all are aware of 'Green Buildings.'  However, are you aware that if you or your clients carry Property Insurance on a Green Building - the policy may have a gap in coverage due to the definition of "Replacement Costs?" 

Today there is a "Green Updates" Endorsement ISO (CP 04 02) to the standard Property Policy which changes the Replacement Costs coverage valuation on Your Building and/or Your Business Personal Property (contents) to include coverage for the additional costs to repair or replace damaged covered property with materials and products that are recognized by a Green Standards-setter.

Green Updates by Ordinance of Law

What about an older building that is not up to Green standards which has a Property Loss and is now required by a local ordinance (law) to build to "Green Standards?"  Without this Endorsement - you and/or your client will not have the requisite coverage under your standard Property Policy and suffer a significant financial loss.

Green Upgrades:Optional coverages: "Related Expenses" to: (a) Waste Reduction and Recycling, (b) Design and Engineering Professional Fees, (c) Certification Fees and Related Equipment Testing, (d) Building Air-out and Related Air Testing [see article, Resources, winter 2010, "Going Green! New Property Endorsement from ISO"].

Homeowner's Insurance.  You can purchase mold coverage with sublimits.

Non-environmental related insurance updates:

Cyber Liability Insurance. Increasingly companies are finding unwanted liabilities associated with their web site usages, emails, marketing campaigns, etc.  See "Epsilon Data Breach: Expect Surge in Spear Phising Attacks." Epsilon provides email marketing to Fortune 100 companies including Best Buy, Target, JP Morgan, CitiGroup and others and their own email was hacked into - thus exposing their clients to unwanted emails.  The article states, "How it happened will only be important to lawyers trying to sue for negligence."

Cyber liability is a risk everyone (even 'commonground') faces daily and is only increasing.

Directors and Officers for Community Banks.  See today's WSJ article, "Small Banks Feel They're Under Fire" in which Director and Officer insurance carriers are increasingly curtailing coverage for community banks due to the increased FDIC regulatory scrutiny.

$2.5MM jury award against the supplier, Banner Supply, of Chinese drywall (contrast that to the manufacturer). 

Jury award includes: $100,000 a month from the time the plaintiffs moved into the house unitl the time they can move back after repairs (nearly 3 yrs); $200,000 for loss in value to home because of stimga; and $705,000 in expenses repaid for repairs, renting another home, maintaining the homes.

Largest single award to a single plaintiff (husband & wife) to date.  $2.6MM was awarded to 7 families and liability was found against the manufacturer - as opposed to the supplier.