Does My County Need Environmental Liability Insurance Coverage? Or.....What is that Awful Smell?

Robert D. Wurtz, CPCU

General Administrator for Wisconsin County Mutual Insurance Corporation

Quite often in our conversations with county officials or staff, we hear about their concerns regarding environmental or pollution situations. In all cases we recommend proper loss control procedures. In some cases though, one of our potential recommendations, to insure a particular exposure, is rejected. The common reasoning for this action is that insurance creates a target. There is some wisdom behind this line of thinking but, also, some real danger to the county and to it's elected officials.

The validity of this judgment stems from the fact that the most important antagonist in the worst environmental liability cases is the Federal Government. Those are the guys who think price is no object. . . . especially if it 's someone else's money! To some Federal bureaucrats, any other government is the enemy and may be attacked without mercy, even when they share taxpayers with them. The primary problem, when facing Uncle Sam, is that he has spent himself broke tilting at windmills and such, so in his future quests for utopia he has to use someone else's horse (money). And when you are as big as Uncle Sam, you need one awful big horse!

Thus, the dilemma. The purchase of a high limits insurance policy in a "joint and several liability" environment makes you an automatic "deep pocket". That is, you are a target!1 Your policy is the "jam" which may attract the plaintiff or federal attorney "flies". And keep in mind that the "feds" have a blank check on your taxpayers bank account! In spite of the very noble purpose of the Comprehensive Environmental Response, Compensation, and Liability Act and the Superfund Amendments Reauthorization Act, Congress pulled a neat trick when they included municipal governmental entities without restriction under the CERCLA and SARA (Superfund Acts). The way it is currently written, the Superfund program can get the taxpayer's federal tax dollars to battle their local tax dollars with the attorneys (which most members of Congress are) taking a monstrous percentage. All this makes for a strong argument against high levels of insurance liability limits.

Unfortunately, even without insurance, county and other municipal governments are often looked at as deep pockets anyway, due to their "unlimited" taxing authority. This puts local government in the unenviable position of having to defend themselves without the benefit of budget saving insurance. Depending on whether you count all the lawyers or not, varying estimates of between almost twenty to over fifty percent of all payments for superfund actions have been for legal costs. In the specialized and fast changing world of environmental liability, a potential defendant needs the best counsel they can get, both for negotiation and possible litigation. This level of counsel does not come cheap. Often, private concerns have the best firms on retainer to go after public entities! (In a joint and several world, what you have to pay, I don't.) An insured defendant may, at least, get good engineering and legal counsel along with other risk management assistance.

An uninsured county can put a good legal firm on retainer and can also contract for engineering and risk management independent of insurance. Pessimistically, unless you can make regular use of the engineering, the most appropriate firms may be unavailable when you need them for situations which might arise. Given the current budget environment, it is not usually feasible for counties to expend money for contingencies other than insurance. This prompts most counties to budget on the hope that the crises will not hit them this year and to handle the many smaller or less catastrophic exposures "catch as catch can". Such a position puts county officials in a position where they may be held responsible for taking no action. Their public officials errors and omissions coverage probably does not apply due to its pollution exclusion leaving the official bare, without insurance coverage. State law precludes liability for judgmental decisions but environmental actions are often Federal actions. Hopefully, the board and county will protect its own with its own resources.

It is also a scary proposition to realize that there are some county officials who do not realize the enormity and breadth of the exposures they face from everyday operations. Many officials are unaware that the county's exposure extends past the underground fuel storage tanks the county has or used to have or the occasional tax deeded property. If they are not on the county board committees that have to deal with them, they are probably unaware of the exposures from hazmat teams (this does not refer to wrestlers with their own wrestling mat but to hazardous materials response teams), hazardous agricultural chemicals or pesticides, chemicals applied by the highway department, the serious exposures from the pick up of hazardous home use chemical products under "clean sweep" programs or nursing home and hospital waste disposal or even the very real exposure of a fuel spill from a damaged county vehicle.

Most county officials are very aware of the exposure they have from currently used or closed landfill sites they own or operate but they may not be as cognizant of the serious danger that their position as a county government, in a joint and several liability legal environment, places them with regard to unowned landfill sites which may not even be in, or even close to the county. Unfortunately, a county board member's or official's first inkling may be when the county is named as a "PRP" in a superfund site. "PRP" is an acronym referring to a "potentially responsible party" or, in other words, any "deep pocket" who ever used the site. Sadly, some of our county officials are painfully aware of the term and cost. For them, this is definitely when the proverbial "manure hit the spreader!"

Even the best informed boards are faced with daunting twin realities, the cost and availability of insurance. There may be insurance for the major exposure of an existing landfill site or underground fuel storage tanks, if they are in mint condition and you are prepared to pay substantial premiums. But, comprehensive environmental or pollution liability coverage to insure all the possible exposures does not exist at this time from a reputable, financially sound carrier, as far as we know. Even Lloyd's of London would squirm on this one! The problem for the underwriters is the same as for the county, too big a policy limit creates a target and too broad a coverage is very difficult to financially analyze (or price). It is exasperating to realize that this leaves no good vehicle to insure that the county will obtain ready engineering, legal counsel, or risk management if and when the need arises except, possibly, at what the market will bear.

The Wisconsin Counties Association is currently in the interest evaluation stages of a feasibility study to develop some level of coverage for these exposures. If it is launched in 1995 as anticipated, it may involve only insurance for legal counsel, engineering, and risk management services or it may also involve some lower limit of liability coverage, so as to not create a target, for a broad base of environmental liability exposures. This would allow a county with a site specific exposure, such as a landfill site, to write a commercial cover with a high self insured retention, equal to the level of coverage provided by our environmental liability company, resulting in lower premiums for the commercial cover.

This company is feasible, if there is enough interest, for two primary reasons. First, we are looking at a homogeneous group with almost identical statutorily defined hazards. Exposures may vary somewhat but will be primarily measurable by population. All counties share the risk of being hit with losses from these exposures and, baring future state or federal intervention on their behalf, have only their own means to cover the risk. To each individual county the risk is contingent and potentially catastrophic to their budget and taxpayers. As a group, counties may pool their resources and remove the greatest part of the risk with a budgetable premium. This would apply whether or not the final product includes some level of actual liability coverage for damages.

Secondly, the coverage will be feasible because the actual exposure of the company will be restricted to a small limit of liability for damages thereby allowing our own group frequency to determine the premium rate. By eliminating or reducing the catastrophic risk from the rate, either through reinsurance or commercial reliance for significant financial exposures other than legal and engineering, the rate will be much more predictable and the counties will be able to handle it with reduced capital requirements.

Because of the significant exposure of the federal government being or siding with the plaintiff, the Wisconsin County Mutual Insurance Corporation, with its very significant assets, will not be exposed to this risk. The main idea will be to keep this environmental mutual as lean and responsive as possible to the changing legal and statutory environment without jeopardizing the significant achievement of the Wisconsin County Mutual Insurance Corporation. The Board of Directors of the Wisconsin County Mutual will provide some of its personnel and financial resources to help get the new company launched, but does not consider it prudent to have any formal ties with the environmental liability insurance organization.

In spite of this cautious and prudent approach, this is a bold and innovative undertaking. It has considerable positive potential for Wisconsin counties, as you have come to expect from the actions of your association. As far as we are aware, there is nothing like it in the country, not commercially or publicly. In cooperation with the WCA, the program is being researched by ArmTech, Inc. of Laguna Beach, California, the Stafford, Rosenbaum, Reiser, & Hansen law firm of Madison, Wisconsin, and John Dirkse and I, of Aegis Corporation of Brookfield, Wisconsin. We judge the program to be possibly the most important action yet taken by any organization towards meeting the goals of environmental responsibility in an equitable, financially responsible manner. If you want to refresh yourself on joint and several liability, you may reread my November, 1993 Wisconsin Counties magazine article entitles Tort Reform.... A Question of Fairness. Otherwise, just keep in mind that it is the boon of the plaintiff's bar and the bane of productive citizens or organizations such as like county governments.