According to the United States Energy Information Administration*, as of November, 2015, there were 140 operating petroleum refineries in the United States. The majority of these refineries are in Texas, California, and Louisiana, however, there are a significant number of them scattered about the Midwestern states. Historically, these enterprises did not purchase environmental insurance for two main reasons. First, they often chose to self-insure their environmental liabilities and second, the markets through which they purchased their standard lines of coverage, such as General Liability or Property coverage, would provide limited Sudden and Accidental Pollution coverage for spills that occurred at their facilities. In addition, environmental insurers were reluctant to offer environmental coverage to these entities because of the strong possibility that gradual pollution conditions already existed on their premises and environmental insurers did not want to offer coverage for a claim that had already occurred.
Although environmental insurers may still have concerns about gradual pollution conditions already existing at these facilities, many insurers have found resourceful ways to offer coverage for those concerns as well as other environmental risks that petroleum refineries face. For example, air emissions and the effects of petroleum refining operations on drinking water and natural resources adjacent to the refineries are significant concerns for these operations. There have been numerous instances where people that live nearby have sued them for exceedances of their air emissions permits or impacts to their drinking water. Private citizens can file enforcement suits against companies violating laws even when regulators have not been able to address their issues or have been ineffective. Environmental insurers are often able to craft environmental insurance policies that can focus on the major concerns that petroleum refineries have, without covering areas that are known pollution conditions or already actionable. For example, they have developed ways to modify coverage triggers (ex. only offering coverage for third party claims and not discovery of pollution conditions, or only offering coverage for government mandated actions, etc.), determining site baselines for pollution conditions at sites so that pollution events going forward are covered and those that already occurred are not, and offering coverage for a select claims class (ex. citizen groups on behalf of natural resource damages, for example).
Petroleum refiners are under much more regulatory scrutiny and are concerned about the costs for complying with new federal regulations such as those governing releases of benzene, emission controls for storage tanks, flare restrictions, and coking units, for example. While some petroleum refineries will continue to self-insure their environmental liabilities, others will be more open to the benefits of environmental insurance. They will use it as a tool to improve their cash flow in order to upgrade their facilities and comply with the new regulations.
For more information about insurance for environmental and energy risks, please contact us.