Environmental Exposures for Chemical Manufacturers, Intermediaries, and Distributors

In a continuing effort to reduce potential risk to human health and the environment, the Environmental Protection Agency (EPA) recently circulated new rules under the Toxic Substances Control Act (TSCA). These rules require that anyone who intends to manufacture or process certain chemicals for activities that are termed “a significant new use,” must notify the EPA of the “significant new use” at least 90 days before they engage in this activity. This will provide the EPA with the opportunity to evaluate the new use and determine whether or not they will prohibit or limit the activity. For more information on this new TSCA regulation, please visit: http://www2.epa.gov/reviewing-new-chemicals-under-toxic-substances-control-act-tsca/basic-information-review-new. At the same time that new federal regulations are being implemented, state regulations are being enforced, which are often in addition to what the EPA has mandated. Very often, these state laws are not synchronized with the federal requirements. Additionally, even on the state level, these laws vary and are focused on different aspects of the chemical industry. For example, in one state there may be a focus on encouraging the use of substitutes that are safer than what is currently being used, while in another state the focus may be one of more transparency with respect to the components of the chemicals that companies are either manufacturing or distributing.

The U.S. has also experienced more company consolidations, plant closings, and divestitures than ever before. All of this activity heighten the environmental risk profile of chemical companies because environmental claims may be triggered due to transactional scrutiny or contractual obligations. In some cases, companies may have the environmental insurance necessary to address some of the outstanding liabilities that may be uncovered during the due diligence process, while in other cases, the insurance may not be adequate to address them.

Making sure that any type of chemical company―whether it be a manufacturer, toller, or distributor― has adequate protection for their environmental liabilities requires expertise in environmental risk management. Exposures for this industry can result from day to day operations, regulatory activity, increased public scrutiny or the result of transactions. Even private citizens can sue a company that they feel has adversely impacted them or their properties. Adequately addressing a company’s environmental liabilities requires knowledge of the environmental insurance products (including enhancements) that are available in the marketplace. For example, a company seeking insurance for day-to-day operations may have different triggers (ex. first party vs third party or government triggers) than a company seeking coverage for the sale of one of their locations (typically a third party trigger or government mandated trigger). Environmental insurers have developed products that are specific to chemical companies including those that combine, on one form, General Liability (including Business Interruption and Products Pollution) coverage, environmental coverage and transportation coverage for products, intermediaries or waste, and disposal coverage for waste. This type of form is typically used to address operational exposures. For transactions, standalone Site Pollution coverage is available that can be tailored to ensure that the environmental exposures addressed for a transaction are properly allocated. For more information on exposures relating to chemical manufacturers, intermediaries, and distributors, as well as the insurance products that address these concerns, contact Beacon Hill Associates.