Looking into our crystal ball for 2023 and with the insight provided by the EPA, one tort that we predict will continue to generate significant claims (and corresponding coverage disputes) is environmental contamination from coal combustion residuals, also called coal ash.
A byproduct of burning coal to generate electricity, coal ash is typically disposed of into ponds or landfills. Since it contains heavy metals and other contaminants, coal ash may then threaten groundwater and communities that live close to power plants.
The two most common ways to remediate coal ash ponds are cap-in-place and full closure. To cap-in-place, the utility drains the surface water and installs an impermeable cap on top of the contamination. Full closure requires draining the surface water, removing the coal ash, and disposing of it in a lined landfill of some type. This remedy is intended to not only stop any current contamination but also prevent any future leakage or catastrophic spills. Full closure is a significantly more costly endeavor than cap-in-place.
Since 2015, the EPA has required full closure for coal ash ponds that are close to or in contact with groundwater, but energy providers have generally secured extensions to the deadline to stop depositing the coal ash into their ponds and initiate closure. That changed in January 2022, when the EPA began rejecting applications for further extensions from several energy providers.
The agency’s action signaled that it will begin aggressively enforcing its regulations on the closure of coal ash ponds that threaten groundwater. As a result, energy providers must take swift action towards the closure and clean-up of hundreds of coal ash ponds . The ensuing costs may burden energy providers and put upward pressure on energy rates.
There is some good news for companies now facing costs associated with closing the ponds: The clean-up may be covered by insurance. In addition to current pollution insurance policies, legacy occurrence-based policies (in particular those issued prior to 1986) may also be a source of recovery. This raises the question of whether those old policies can be located, or if an insurance archaeologist may be needed. Even if the policies are located, policyholders will need to analyze whether the policies’ limits have been impaired or released because of previous coverage litigation and settlements.
Given the significant dollars at stake, KCIC expects coverage disputes relating to coal ash claims to share many commonalities with traditional environmental insurance recovery litigation—such as number of occurrences, cost classification, covered or uncovered costs, and more. Additionally, we expect insurers to argue that cleaning up coal ash contamination is just a cost of doing business, and therefore not covered under insurance.
Watch this space, as we will be exploring these issues in greater detail in future KCIC Risky Business blog posts.
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Nick Sochurek has extensive experience in leading complex insurance policy reviews and analysis for a variety of corporate policyholders using relational database technology.Learn More About Nicholas