CIn

Tuesday, March 1, 2016Houston, TX

2:50–3:40 p.m.

ENERGY 101—A PRIMER ON ENVIRONMENTAL EXPOSURES AND INSURANCE

Presented by

John J. HeftSenior Vice President—Director Real Estate Practice

New Day Underwriting Managers LLC

Various approaches may be used to insure environmental liability in the oil patch. This ses-sion is a primer that will take a comprehensive view of the various policies that may comeinto play, including commercial general and umbrella liability, operators extra expense,and environmental site liability insurance. The pros and cons of relying on each type of in-surance will be compared and contrasted, and important nuances to consider when ar-ranging coverage in an environmental site liability policy will be examined.

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John J. HeftSenior Vice President—Director Real Estate Practice

New Day Underwriting Managers LLC

Mr. Heft is vice president and director of New Day’s Real Estate Practice, which includes develop-ing and managing the real estate book of business, identifying and developing new and existingretail brokerage relationships, and providing insurance and optimal risk management solutionsto New Day’s retail broker partners and clients.

Prior to joining New Day, Mr. Heft spent 2 years as vice president/client advisor in Marsh’s Envi-ronmental Practice, where he worked with large domestic and international Fortune 100 tomiddle-market clients. He also generated new and expanded revenue for the practice. Prior tojoining Marsh, he was manager of ECS/XL Environmental Chemical Facilities Unit, where he was asenior facility underwriter responsible for underwriting and managing all types of environmentalinsurance products. He also has environmental consulting experience with Consulting Services,Inc., where he performed environmental risk assessment surveys for facilities throughout theUnited States.

Mr. Heft has authored many articles addressing environmental insurance and risk managementtopics for a variety of major insurance and real estate publications including National Underwrit-er, Risk Management Magazine, CFMA Building Profits, Facilities Manager Magazine, Environ-mental Protection, National Real Estate Investors Magazine, and Chain Store Age, to name a few.

Mr. Heft received his B.S. in general science and an M.S. in water resource and environmental en-gineering from Villanova University. He also completed his Construction Risk and Insurance Spe-cialist (CRIS®) designation in 2009.

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Notes

This file is set up for duplexed printing. Therefore, there are pages that are intentionally leftblank. If you print this file, we suggest that you set your printer to duplex.

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Environmental Liability 101Presented by:

John J. Heft, MS, CRISSr. Vice President, Director

Real Estate PracticeNew Day Underwriting

Managers LLC

#IRMI2016

Agenda

• Background/Regulations• Drivers for Insurance• Exposures – Energy Sector• Claims• Coverages/Solutions

• Pollution Legal Liability (PLL)• Contractors Pollution Liability (CPL)

• Conclusion

#IRMI20162

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Background/Regulations

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Background/Regulations

1969National

Environmental Policy Act (NEPA)

1970Clean Air Act

1972Clean Water Act

Mid-1970sEnvironmental

Insurance Emerged

1976Resource

Conservation and Recovery Act (RCRA)

Throughout 1970sHigh profile, large scale environmental disasters

1980Comprehensive Environmental

Response, Compensation, and

Liability Act (CERCLA)• NEPA – Rejection of coverage started materialize after passage

• RCRA & CERCLA - largely contributed to the increase and development of environmental insurance policies

• RCRA - designed as a “cradle-to-grave” regulation of hazardous waste and established financial responsibility requirements for hazardous waste management facilities

• CERCLA (Superfund) -imposed far-reaching and retroactive liability that potentially responsible parties (PRPs) could be held responsible for environmental damages

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Background/Regulations

Environmental Liability claims made under commercial general liability (CGL) policies soared in the early 1970s• Insurers faced huge payouts for

cleanups from “gradual” pollution• Times Beach, MO• Love Canal, NY

• Industry adopted two new exclusions that began appearing in standard CGL policies• Pollution Exclusion• Owned Property Exclusion

Environmental Liability insurance involved “claims-

made” coverage as opposed to traditional “occurrence”

coverage for CGL insurance

Since the 1990s, new and more environmental hazards,

specialized remediation techniques, and an increased

interest in redeveloping contaminated properties (brownfields) prompted a

resurgence in Environmental Liability insurance

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Drivers for Insurance

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Drivers for Insurance

Contractual Obligation•MSAs/APAs/PSAs

Environmental Statutes•CWA•CAA•RCRA•CERCLA

Financial Responsibility•RCRA•States

Risk Management/Loss Events•Claims (discuss later)

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Exposures – Energy Sector

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Exposure Terminology

Operator

• The person or company, either proprietor or lessee, actually operating a well or lease, generally the oil or gas company that engages the drilling, service, and workovercontractors

Non-Operating Interest

• A working interest owner in a well, but is not the Operator

Oil, Gas, Mineral Lease

• The agreement outlining the basic terms of developing lands or minerals such as royalty to be paid, length of time, description of lands.

Saltwater Disposal Well

• A well into which oilfield salt water is disposed

Saltwater

• Oilfield brine, also called produced water, is the salt water that is in the same geologic formations that produce oil and gas. This produced water comes up simultaneously with the production of oil and gas

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Site Exposures

•Oil and Natural Gas Wells•Waste Lagoons•Compressor Stations•Oil and Natural Gas Pipelines•Processing Facilities•Salt Water Disposal Wells

Exposures

• Seepage from shallow fracturing- “fracking chemicals” into aquifers• Seepage resulting from directional drilling- vertical and horizontal

migration pathways

Operational Exposures

• Loading and Unloading of product- rail cars and tankers.• Spills of crude oil, chemicals, etc. during transport via rail, tanker or

pipeline

Transportation Exposures

• Contamination resulting from salt water injections• Leaking containment pits and ponds- flow back fluids• Improper disposal of contaminated soil• Non-Owned Disposal Sites- CERCLA (Superfund)

Disposal Exopsures

Natural Gas Pipeline Blowout

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Contracting Exposures

• Drilling Wells• Pipeline Installation• Road Cutting/Excavation• Drill Pad Construction• Treatment Plant Construction• Water and Wastewater Hauling

Ancillary Operations

• Contamination associated with sub-surface soil and groundwater contamination resulting from hydraulic fracturing.

• Poor housekeeping- operations equipment and pollution control equipment

• Improper disposal of saltwater, drilling flow-back fluids and drilling muds

Potential Exposures

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Other Exposures

USTs and Fuel Lines Historic Fill

Regulated Contaminated Soils• TPH• Low level metals

Hazardous Materials

• Concentration driven• TSCA/RCRA

Dewatering Groundwater

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Claims

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Claims

Contaminated Ranch

• 150 bbls of crude from a pipeline “seepage”

• Originally reported as 1.5 bbl leak

• Plaintiff “ranch owner” sued for damage to soil and groundwater

• Pipeline traversed the ranch property

• Clean-up and property damage ~$1M

Saltwater Disposal

• Ruptured due to corrosion

• 2,000 bbls salt water released

• Impacted private property

• 13,000 cubic yards of contaminated soil excavated

• General Liability -excluded waste processing, transportation and disposal - claim not covered

• Damages to exceed $1.5M

Contractor

• Transferring drilling fluids and muds from drill pad

• 5,000 bbls spilled into lined containment area

• 1,000 bbls breached the containment area

• Closure costs are pending

• Site owner pursuing claim against the contractor

• Defense expenses for Insured

• Not covered under Insured’s General Liability policy.

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ClaimsContractor

• Maintenance and repair work on turbo used in oilfield

• Mechanic failed to remove a rag from the intake

• Rag was sucked into the turbo causing damage and additional repairs exceeding $13,000

Pipeline

• Owner and operator of pipelines used for gathering and transfer of crude oil and natural gas

• Discovered release of approx. 7,000 barrels of produced water (brine) from pipelines after data from system monitors detected an anomaly

• Easement located on native American reservation in North Dakota

• Release affected approx. 1.5 acres of property within the Reservation

• Impacted soils were excavated and disposed of for approx. $1.5M.

Gas Station

• Owner of site in Louisiana that has a sidetrack on-site.

• Major railcar containing volatile chemical was stationed at the site when it was struck by another railcar that had derailed.

• Collision punctured the railcar causing the release of 29,000 gallons of volatile chemical.

• Impacted soils were excavated for removal and contaminated groundwater was treated onsite. Total clean-up is estimated at $1.7M.

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Coverages/Solutions

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Energy�Casualty�Forms

� Sudden�&�Accidental/Time�Element� No�coverage�for�seepage�or�gradual�pollution

� Control�of�Well�must�arise�from�well�control�events

Pollution�Coverage��Definiton

� No�products�pollution�coverage� No�Contractor�s�Pollution�Provided�� No�gradual�Pollution�Legal�Liability�coverage�offered

� Limited�pollution��Clean�up�S&A�and/or�from�ASTs�or�no�coverage�at�all

Coverage�Deficiencies

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Product Overview

• BI/PD/Cleanup Costs/Defense arising out of pollution conditions caused by contracting

• Jobsite• Transportation• Premises• Disposal liability• Emergency Response Costs

Contractors Pollution Liability

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Product�Overview

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Jobsite

NODS

Premises

Trans

ERC

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S/A/G for offsite pollution

with retro dates S/A/G for

off/on site pollution

with retro dates

Insured’s Location

Environmental ProductsContractors Pollution Liability Premises Coverage Headache!

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Marketplace

• 40+ carriers offering CPL• $500M Market Capacity/$50M single carrier• $400M premium volume• Notable carriers

• ACE, AIG, AWAC, Aspen, Crum & Forster, Great American, Ironshore, Markel, XL, Zurich

Environmental ProductsContractors Pollution Liability

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Product Trends

• Marketplace Expanding• Rates/pricing Soft• Capacity Stable• Buying Motivators Static• Claims Increasing• Coverage Expanding

Environmental ProductsContractors Pollution Liability

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Coverage Expansion• Occurrence trigger• Defense outside LOL• Unscheduled Insured’s premises• Blanket NODS• Expanded definition of Pollution Conditions• Completed operations period for project policy -

10 years• Supplemental coverages• Transition to combined CPL/Professional Liability

Environmental ProductsContractors Pollution Liability

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Pollution Legal Liability

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Product OverviewPollution Legal Liability

• BI/PD/Cleanup Costs at, on, under or emanating from a designated location

• Very compartmentalized• Onsite vs. third party• Pre vs. new conditions• NODS• Transportation• Emergency Response• Crisis Management

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Marketplace

• 20+ Carriers• $300M Capacity/$50M single carrier• $700M Premium Volume• Notable Carriers

• ACE, AIG, Aspen, AWAC, Great American, Ironshore, XL, Zurich

Pollution Legal LiabilityEnvironmental Products

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Product Trends• Marketplace Static• Rates/pricing Soft• Capacity Stable• Policy Term Shrinking• Buying motivators Static• Claims Increasing• Coverage Expanding

Environmental ProductsPollution Legal Liability

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Coverage Expansion• Defense costs in addition to LOL• Disinfection/Evacuation Expense• Biological Hazards coverage• Occurrence Non Owned Disposal Site

coverage• Unscheduled Insured locations• Expanded definition of Pollution

Conditions• Fines/Penalties• Supplemental coverages

Environmental ProductsPollution Legal Liability

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Conclusion

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Markets/Carriers

• Enhanced underwriting scrutiny• Pulling back – coverage terms and conditions• Paying claims• Pollution requirements still exist - MSAs

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Thank You!

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John J. Heft, M.S., CRISSVP, Director--Real Estate PracticeNew Day Underwriting Managers, LLC2465 Kuser Road Suite 202Hamilton, NJ 08690O: 609.298.3516 Ext. 105C: 610.639.7279john.heft@newdayunderwriting.com

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T5. ENERGY 101– A PRIMER ON ENVIRONMENTAL EXPOSURES AND INSURANCE

Rating scale for all questions:

4 = Excellent 3 = Very Good 2 = Average 1 = Somewhat Disappointing 0 = Very Disappointing

Overall rating for this workshop? 4 3 2 1 0 John Heft Preparation and quality of information 4 3 2 1 0

Energy and enthusiasm of delivery 4 3 2 1 0

Educational focus (not a sales pitch) 4 3 2 1 0

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