The risk to water supply and quality is increasing along with the rapid growth in both public and private demand for its use. Severe weather events such as storms and flooding combined with aging infrastructure, faulty handling of waste, and inadequate system design among other factors contribute to increased liability exposure for insurers.

1. Insurance Risks and
Water Quality
Thursday, January 30, 2014,
11:50 am to 1:30 pm EST
The opinions expressed and the material provided are those of TTG. MSO has not validated any representations made
as to data, or any other information presented herein.

2. Agenda
• Welcome and Introductions
• Types of risk to water quality
• Who are the stakeholders in the value chain of water
quality?
• Q&A
• Insurance industry implications
• Conclusion
• Q&A
• Actions going forward and follow up

3. Welcome
Jan Scites, CEO & President, MSO
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TTG Vendor partner with MSO
Survey on Green and Sustainability 2013
Webinar terrific response
MSO national footprint
MSO committed to providing education to the
insurance industry

4. Welcome
Jeana Wirtenberg, President & CEO, Transitioning to Green
• Transitioning to Green, LLC
– Help organizations determine where they are, where they want to
go and how they can get there in the green economy
– We do this through, consulting, training and LeaderShip for
Sustainability.
• Our promise is simple… by applying “holistic
sustainability” business practices, we assist every
organization we touch to simultaneously and
synergistically:
– Engage your People
– Sustain Our Planet
– Optimize your Profitability
4

5. Today’s Presenters
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Linda Kelley, Principal,
Transitioning to Green, LLC
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Enterprise Ecologist
Artist and naturalist
Practitioner of whole systems approach to
strategy, innovation, leadership ,
collaboration, and learning
Consultant to business and government
Pioneer in virtual technologies for
collaborative learning
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Bill Russell, Principal,
Transitioning to Green, LLC
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Chemical Engineer, MBA-Finance
Hazardous waste site investigator / engineer
Former US environmental practice leader of
PwC
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Expert witness on Superfund and Asbestos
Litigation
Advisor to insurance industry on new
environmental risk products
Advisor to industry on Sustainable Enterprise
practices
Professor, Green Accounting Columbia
University
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6. Transitioning to Green MSO Webinars
• High level perspective of sustainability related to
insurance risks
• Highlighting the nexus between traditional insurance
interests and the emerging nexus of energy, water and
food
• A series of three webinars that address concerns and
interests expressed by insurance professionals in the
MSO Survey in the Spring of 2013
– Hydraulic Fracking and Insurance
– Insurance Risks and Water Quality
– Issues of Food Security and Insurance

7. Top Industry Risks Related to Greening, continued
4. How important are risks related to
water and energy quality and reliability?
Important + Critical = 48%
4
38
10
Important + Critical = 46%
12. How important is quantifying
economic impacts and financial value of
12
"green" risks?
43
3
Column1
Column2
Column3
Important + Critical = 40%
7. How important are risk issues related to
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air pollution, smog and indoor air quality?
40
Important
0
Critical
Important + Critical = 39%
8. How important are risk issues related to
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wetlands preservation, biodiversity and
ecosystem conservation?
29
0
10
20
40
60

8. Top Industry Risks Related to Greening, continued
10. How important are Directors and
Officers insurance policy
implications/riders for green/sustainability
business practices?
Important + Critical = 36%
Important + Critical = 30%
3. How important are risks related to
green vehicles, accidents and repair?
11. How important is green marketing and
false advertising liabilities related to
"greenwashing"?
1. From your company's perspective, how
important is assessing risks related to
green buildings certifications and service
professionals performance claims (e.g.
architect design not able to achieve LEED
Gold certification level as originally
planned?)
Important + Critical = 26%
Important + Critical = 16%

9. Water-Food-Energy nexus
Water, food and energy are inexorably interconnected

10. Business and water are linked
http://www.lloyds.com/~/media/Lloyds/Reports/360/360%20Climate%20reports/7209_360_Water_Scarcity_AW.pdf

11. Insurance Risk and Water Quality
The risk to water supply and quality is increasing along with the rapid
growth in both public and private demand for its use.
Severe weather events such as storms and flooding combined with aging
infrastructure, faulty handling of waste, and inadequate system design
among other factors contribute to increased liability exposure for
insurers.
In this webinar we will use case examples to look at some of the critical
issues that insurers are facing as risks to water quality.

12. Sources of Freshwater
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Lakes and reservoirs
Rivers
Aquifers
Ocean desalination
Recycled water, purified for reuse

13. Types of Risks to Water Quality
• Water
contamination
– Accidental and careless
– Malicious or intentional
• Water infrastructure
deterioration
• Storms and
overflows
• Droughts

14. Contamination: Toxic Algae and Bacteria
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Toxic algae in Lake Erie may threaten public water supplies
http://oceanservice.noaa.gov/news/features/feb12/cyanobacteria.html
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Coliforms and e-Coli
http://www.mlive.com/news/muskegon/index.ssf/2012/11/boil_water_order_in_effect_for.html

15. Contamination: antibiotics and endocrine
disruptors in water supplies
• Flushed pharmaceuticals
• Antibiotics from farm animals
• Endocrine disruptors
– Beauty products
– Some Plastics

16. Water treatment plants remove only about half of the
drugs, antibiotics and herbicides from drinking water
http://www.processingmagazine.com/articles/126456-wastewater-treatment-plants-remove-only-half-of-drugs-in-water

17. Dumped Waste
• Household
• Industrial
• Agricultural
http://seaotters.com/2012/08/22/agriculturalrunoff-bad-for-us-bad-for-otters/
Berkshire Environmental Action Team river cleanup
http://enviropolicyintro.wordpress.c
om/2013/04/26/reduce-reuserecycle/

18. Failing Water Infrastructure in the US
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Wastewater: The grade for wastewater
improved slightly to a D. Capital
investment needs for the nation’s
wastewater and stormwater systems are
estimated to total $298 billion over the
next 20 years. Pipes represent the largest
capital need, comprising three quarters of
total needs.
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Nearly 170,000 public drinking water
systems are located across the United
States. Of these, 54,000 are community
water systems that collectively serve more
than 264 million people
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In all likelihood, businesses and
households will be forced to adjust to
unreliable water delivery by strengthening
sustainable practices employed in
production and daily water use.
WWW.INFRASTRUCTUREREPORTCARD.ORG

19. Flood Insurance:
Who pays what, where and how?
Cedar Rapids, Iowa: A traffic light above a flooded city street in Cedar Rapids, Iowa (June 13, 2008).
Source: Scott Olson/Getty Images
Popular Flood Insurance Law Is Target of Both Political Parties
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“This week the Senate is expected to approve a measure that would block, repeal or delay many of the key provisions of
the Biggert-Waters Flood Insurance Reform Act”
“The aim of the measure was to shift the financial risk of insuring flood-prone properties from taxpayers to the private
market. Homeowners, rather than taxpayers, would shoulder the true cost of building in flood zones.”
http://www.nytimes.com/2014/01/29/us/politics/popular-flood-insurance-law-is-target-of-both-political-parties.html?_r=0

20. Droughts happen…even in the Northeast
and Mid-Atlantic
View of the Delaware River looking downstream
from Morrisville, Pa. towards Trenton, N.J., Oct. 1963.
http://www.state.nj.us/drbc/hydrological/drought/

21. Who are the stakeholders in the value
chain of water quality?
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Power plants
Agriculture
Restaurants
Homeowners
Municipalities
Water processors
Manufacturers
Fishing and recreation
And more…
http://www.limno.com/

22. Example: 1997 New York City Watershed
Memorandum of Agreement
Stakeholders
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The City of New York
The State of New York
The United States Environmental
Protection Agency
The Coalition of Watershed Towns
(West of the Hudson River)
The Catskill Watershed Corporation
The County of Putnam, New York
The County of Westchester
"Municipal Parties” (Counties,
Towns and Villages)
"Environmental Parties“ (nonprofit
environmental organizations)
NYC Watershed

23. Review of precedents, including water
related superfund sites as examples and
case studies, and anticipating future risks
• Risk analysis of categories
– Water contamination from toxic metals
– Water contamination from pharmaceuticals
– Water infrastructure degradation
– Wastewater processing failures and inadequacies
• Natural resources damage claims

24. Clean Water Act
The 1972 amendments to the Federal Water Pollution Control Act (known as the Clean
Water Act or CWA) provide the statutory basis for the NPDES permit program and the
basic structure for regulating the discharge of pollutants from point sources to waters of
the United States. Section 402 of the CWA specifically required EPA to develop and
implement the NPDES program.
• The Clean Water Act (CWA) establishes the basic structure
for regulating discharges of pollutants into the waters of
the United States and regulating quality standards for
surface waters.
• The CWA compliance assistance program provides
businesses, federal facilities, local governments and tribes
with tools to help meet environmental regulatory
requirements.

25. Precautionary Principle to the wind
Most chemicals in use have not been tested for human safety
• Pharmaceuticals and
pesticides must have
some testing before they
are sold
• Industrial chemicals do
not have required tests
• Companies are not
required to provide any
safety data for new
chemicals
http://www.nytimes.com/2013/04/14/sunday-review/think-those-chemicals-have-been-tested.html

26. What spilled into West Virginia’s
Elk River and how dangerous is it?
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AP
4-methylcyclohexane methanol (MCHM) is somewhat of a mystery compound
PPH, a mixture of polyglycol ethers (Freedom Industries is not being fully disclosing
the nature of the compound, claiming it is proprietary)
The real danger of these chemicals is unknown
http://thedianerehmshow.org/shows/2014-01-23/new-chemical-identified-west-virginias-elk-river-spill
http://www.businessweek.com/articles/2014-01-23/a-second-toxic-chemical-spilled-in-west-virginia-andfreedom-industries-said-nothing-until-now

27. Coping with no water
Business in Charleston, WV closed.
300,000 people in 9 counties without
safe drinking water for three days (14
Jan 2014)
Bottled water for drinking, cooking,
washing
www.huffingtonpost.com

28. • West Virginia-American Water is a private company that
provides municipal drinking water to parts of 9 counties in this
area of West Virginia, including the city of Charleston
• WVAW had a drinking water intake just a mile and a half
downstream from Freedom’s chemical storage tanks on the
Elk River
• “Asked over the weekend whether there should have been
more oversight and emergency planning, Governor Tomblin
replied, 'I'm not someone who runs West Virginia American
Water.’”
http://www.newyorker.com/online/blogs/newsdesk/2014/01/a-chemical-spill-along-the-elk-river-in-west-virginia.html

29. Freedom Industries Files Bankruptcy
Freedom Industries President Gary Southern
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Freedom Industries is the product of a merger effective Dec. 31, 2013
Elk River spill, January 9, 2014
The company filed a Chapter 11 petition with the U.S. Bankruptcy Court in
the Southern District of West Virginia on January 18, 2014

30. Mayflower, AR, a lakeshore community,
and its Exxon oil spill
• The spill
• The consequences
• The lawsuits
http://www.huffingtonpost.com/2013/05/30/mayflower-oil-spill-lawsuit_n_3359777.html

31. Q&A

32. Insurance Industry Implications
• Starting small: Water pipe insurance
• Expanding the system: Aging water infrastructure
expanding risks
• Expanding the pockets: Duty to defend, class
action suits
• Expanding the damage claims: Property value
diminution suits and quantifying “stigma”
• Expanding the system again: Natural resource
damages, intangibles, social costs and externalities

33. Homeowner Water Pipe Insurance
Homeowners are not aware that repairs to the water and sewer
lines that run from their home’s exterior to the mains in the
street are their responsibility.

34. NYC Insurance Case Example
• NYC DEP sends out a letter just after Superstorm Sandy
announcing a new insurance program covering home water
and sewer lines.
• The “aging pipes” are increasingly frail, and that, once they
burst, homeowners are liable for repairs.
• Water line repairs range between $3,000 and $5,000
• Sewer line repairs range between $10,000 and $15,000.
• Pricing – $3.99/month for water line protection, and $7.99 for
sewer, or $11.98 for both – is built right into your water bill, as
opposed to an additional bill.

35. Homeowner water pipe insurance
• In 2012, the NYC DEP responded to more than 3,000
complaints of street leaks.
• 2,339 of these – 77 percent – were breaks to private
infrastructure,”…
• Could not say how many of those were from wear-and-tear
versus extraordinary circumstances.
• The insurance only covers normal wear and tear that come
from age and use.
• Other factors, like contractors cut your service line, or a
natural disaster, that’s not part of this program.

36. Municipal Water Pipe Claims
• Philadelphia water-main break
floods part of city two summers
ago has long been repaired, and
the city has committed to paying
for the damages.
• Water damage to dozens of homes
and businesses flooded that night estimated at $2.8 million
• More than five times what the city
is statutorily allowed to pay out.

37. Municipal Water Pipe Claims
• Claimants, including utility giants Verizon and Peco, fight for
the $500,000 pot of city money.
• Verizon claiming more than $100,000 for damages to cables
and ducts during repair of the water main.
• Peco largest claim of $932,448 for damage to underground
infrastructure. Peco is self-insured, but money is for when
Peco liable for damages to customers.
• One homeowner filed a claim for $29,462 in damages and
their insurance does not cover flooding, so he has had to pay
• He and others will likely only get a fraction of the cost back
from the city.

38. Municipal Water Pipe Claims
• State Sen. Larry Farnese (D., Phila.), whose district includes
the area, introduces bill to raise the cap, set in 1980, to $2
million.
• Increase the claim cap in anticipation that other big watermain breaks are bound to happen.
• 2012 break just one of hundreds the city has each year.
• Some pipes are more than a century old; the average age is
67.

39. Municipal Water Pipe Legislation
• November 24, 2013, Representative Earl Blumenauer (OR03) introduced the bipartisan Water Protection and
Reinvestment Trust Fund Act of 2013
• Bill would provide a small, deficit-neutral, protected source
of revenue to help states and local government replace,
repair, and rehabilitate critical wastewater treatment
facilities
• Creates a voluntary labeling and contributory system to
which businesses that rely on a clean water source could
opt-in.

40. Municipal Water Pipe Legislation
• Businesses place a small label on their products indicating
their commitment to protecting America's clean water.
• For each unit displaying a label, companies would
contribute $0.03 to the Water Trust Fund.
• Blumenauer. “This bill doesn't cost the taxpayers a cent…
and yet allows businesses and the public to enjoy the
benefits..”

41. West Virginia Water Contamination Suits
• “CHARLESTON – Less than 24 hours after a chemical leak began to
wreak havoc on Charleston and surrounding areas, a class action
complaint already had been filed against the company responsible.”
• “The complaint — filed by attorneys from Mani, Ellis & Layne PLLC
and The Sutter Law Firm PLLC – says this is a West Virginia-only
class action “to recover lost business profits and other damages for
business entities affected by a government close order as a result of
a chemical spill into the Elk River emanating from Defendant
Freedom’s Etowah River Terminal, which was distributed to all
water customers of West Virginia American Water Company”
• “The restaurants seek compensatory damages, interest, statutory
damages, punitive damages, injunctive relief, attorney fees, costs
and other relief.”

42. Other Insured Stakeholder Claims
• Homeowners
• Water Industry
• Government Suits
– i.e. Attorney General files “citizen suit” seeking injunctive relief and civil penalties for
surface water contamination

43. Property Value Diminution Claims
Builds upon Fracking discussions, pollution
exclusions and contaminated water claims.
• Diminution is sometimes used to denote a decrease in value
caused by actual contamination of a property while stigma is
sometimes used to refer to a decrease in value caused by a
property’s association with contamination.
• Case law and articles generally use the terms interchangeably

44. Potential Fracking Claims
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Environmental/pollution claims: Any bodily injury or property damage caused
as a result of hydrofracking-related pollution or groundwater contamination.
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Comprehensive general liability claims: Coverage for liability resulting from
bodily injury or property damage that takes place during the policy period and
is caused by an occurrence. Unless specifically excluded, CGL policies usually
also provide coverage for losses associated with products, completed
operations, premises and operations, and contractors. Moreover, those
entities involved in the storage, treatment, transportation and disposal of
hydrofracking fluids face potential liability under their CGL policies (as well as
other possible sources of coverage).
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Operators’ extra expense claims: Hydrofracking wells have occasionally
suffered blowouts as a result of the large amounts and highly pressurized
water, “proppants” (sand or ceramic beads) and chemicals that are injected
into underground shale formations. Should a blowout occur, many of the
energy and drilling companies could look to this type of insurance to cover
their losses.

45. Property Value Diminution Claims
Limitations on Diminution Damages
(1) Physical contamination requirements
(2) The restricted availability of diminution
damages when contamination is below
regulatory levels, and
(3) The rule that plaintiffs may only obtain the
lesser of the cost of repair or the loss of
market value.

46. Property Value Diminution Claims
Limitations on Diminution Damages
• The law governing diminution damages in
environmental cases has grown principally from
that of nuisance.
– The causes of action of negligence, negligence per se,
ultra-hazardous activity, and emotional distress
typically pled for personal injury in toxic tort cannot
support diminution claims.
– Trespass allows diminution in value as a measure of
damages, but with its requirement of ‘‘physical
invasion,’’ it is not applicable when property has not
been contaminated.

47. Property Value Diminution Claims
DeSario vs. Industrial Excess Landfill Inc.
• 1991, a published decision of the Ohio Court of
Appeals
• Affirmed the certification of a diminution claim of a
class numbering over 1500 properties around a landfill
even though many of the properties would not be
contaminated.
• Its justification? ‘‘[T]o recover damages under a private
nuisance theory, the plaintiffs need not show a physical
intrusion onto their land
• [It] may be premised on the public’s perception of
contamination irrespective of actual land
contamination.’’

48. Diminished Property Value Claims in a
Diminished Real Estate Market
• Claims of diminution damages necessarily depend
on the performance of real estate as an asset generally.
• As an asset, real estate has often cycled between periods
of being coveted and shunned.
• Environmental diminution damage cases have not
expressly addressed these market ups and downs.
• Plaintiffs interested in excluding such discussion as it is a
potential alternative cause of their injury

49. Natural Resource Damages Claims
BP Oil Spill Ramifications:
• While we expect to see
claims brought against
policyholders central to
the spill, such as BP,
Halliburton, Transocean
and related players,
• the "downstream” liability
claims may herald
coverage disputes not
previously contemplated
by the underwriters.

50. Natural Resource Damages Claims
• Where injuries to natural resources have occurred as a result
of releases of hazardous substances or oil as a result of natural
resource injury, or as a result of implementation of a response
action, damages are recoverable.
• EPA coordinates with the Department of the Interior to assess
the natural resource damage, and calculate the monetary cost
of restoring the natural resources.
• Damages to natural resources are evaluated by identifying the
functions or "services" provided by the resources, determining
the baseline level of the services provided by the injured
resource, and quantifying the reduction in service levels as a
result of the contamination.

51. Warren Drilling Co. v. ACE American Ins. Co.
• Case involves an insurer’s (ACE American Insurance) refusal to
extend coverage to its insured (Warren Drilling Company) for
claims arising out of Warren’s fracking operations.
• In 2008, a homeowner claimed water was contaminated by
pollutants from Warren’s fracking.
• Warren eventually settled its case with the homeowner but
then sought to recover its legal fees from ACE for its refusal to
defend and/or indemnify.
• For Warren to obtain a favorable ruling obligating ACE to
indemnify it and to pay its legal fees, it had to show:
(1) The fracking resulted in an unexpected and unintended discharge of pollutants; and
(2) The discharge of pollutants was abrupt and instantaneous.

52. Pollution Exclusions
• General liability policies that were issued between the early
1970s and mid-1980s usually include the “qualified pollution
exclusion.”
• This exclusion bars coverage for pollution related injuries to
persons and property.
• The clause appears almost identically in all insurance policies.
This insurance does not apply…to bodily injury or property damage arising out of the
discharge, dispersal, release or escape of ... toxic chemicals, liquids or gases, waste
materials, or other irritants, contaminants or pollutants into or upon land, the
atmosphere or any water course or body of water; but this exclusion does not apply if
such discharge, dispersal, release or escape is sudden and accidental.

53. Pollution Exclusions
• Courts faced with coverage issues arising out of fracking
operations may base their decisions on whether the claims
asserted are barred by the pollution exclusion clause
contained in the comprehensive general liability (CGL) policies
issued by insurers.
• As for now, each individual needs to understand the specific
wordings in their own policy in order to understand what to
reasonably expect from their insurer.

54. Duty to Defend
• An insurer’s duty to defend is broader than its duty to
indemnify.
• The insurer’s duty to defend arises when a complaint against
the insured gives rise to any potential liability covered by the
terms of the policy.
• The duty to defend exists even if the alleged claims are false
or groundless.
• Additionally, the insured does not need to provide concrete
evidence that the injuries were sudden and accidental;
instead, the insured need only provide evidence of a
reasonable possibility that the injuries were sudden and
accidental.

55. Subrogation Recovery Opportunities
• Fracking, water contamination and or water supply disruptions all
have the potential to generate a great deal of troublesome
coverage and litigation issues!
• That said, it provides insureds with subrogation and recovery
opportunities.
• Carriers should take appropriate steps from the outset to recognize
contribution or indemnity claims against other companies or
individuals who are arguably more responsible.
• Insurers facing claims against their property owner insureds should
consider claims against those more directly involved on and around
the property involved.
• Insurers met with claims against insureds that oversee the drilling
activity must consider claims against their contractors to the extent
clearly irresponsible activities may have given rise to such claims.

56. Subrogation Recovery Hurdles/Risks
• Factual Support: Plaintiffs have an uphill battle demonstrating
a nexus between a particular contaminating (drilling) activity
and alleged damages.
– If a carrier indemnifies an insured for a covered loss, it then stands in
the shoes of the insured and must eventually demonstrate in any
subrogation effort that the reimbursed damages were proximately
caused by the negligent conduct of the subrogation targets identified.
• Contractual Limitations: Possibility exists contract contains
risk allocation provisions that will limit or eliminate recovery
efforts.
– Hold harmless clauses.
– Arbitration clauses.

57. Water reclamation and recycling
San Diego’s toilet to tap concept
Recycled water gives San Diego a dependable, year-round,
locally controlled water resource.
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Irrigation
Manufacturing
Non-drinking
Non-potable purposes
http://www.sandiego.gov/water/waterreuse/

58. Conclusion
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Claims examples from participants
Actions going forward
Follow-up
Evaluation survey via email

59. Upcoming MSO Webinar
by Transitioning to Green
Issues of food security and insurance
Thursday, February 13, 2014
11:50 to 1:30 pm ET
In between the obvious risks from crop failures and
livestock epidemics, and food contamination at the
retail level are food security issues and risks that run
through the entire food supply chain. Because there
are so many interconnected threads in food security, it
is important for insurers to have a grasp of the entire
picture. In this webinar we will give an overview of
food security and safety that includes operational,
regulatory and environmental liabilities. We will use
actual cases as examples.

60. Thank you for your participation