How important is proper maintenance? Residents of Charleston, West Virginia have learned a hard lesson about the hazards of a poorly maintained chemical tank. A tank owned by Freedom Industries, a chemical distributor, ruptured last week. The rupture caused two chemicals, MCHM and PPH, to spill into the Elk River. The river is the primary source of drinking water for Charleston and the surrounding area.


After the water became contaminated, residents of the area were told to stop using tap water. The ban was in place for four days and then was gradually lifted. For the people affected by the ban, those four days must have been very long!

According to the Wall Street Journal, the chemical storage facility where the leak occurred had not been inspected by environmental authorities since 1991. No inspection was required because Freedom Industries did not process the chemicals it stored. Critics are citing West Virginia's lax regulations as a factor in the spill and demanding tighter rules.

 

The Freedom Industries incident has a number of similarities with another recent disaster. Remember the fertilizer plantthat exploded last April in West, Texas? Like Freedom Industries, the fertilizer plant was subject to minimal government regulation even though it was storing hazardous materials. Both companies operated near residential areas. Both operated under the radar until a disaster occurred. One difference between the two events is that the explosion killed several people but the spill has not (yet) caused any deaths.

The long-term health effects of the chemicals spilled into the Elk River are unknown.

Pollution releases occur frequently but most don't get the press coverage that the Elk River contamination has received. Moreover, many small businesses store substances that are potentially hazardous. Examples are gas stations, dry cleaners, hardware stores and construction contractors. Even a seemingly minor chemical release can expose a small business to massive liability. Lawsuits can result in millions of dollars in damages. Both the fertilizer plant and Freedom Industries were facing numerous lawsuits when they declared bankruptcy shortly after the disaster.

No one seems to know the nature of Freedom Industries' liability insurance. The company probably has at least a basic (general) liability policy. Unfortunately, a general liability policy provides little coverage for lawsuits that involve pollution. Most liability policies contain a pollution exclusion like that found in the standard ISO policy. This exclusion is very broad. Freedom will be lucky if its liability policy covers any suits that arise from last week's spill. Since the company has declared bankruptcy, few victims of the spill are likely to receive any compensation. That's not fair but that's how it is. Just ask victims of the fertilizer plant explosion.

Finally, check out my new articles on Voluntary Compensation coverage and mold coverage under a commercial property policy.

Image courtesy of [Thomas Hindman] / Getty Images