Lawsuits Question Arkema Emergency Preparedness Plan

Last week officials in Harris County, Texas were granted permission to file a lawsuit against international chemical company, Arkema, Inc., in attempt to recover the costs of responding to the crisis at the company’s plant in Crosby during Hurricane Harvey in August into September. The County has asked a court to review the plant’s environmental practices and disaster preparedness plan and to determine how, if at all, it was updated to reflect the projections of 50-plus inches of rain in the days leading up to Harvey’s landfall.

The New York Times reported that in its risk management plan to the federal government, Arkema indicated that floods and hurricanes, as well as power failure and loss of cooling, were threats to its Crosby chemical plant. In its filing with the government, however, Arkema did not provide contingency plans to address those concerns, the Times said.

As previously reported, several feet of floodwaters caused a power outage which subsequently prevented Arkema plant staff from ensuring that nearly 500,000 tons of organic peroxides were kept cooled and stable. The chemicals eventually overheated and caused a series of explosions which started in late August into the first week of September. This led to a mandatory 1.5-mile evacuation of the area, affecting about 300 homes and many nearby businesses.

Local media reported that Harris County Attorney Vince Ryan is expected to file the lawsuit this week. “The company’s lack of preparedness caused a crisis on top of this horrific storm,” Ryan said in a statement. “Dozens of first responders were required by this emergency caused by Arkema when their services were desperately needed elsewhere.”

According to the County’s statement:

Investigations conducted by the Harris County Pollution Control Services and the Harris County Fire Marshal’s Office uncovered serious violations of the Texas Clean Air Act. Ryan will seek to recover the County’s costs for responding to the week-long incident.

This is the second suit to arise from the Arkema plant’s explosions. On Sept. 7, seven first responders filed a negligence lawsuit against Arkema, alleging they were not warned of the smoke and fumes and their effects prior to arriving. The responders claim they became ill shortly after they began working on the scene following the Aug. 31 explosion; many left vomiting, gasping for air and unable to breathe during and after rescue efforts.

The Texas Tribune reported that the lawsuit was updated in late September, swelling to include six additional first responders and a number of area homeowners. They claim to have suffered “upper respiratory infections, bronchitis, pneumonia, itchy, burning eyes, tight, burning throats and the like—illnesses and injuries that did not exist prior to the explosions and fires at the Arkema facility and illnesses resulting from and exacerbated by the explosions and fire at the Arkema facility.” Plaintiffs are seeking more than $1 million in damages, according to the suit.

The third lawsuit was filed Oct. 2 by nearby residents who claim their properties were contaminated with toxins. The federal suit details how residents are now suffering from medical problems ranging from scaling and rashes to respiratory problems.

“Based on testing results received to date, Arkema has not detected chemicals in off-site ash, soil, surface or drinking water samples that exceeded Residential Protective Concentration Levels established by TCEQ for soil and groundwater,” company spokesperson Janet Smith said in an email to Houston Public Media.

Harris County’s full statement can be found here.

October is National Cyber Security Awareness Month

National Cyber Security Awareness Month (NCSAM) kicks off this week. And in the wake of last month’s Equifax breach announcement—in which nearly 145.5 million Americans learned their personal information may have been compromised, coupled with the government’s recent efforts to combat cyber threats—NCSAM’s timing could not be better.

The Department of Homeland Security (DHS) hosts the annual NCSAM and will provide online and in-person tools to engage and educate the private and public sectors about cyberrisks. The DHS will also offer mitigation tips and techniques in tandem with this year’s campaign, which is divided into five different weekly themes:

Week 1: Oct. 2-6         –Simple Steps to Online Safety

Week 2: Oct. 9-13       –Cybersecurity in the Workplace is Everyone’s Business

Week 3: Oct. 16-20     –Today’s Predictions for Tomorrow’s Internet

Week 4: Oct. 23-27     –Consider a Career in Cybersecurity

Week 5: Oct. 30-31     –Protecting Critical Infrastructure from Cyberthreats

But NCSAM’s nationwide events are not limited to those themes and will cover topics that run the cybersecurity gamut through formats like workshops, webinars, twitter chats and conferences – some of which can be livestreamed. One major highlight will be the day-long global launch of NCSAM’s international adoption on Oct. 3 in Washington D.C. Featured speakers at other events include FTC Acting Chairman Maureen Ollhausen, White House Cybersecurity Coordinator Rob Joyce, Senate Homeland Security Chair Ron Johnson, and Palo Alto Networks CEO Mark McLaughlin. Visit here for an event calendar.

NCSAM is part of the ongoing DHS cybersecurity awareness program, Stop.Think.Connect., which began in 2009 as part of President Obama’s Cyberspace Policy Review. Non-profit organizations, government agencies, colleges and universities are encouraged to join Stop.Think.Connect. as “partners,” while individuals can become “friends” to engage their respective communities and memberships. The program also offers handy toolkits organized by topics such as mobile security and phishing, and by audiences, which range from corporate professionals to young children and law enforcement.

Increasingly, the government is taking cyberrisk seriously. In September, the SEC announced two initiatives to enhance its enforcement division’s efforts to combat cyber-based threats and protect businesses, investors and the public. A new Cyber Unit will focus on targeting misconduct which includes market manipulation schemes involving false information spread on social media, violations involving initial coin offerings and distributed ledger technology and hacking, among others. Its Retail Strategy Task Force will combat fraud in the retail investment space, from everything involving the sale of unsuitable structured products to microcap pump-and-dump schemes.

In August, President Trump elevated the United States Cyber Command’s status to Unified Combatant Command, with a focus on cyberspace operations. The elevation, he said, will increase “resolve against cyberspace threats, reassure our allies and partners and deter our adversaries,” by streamlining operations under a single commander, which will also ensure adequate funding. In connection with the elevation, the president said Secretary of Defense James Mattis would examine “the possibility of separating United States Cyber Command from the National Security Agency” and will eventually announce recommendations.

8 Legal Developments You Need to Know About

In a new RIMS Professional Report, attorneys Mark Plumer and Xandra Bernardo (of Pillsbury Winthrop Shaw Pittman LLP) and Patrick Walker, a risk professional at mining company Rio Tinto Group, shed light on the top risk management legal developments of 2017.

According to the authors, risk managers “must be familiar with the legal principles that underlie claims that are asserted. A successful resolution will turn on the policy wording, the company’s business relationship with the affected insurers and the strength of the  coverage argument under the law.”

In The Top 8 Legal Developments You Need to Know About in 2017, the authors lay out the notable rulings on insurance law relating to rights of coverage, rescission, cyber coverage and more. Here is a quick look at their findings:

  1. Rights to Coverage: There were important developments to rights of coverage under historic occurrence-based policies. These relate to “long-tail” liabilities such as environmental exposures.

“The best practice now is to assign the right to make claims on historic policies for such exposures, where such transfer of rights is intended. Legal counsel should assure that the law in the affected jurisdictions allows for the transfer of insurance rights.”

  1. Rescission: It’s an insured’s worst nightmare: you have a claim that you believe should be covered, and the insurance company finds a way to rescind coverage. It’s a growing trend. “In particular, insurers are requiring more disclosures during the application process and may seek rescission if full and accurate disclosures are not provided.”

The authors focus on H.J. Heinz Co. v. Starr Surplus Lines Ins., a trial decision that was reached in New York’s Third Circuit. The court ruled that Heinz was not entitled to its purchased coverage because of historic loss information that was mistakenly withheld by the company’s risk manager.

“The Heinz case highlights the importance of answering questions thoroughly and truthfully in connection with applying for insurance. Applying for insurance is an increasingly challenging process, particularly with respect to specialty policies that require answers to many questions and call for considerable data. Risk managers must assume that insurers will be emboldened by Heinz and other, similar cases.”

  1. Consent to Settle: In case you needed to be reminded: risk management and corporate counsel need to work together!

“Some courts may simply void coverage where there is a voluntary payments provision and advance consent from an insurer for a settlement was not requested regardless of whether the insurer was prejudiced. It is rare that insurers will stand in the way of a settlement. Thus, asking for consent often is no more than a technical requirement. Insurers should not be allowed to escape coverage your company has paid for based on a technicality.”

  1. Notice: Your coverage can be voided if you don’t give prompt notice of a claim. There were two important developments on this front in 2017 that the authors describe in detail in the report.

“The best way to avoid an insurer ‘late’ notice argument is to provide notice at the earliest reasonable date, even if this requires later supplementation and clarification. Of course, this is often easier said than done. You should learn the law affecting notice in your home jurisdiction and consider treating occurrence-based policy and claims-made policy notification procedures differently…”

  1. Cyber Claims: This is obviously a hot area in risk management and in insurance. It seems like we constantly hear about new entrants into the insurance market on this front, with new firms specializing in cyber also popping up almost every day. Risk managers need to exercise caution in this field: cyber insurance is still relatively new and untested, and the claims history for this subfield is short.

The policies are also potentially confusing. For example, “many cyber policies specifically provide coverage for credit card association assessments for an additional premium. These policies are quite complicated and may contain dozens of cross-referenced definitions.”

  1. Construction Claims: The authors dive into key decisions coming out of New Jersey and Iowa on this familiar risk management topic. They caution risk managers to “make certain your CGL policy has a subcontractor exception in the ‘your work’ exclusion. Policies containing a ‘your work’ exclusion that do not also include a subcontractor exception to that exclusion place your company at greater risk.”
  2. Additional Insured: Access to additional insured endorsements is getting narrower, according to the authors. A decision from New York continues this trend: the June 2017 decision from New York’s high court in Burlington Ins. Co. v. NYC Transit Auth.

The report cautions that the Burlington decision “may come as a surprise to many policyholders who expect courts to interpret additional insured endorsements broadly, particularly ISO’s standard form endorsements. Risk managers concerned about this potential reduction in coverage can follow the advice of the Burlington court: ‘Of course, if the parties desire a different allocation of risk, they are free to negotiate language that serves their interests.’”

  1. Scope of Coverage: It’s important to understand your home jurisdiction’s philosophy on long-tail general liability claims. There are two types of jurisdictions, according to the authors: “all sums” and “pro rata.” In 2017, there were several decisions that complicated this well-understood legal dynamic.

“If your company faces a long-tail claim, be proactive and understand the scope of coverage law applicable to your historic policies. If the jurisdiction applies the ‘all sums’ principle, make sure your counsel is aware of it. If not, confirm whether your historic policies contain non-cumulation clauses or if the applicable jurisdiction has considered the ‘unavailability’ exception to pro rata allocation.”

For more information on “all sums” versus “pro rata,” as well as detail for all of the top legal developments, please visit www.rims.org and download the paper. All RIMS papers are members-only for the first 60 days of their release.

Jones Act Waiver Granted for Puerto Rico

A request to temporarily waive the Jones Act for Puerto Rico that was denied on Monday has been approved. President Donald Trump waived shipping restrictions on Thursday to help speed up fuel and supply deliveries to Puerto Rico, devastated by Hurricane Maria, the White House said.
Maria wiped out power on the island and destroyed infrastructure and cell towers, leading to massive shortages. Even though a waiver had been granted to Texas and Florida after Hurricanes Harvey and Irma, the Department of Homeland Security initially said there was no need to waive the restriction for Puerto Rico, as it would not address the issue of the island’s damaged ports.

The Jones Act, or the Merchant Marine Act of 1920, was initiated almost 100 years ago to keep foreign-flagged vessels from shipping fuel and goods between U.S. ports. The last previous waiver was in December 2012 to allow petroleum products to be delivered for relief assistance after Hurricane Sandy.

Sen. John McCain, R-Ariz., disagreed with the initial decision to deny suspension of the act for Puerto Rico. He wrote to the Department of Homeland Security urging it to allow a waiver and ultimately “a full repeal of this archaic and burdensome act.” Without the waiver, McCain said residents of Puerto Rico would end up paying at least twice as much for food, drinking water and other supplies.

Supporters of the Jones Act, including ship builders, have maintained that it supports American jobs, including jobs in Puerto Rico and keeps shipping routes reliable, according to Reuters. They also contend that the issue in Puerto Rico is distributing shipments across the island once they are delivered.

The temporary waiver was not a surprise, as Puerto Rico Gov. Ricardo Rossello said on Wednesday that he expected the federal government to suspend the Jones Act. He said he had been speaking with members of Congress from both parties who supported an emergency waiver.