While this is not totally surprising, it is still dumbfounding how organizations can purchase environmental insurance without thoroughly assessing their environmental risks. Here are some simple first steps that will assist business owners and insurance brokers to create profiles that will help them better understand and manage environmental risks.

The definition of an ERP

By now, many organizations have acknowledged that environmental exposures exist in virtually every industry in the world. In fact, many have taken the opportunity to assess some type of pollution liability insurance, while a minority of others have either purchased or are in the act of purchasing such coverage.

While pollution liability insurance is an effective way of financing environmental loss, it is not a good idea for an organization to purchase such coverage without creating an environmental risk profile (ERP) for their operations. This is because it is necessary to know what risks will be contractually transferred, managed with education, financed through insurance and so forth. The policy should not dictate how an organization manages its environmental risk. If it does, the process needs more attention. Insurance is only one way to finance a loss that occurs from an environmental mishap; it should not be expected to proactively protect the organization’s reputation.

An ERP can be defined in many ways. Basically, it is a structured management tool that identifies the various environmental exposures associated with an operation or product in addition to determining the various techniques available to the organization to manage a particular risk. Typically, it also encompasses a review of an organization’s operations with a focus on administrative strategies/protocols for reducing or managing particular risks.

Identifying the exposure

In order to properly develop an ERP, an organization must develop an objective that motivates the organization to incorporate environmental risk management into virtually every facet of their business. Once established, assuming that the organization agrees that the exposure exist, an exposure analysis should be conducted to identify specific risks. Commonly, contractors face environmental exposures in the following four major areas of their operation:

• Job site operations
• Owned or leased properties
• Transportation
• Disposal liability

Each of the above areas of operation should be assessed accordingly to identify where the organization is exposed to environmental liability. As a start, most organizations can draw from past experiences or the experiences of their personnel. Furthermore, to supplement this experience there is an abundance of information available on the Internet. Although such sources need to be qualified, using regulatory sites like the ones supplied by the EPA or other governmental agencies could prove beneficial in several ways:

• Property owners/buyers. Any party to a property transaction could use these resources as a preliminary check to quickly qualify properties cost effectively.
• Construction projects. General contractors and subcontractors could utilize online resources to quantify risk at proposed project sites prior to bidding. It may raise red flags that the general contractor could raise with the owner.
• Lending institutions. Banks and other lenders could utilize this information to identify potential financial risk associated with environmental issues.

As the process advances, the following questions should be asked in order to identify additional information needs:

1. Does the company have an environmental management program/system? If not, why?
2. Mold/moisture prevention/awareness/response program: Is there a consistent message to all employees and is there a role-defined response that will prevent future liability?
3. Hazard communication programs: Are environmental data searches performed as part of the preconstruction or acquisition process?
4. Standard subcontract agreement with environmental and non-environmental subcontractors: Is pollution liability insurance required? If so, what does it entail? Does it include a certificate with little to no information, or a comprehensive insurance specification?
5. Standard client agreement (if possible) or standard industry agreements like the AIA 201 general conditions: If contractor’s pollution liability (CPL)  insurance is required by owners, why is the requirement still negotiated out of the contract? Does this create more risk?
6. History of environmental losses or incidents: Trends, communication to employees, lessons learned, what corrective measures were taken to prevent the same problem in the future?
7. Corporate brochure or statement of qualifications: Are services overstated for marketing purposes?
8. Corporate health and safety program: Are training and adequate response protocols defined for contaminant exposures?
9. Quality assurance programs: Are third-party inspections commonplace?
10. Environmental property assessments: What is the protocol in the event environmental issues are identified?

Selecting risk management alternatives

Once the organization has identified the various risks, numerous alternatives for managing, reducing or even eliminating the exposure to environmental liability will emerge. Many people have a hard time believing they can eliminate environmental risks while continuing to operate. But they can. Take silica for example. Depending on the type of operation, exposures to silica during sandblasting operations can actually be eliminated by replacing the material with a non-toxic/non-hazardous substance.

When it comes to managing any risk, nothing takes the place of education. Educating employees on the general awareness of risk factors, the impact to the organization, adverse health effects to employees, and typical management and response protocol should always be considered the first and best step in the process. Remember to document all educational events in personnel folders.

After all is said and done, what commonly separates the good plans from the poor ones is the execution. As any motivational expert will attest, the will to succeed must be great, but the will to prepare must be even greater! Communicate, train and execute. PE