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Pollution: An Overlooked Hurricane Risk for Business Owners

Despite improved policies and technologies, hurricanes continue to be a major source of concern, especially for business owners within the oil, gas, and chemicals industries. Hurricane Maria resulted in the deaths of more than 3,000 people, mostly in Puerto Rico1, while Hurricanes Katrina and Harvey each caused an estimated $125 billion in damages2. However, in addition to the casualties and economic effects that hurricanes bring, they are also responsible for a frequently overlooked yet serious side effect: pollution.

When unexpectedly strong floods from Hurricane Harvey disabled the refrigeration system at the Arkema chemical plant in Crosby, TX, the explosion of organic peroxide tanks led to chemical contamination throughout the area. Of course, the extent of environmental and health-related damage is far greater: the Houston Chronicle has “catalogued more than 100 Harvey-related toxic releases,” all of which could have contaminated unrelated sites downstream3.

The unfortunate reality is that oil, gas, and chemical companies with production facilities in regions with the greatest risk for hurricanes don’t often recognize the high risk of hurricane-provoked pollution. Aside from general chemical manufacturing, storage, and use, both Texas and Louisiana have many petroleum extraction and refinement facilities along the Gulf of Mexico. Oil spills may have accounted for a large part of the contamination in the Houston area during Hurricane Harvey, but this is far from new; during Hurricane Katrina, an estimated 8 million gallons of oil was spilled4. Similarly, Bone Valley in Florida is the source of 75% of US phosphate production5 and has suffered from chemical breaches due to hurricane flooding in the past6.

Obviously, it is important for facilities with this exposure to have established risk management protocols. In the case of Arkema, the facility had several protocols in place for managing the failure of their refrigeration system as a result of flooding; however, the scope of the event was unanticipated and overwhelmed these contingency plans. The scale of flooding during Hurricane Harvey should be a benchmark for assessing pertinent emergency protocols, especially given that only a small skeleton crew is typically in place during hurricanes. After all, most workers will be at home managing the fallout with their families.

Most business owners assume flood insurance covers all damages from hurricane storm surges, but the reality is that flood insurance often excludes pollution claims. The secondary effects of pollution require specialized pollution protection. This is further complicated by the fact that pollution policies tend to provide very narrow coverage; in many cases, a policy that covers a single, accidental spill may not cover a leak that went undetected over a long period of time. Other potential expenses, such as lawsuits over health-related claims, may require a specific type of coverage. And these kinds of lawsuits do happen – Arkema has been involved in litigation with county governments, first responders, and hundreds of local residents7. The bottom line is this: not only do businesses need the right insurance coverage, but they also need expert management of their insurance program.

What’s more is that these concerns do not just apply to companies that manage chemicals, oil, and gas; all landowners are exposed to this risk. Specifically, with respect to Hurricane Harvey, there are undoubtfully many cases of contamination that have not yet been detected. Without clear data indicating the source of a given case of contamination, landowners are liable for cleaning up the site and complying with environmental regulations. Indeed, even if the source of the contamination could eventually be determined, initial clean-up work and litigation costs would be significant. With pollution insurance and proper insurance management, business owners can help offset these potential costs, health risks, and environmental disasters in the future.

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