BEWARE OF THE POLLUTION EXCLUSION

Last year, I discussed a federal court's application in the Scottsdale case of the "pollution exclusion" to deny insurance coverage to a water utility of alleged claims that it furnished water containing a contaminant. ("Insurance Pollution Exclusion Applied To Water Supply Contamination", April 23, 2012)

In February of this year, an Illinois state appeals court reached the same conclusion regarding the same municipal-owned water utility.
The village sought insurance company defense or indemnity of suits alleging that it had knowingly and routinely mixed polluted water into its distributed water. The appeals court affirmed the trial court's decision that all such claims fell within the absolute pollution exclusion provisions of the insurance policies involved and, therefore, the insurance companies had no responsibility for the claims. (Village of Crestwood v. Ironshore Specialty Insurance Company, 2013 IL App (1st) 120112 February 22, 2013)

The village argued that the pollution exclusion was developed in the insurance industry to deal with "traditional environmental pollution" which could have significant impacts on land, water and air, with substantial resulting costs. It asserted that the alleged water contamination by it did not fall within traditional pollution excluded from insurance coverage by prior court decisions.

The Illinois court rejected the village's argument. It stated that the cases "make clear that the Village's knowing contamination of the Crestwood water supply with chemical-laden groundwater and subsequent distribution of that contaminated combination is a textbook example of 'traditional environmental pollution.' It is undisputed that the chemicals in the Crestwood water supply were contaminants or pollutants as those terms were used in the insurance policies at issue. The policies define 'pollutants' as 'any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste material.'" The court stated that the pollution exclusion "is unqualified and absolute and entirely precludes coverage for bodily injuries or property damage."

In passing, the court distinguished two out of state decisions relied on by the village that appear to suggest that coliform bacteria and giardia parasites in water are not "pollutants" within the scope of a pollution exclusion. I would find it difficult to assert that bacteria and substances such as giardia and cryptosporidium are not "pollutants".

Apart from the usual insurable risks, water utilities have two unique risks. First, they furnish a product--water That water must be in compliance with the Safe Drinking water Act provisions. But it also may contain unregulated constituents that could be subject to alleged claims. Further the water may have to meet certain pressure and volume requirements, the failure to attain may also result in claims. Second, water utilities can impact adjoining properties if, for example, there is a chlorine leak.

The resulting conclusion from these cases is that an diligent water utility will assure that any pollution exclusion is deleted from its insurance coverage and that it obtains product liability insurance coverage sufficient to protect against estimated liability risks.

MAKE NO BONES ABOUT WATER

Recently, the skeleton of England's King Richard III was discovered under a parking lot (car park) in Leicester. He is the king codified, somewhat incorrectly, in Shakespeare's play: "I, that am curtailed of this fair proportion,/Cheated of feature by dissembling nature,/Deformed, unfinished, sent before my time/Into this breathing world, scarce half made up,/And that so lamely and unfashionable/That dogs bark at me as I halt by them."

Richard III was killed in battle in 1485. Presumably, his remains were mellowing ever since. His skeleton shows head injuries as well as his deformed back.

Since discovery of Richard's bones, archeologists have dug into extensive analysis to confirm that the bones, in fact, are perceived royalty. The research has included DNA matches with apparent descendants over the globe, carbon dating of the bones and identification of the man's diet as appropriate for a king in 1485.

The interesting fact, however, is that for centuries people were walking, and more recently driving, on King Richard III. What would the Bard say about that? It seems disrespectful to royalty, and certainly contrary to what my mother admonished me repeatedly: "Don't let people walk all over you."

But, perhaps even more interesting is that Richard's bones are like ground water. We all walk, drive, farm, construct buildings and carry on life's activities on top of water in the earth below--water which serves all of these activities. We know where some of this water exist is, but not necessarily all of its locations. We may not know its age with certainty or how it really got there.

No doubt, Richards bones now will be well preserved for the future. Water is the bones of life. Will humanity preserve it for the future? With no disrespect to the Bard: "I, that I am curtailed of appearance/By earth, rock, blacktop and foundation,/And by wasteful uses and awkward laws,/As without halting, people and dogs walk over me as I slip away under their legs."

BEWARE OF WATER HOGS

Last week, the press reported that at least 6,000 dead pigs were fished out of the Huangpu River and tributaries. The river runs through the center of Shanghai and is the source of supply of the City's drinking water for some 23 million residents. According to some reports, officials there have expressed concerns that the pigs could become a cause of water contamination.

In the United States, I have heard of Asian carp jumping out of rivers. I also have heard of something called a pig in the poke. But I have never heard of pigs floating in rivers.

Over a ham on rye sandwich, I began to salivate how the United States might deal with 6,000 dead pigs bubbling in a river which provides drinking water for a major city. I could not find a provision in the Safe Drinking Water Act or EPA regulations for water hogs--such as so many pigs per liter (or is it litter) or so many pig parts per million. My guess is that by the time EPA could promulgate a standard, sausage would be be squeezing from faucets. On second thought, perhaps none of this should be a surprise. We are used to seeing a lot of pork coming out of Congress. Why not the same for rivers?

Maybe the whole story is simply some publicity fabrication by a movie studio for a new 1950s style science fiction movie, such as "Earth versus Floating Pigs--They Came From Inner Space."

Or maybe this is much dodo about nothing. According to one report, the Chinese government testing showed no known health concern for humans in the river water-- only a pathogen affecting pigs. So, the days when one would go to a river for fishing may now be replaced by days going to a river for bringing home the bacon.

Oink if you support water hogs!

WHEN WATER WORLDS COLLIDE

The Wall Street Journal has reported on an alleged fight in Nevada over ground water between a city which is seeking to construct a 20 mile long pipeline to tap the aquifer and a ranching community which fears that their wells could dry up if the city's plan is approved. The ground water at issue is fed by mountain runoff. The article also recites similar controversies in other locations. (Wall Street Journal, March 8, 2013, p. A3)

Disputes over water rights are not new, nor are they likely to be confined to western states. For example, Lake Michigan is a magnet for many thirsty water systems who salivate over the possibility of tapping into the Lake and abandoning their declining wells or lesser quality surface water supplies. In theory, taking water from the Lake is limited to water systems within the Lake's watershed. However, as an example, diversion has been permitted in Chicago under a 1930s U.S. Supreme Court ruling.

Water wars are unlikely to go away. More likely, they will increase, as cities grow, climate changes, and surface water supplies prove no longer adequate or are all spoken for. On the other hand, who knows for sure how much ground water is available and where?

Two questions come to mind. First, how should source water be allocated to the competing user groups? Who has priority? What standards are applicable?

Second, Who should do the allocating? State governors? State administrative regulatory agencies? State courts?

An issue lurking in the shadows is the interstate nature of water. For example, aquifers contain water that may have come from other states or Canada, from runoff or as original water. Likewise, surface waters may have sources in upstream states.

The commerce clause of the U.S. Constitution--the clause that authorizes Oongress to regulate interstate commerce--was inserted because states had been enacting tariff barriers to imports from other states so as to protect commerce within a particular state. The Commerce Clause is a touchstone for such federal regulations low water toilets, faucets and shower heads, the Safe Drinking Water Act and USEPA.

Looking into the future, do not be surprised if, and when, Congress comes marching into the water wars with primacy federal regulation of allocations of water sources of supply.

WHO REGULATES THE REGULATORS?

Administrative agencies, primarily the federal ones often identified by an alphabet soup of letters, appear to regulate every aspect of our personal and commercial lives. USEPA--the United States Environmental Protection Agency as it more formally is known--is but one small example of an administrative agency.

But exactly what is a federal administrative agency? It is not one of the Constitutional three branches of our federal government. It is like a fourth branch of government, yet most agencies have attributes of all three branches: the legislative branch, by reason of rulemaking authority; the judicial branch, by reason of hearing, cease and desist and penalty authority; and the executive branch, by reason of permitting and authority. Administrative agencies such as USEPA can exercise all three kinds of functions, and do so.

Who regulates administrative agencies to assure that they do not exceed their authority? In theory, these agencies are creatures of the legislature. In effect, Congress has delegated a portion of its authority to federal agencies by means of statutes. Therefore, a primary measure of the propriety of an agency action is whether the agency has exceeded its statutory authority. Whether an agency has failed this test is to be determined by the courts.

A good example occurred in January when a federal District Court held that USEPA exceeded its statutory authority when it attempted to regulate the flow of stormwater into a Virginia watershed. Under the Clean Water Act, USEPA sought to establish the total maximum daily load ("TDML") of sediment "pollution" entering a creek by regulating storm water flow into the creek, not the actual sediment. Sediment was the primary cause of impaired water quality in the creek. However,, USEPA sought to regulate stormwater flow, a non-pollutant, as a surrogate for sediment. As the court put it, "Does the Clean Water Act authorize the EPA to regulate the level of a pollutant in Accotink Creek by establishing a TMDL for the flow of a nonpollutant into the creek?"

The court held that the Clean Water Act did not authorize EPA to regulate nonpollutants or to use nonpollutants as a surrogate for regulation of pollutants, saying that in the in establishment of TDMLs, "EPA may not regulate something over which it has not statutorily granted power..." THe court concluded, "Claiming that the stormwater maximum load is a surrogate for sediment, which is a pollutant and therefore reguable, does not bring stormwater within the ambit of EPA's TMDL authority. Whatever the reason EPA has for thinking that a stormwater flow rate TMDL is a better way of limiting sediment load than a sediment load TMDL, EPA cannot be allowed to exceed its clearly limited statutory authority." (Virginia Department of Transportation v. United States Environmental Protection Agency, U.S. District Court, Eastern Division of Va., No. 1:12-CV-775, January 3, 2013)

Yeas ago, Justice Cardozo one referred to the tendency of a principle to extend to the limits of its logic. When an administrative agency extends beyond the limits of its statute, its authority falls off the judicial cliff.

DEFINING MOMENTS IN WATER

Probably nearly everyone has had some kind of defining moment involving water--where water has shaped a life experience or has influenced learning or behavior. Some may have had more than one of such moments.

My first defining moment with water occurred at an age of 18 months. My parents took me with them on a vacation in the Black Hills of South Dakota. They had had a particular affinity for that area, having had a camping honeymoon years before in the Badlands and the Hills--at a time when free ice water at Wall Drug was a necessity.

We stayed in one of those tiny cottages, probably built in the 1920s, in Baken Park, a tourist spot in Rapid City. (Remember, Cary Grant was "hospitalized" in Rapid City in North By Northwest). Today, of course, Baken Park is a strip mall.

One day, we toured the Iron Mountain Highway, a mountain road near Mt.Rushmore. The road curves up and down with countless switchbacks--resembling an unbroken whole orange peeling. At one point along the road, my father spied a unique tourist site--a fresh water spring gushing out of a huge granite rock along the roadside. Several tourists were gathered around the spring, filling thermos and bumper water bags or just cupping the cool water to their eager mouths.

My father parked our 1940 green Buick sedan on the shoulder and hopped over to the spring to join the water excitement, while my mother stayed in the car with me. Suddenly, the car began to roll backwards, toward the edge of the shoulder and the deep valley below--the parking brake did not hold. My mother was not a driver and could not tell a brake pedal from a clutch pedal. But, she had strong lungs and could shout! Several nearby men came running and grabbed the front bumper to slow the car, while another one jumped in to apply the brakes--right before the car would have rolled away.

For me, that was a defining moment in water--defining because it has made possible my writing this 100th posting of this blog.

WATER UTILITY SECURITY BEGINS AT HOME

In reaction to the events of 9/11, water utilities have initiated enhanced security measures, including performance of vulnerability assessments and installation of gated fences, video monitoring, visitor identification protocols and the like.

However, for some utilities one form of internal security risk may have been overlooked. A common form of access to water system facilities occurs when outside engineers, consultants, contractors, suppliers and others inspect the facilities or view drawings and records in the course of performing work for a utility. Fencing, gates and video cameras do not control such access, if unfettered. Indeed, such access, if uncontrolled, can expose sensitive information to such persons, and indirectly to third persons, thereby possibly increasing vulnerability risks to utility assets.

Even simple forms of such access can cause risks. For example, when a utility initiates a public bidding process for a proposed construction project, potential bidders likely will have access to drawings, specifications, records and even the facility itself. These forms of access can result in sensitive information about a utility to remain in files of unsuccessful bidders as well as engineers, contractors, etc., with such files being available to persons not directly related to a project for the utility.

One way a utility may be able to protect its sensitive information from unauthorized use is by means of protective agreements with such persons needing access to facilities and information, including potential bidders. Such agreements can establish boundaries for access, use, retention and disposal of sensitive information obtained by persons given access to such information. In addition, protective agreements can specify consequences, both monetary and otherwise, for any breach of such an agreement. Protective agreements can be stand alone agreements or can be incorporated in the terms of agreements for services, purchases, or construction and in bidding documents. Of course, as in the case of any agreement, compliance with the terms of a protective agreement should be monitored carefully.