DANGEROUS WATERS: A GUIDE TO INSURING GENERAL LIABILITY MUNICIPAL PROGRAMS

I was recently asked by an underwriter from a Canadian general liability carrier to provide advice on a municipal water supply risk they were considering insuring. This underwriter was in the process of setting up a new business line to provide excess general liability coverage for municipalities and their greatest concern was the risk to public health from the water works.

The message I gave was to proceed cautiously, but with optimism. After all, how many times can circumstances like those that unfolded in Walkerton during the summer of 2000 occur again? I know what you are thinking, everything is possible, but let’s face it, the message is out, people no longer take for granted the quality of drinking water they consume – and the government appears to be listening.

By late summer 2000, Ontario Regulation 459 was established under the Ontario Water Resources Act to legally enforce the supply of potable water to the residents of Ontario. My report to the underwriter was therefore positive, and provided a lot of client specific information, which for obvious reasons, I have left out of this article. What I have included, however, are some general considerations for underwriters, brokers, risk managers and anyone involved with general liability insurance products for municipalities that supply potable water to the public.

Source water

In order to evaluate the risk profile of possible contaminated water supply, the insurer/risk manager has to look beyond the “regulated environment” and consider the quality of the “source water”. Poor quality source water requires chemical treatment to become drinkable. There are areas in Ontario where the water supply is such that no treatment is required for safe human consumption. In those locations, the measures employed by the municipality to preserve the quality of source water should be assessed. This includes land use restrictions for surface water sources as well as “well head” protection programs for groundwater sources.

As part of its “water resources protection strategy”, the Region of Waterloo recently adopted new land-use planning policies that direct business growth to areas where it will not pose a threat to the municipal water supply. A list of acceptable land uses is provided by the region for well head protection areas (WHPAs). If your business is on the restricted list and you operate in a WHPA, the future physical expansion of your business at that location may be limited (full color maps are now available identifying WHPAs).

Emergency response

The emergency response program for the water works should be reviewed. Rapid response is one of the keys to successfully controlling the potential for human consumption of contaminated drinking water. How will warnings get out to the public, how effective will these warnings be, and what will trigger the municipality to issue a warning, without dampening its effect?

A few years ago I attended a public meeting in a town west of Toronto where the debate centered around the adoption of a chlorination program. The public was shocked to find out that contamination could be in their drinking water system for 72-hours before the town could “shock the system” with chlorine. The debate went on for days until it was decided that the town’s response program did not adequately protect the public health, and a full chlorination program was deemed the only acceptable solution. In this regard, the new Ontario legislation has stepped in by making it difficult to successfully operate a non-chlorinated water supply system without implementing an emergency response program that is acceptable to public and government alike.

Sabotage threat

Water supply system sabotage is an unexpected but significant threat to the quality of drinking water and public health at large. With a heightened awareness of the damage that could result from contaminating a drinking water system, municipalities and private well owners should be alert to unprotected areas and “weak links” in the water supply and distribution systems.

This is where the emergency response program really matters. The integrity of the water supply and distribution equipment also influences water quality. If a break develops in the supply well-casing, contaminated surface water or groundwater can enter the water supply system, reducing water quality. System integrity inspections and a proactive system repair program are crucial loss prevention measures that should be in place.

The technology used to disinfect raw water should not be overlooked. Treatment typically involves filtration followed by disinfection such as chlorination (gas, solid or liquid), ultraviolet light (UV), or reverse osmosis (RO). Treatment can also include chemical precipitation through the addition of coagulants (alum), flocculation and sedimentation prior to filtration and disinfection. If your chemistry is rusty or non-existent, hire an engineer to evaluate the suitability of the water treatment technology.

Maintenance programs

Preventative maintenance is one of the most important aspects of current and future facility performance. The preventative maintenance program prepared by the municipality should be reviewed. A good indicator of preventative maintenance is the municipality’s loss and incident records. This information may not be as readily available as one might expect. It may take personal interviews with water work operators, engineers and regulators before a useful loss profile is developed.

Many water works are now operated by experienced contractors, such as Ontario Clean Water Agency (OCWA). They supply years of successful water works support services (i.e. engineering, technological, electrical, mechanical, etc.). The indemnification wording in each of the contracts should be reviewed to determine if an adequate level of risk transfer is stipulated.

Inspection documents

Last of all, don’t forget to review government inspection documents. The Medical Officer of Health and Ministry of Environment keep a watchful eye on municipal water works. Their observations provide valuable insight into the performance of private contractors and municipal operators.

Every insurer has its own underwriting style and list of key considerations in evaluating municipal and private risks. Therefore, one should not overlook the underlying policy specifics and a careful review of the application is a must. However, don’t get caught just looking at the big picture items, focus on the small details. Even the excess coverage may not be worth much if you consider how far reaching another contaminated drinking water disaster could be.