Digging Deeper Into Oil Spills

Major oil spills caused by massive tankers leaking their black cargo into pristine ocean waters is becoming increasingly commonplace. Names such as the Exxon Valdez or, closer to home, the Terra Nova platform, evoke images of long oil slicks, frantic clean-up efforts and dead wildlife.

Oil spills, leaks and contamination are occurring in Canada on a more frequent albeit smaller scale. These spills can happen just about anywhere oil is used or transported – from industrial manufacturing plants to fixed storage facilities to long-haul trucking. According to the Ontario Ministry of Environment’s Spill Action Centre, there are an average of just over 3,000 oil spills every year in the province.

Spills also involve homeowners who use oil as their primary source of heating. Recently, news bulletins regarding the cost of cleaning up oil spills at residences in Atlantic Canada, even in major city centers, pose positive proof that many private residences are still using oil fuel as their main source of heat, necessitating the use of thousands of domestic fuel oil tanks.

Although Canadians use less than 3% of the oil consumed in the world each year, on a per capita basis Canada is one of the biggest users of oil. On an average day, Canada uses about 1.6 million barrels of oil. Procuring petroleum from its source and delivering it to the consumer may require up to 15 transfers, using ocean tankers, pipelines, trains and tanker trucks. Each time a transfer is made, the risk of a spill increases.

Oil leaks from manufacturing, industrial or oil processing facilities are also a common occurrence. With more than 3,000 so-called “brownfield” sites across Canada’s vacant industrial lands – there is increasing awareness of what prolonged petroleum hydrocarbon contamination does to soil, groundwater and the surrounding environment.

ONE SLICK SAMPLE

Home to an Imperial Oil refinery operating from 1923 to 1975, Lynnview Ridge, Calgary was eventually transformed into a housing development. The Lynnview development was built after the land was re-zoned for residential use.

In 2001, testing of the soil in the subdivision showed that two-thirds of the properties had lead levels in soil much higher than the provincial guideline of 140 parts per million. In late summer of 2001, Imperial Oil Ltd. offered to buy most of the homes at 20% above the market-value assessment. There are about 160 homes in the neighborhood and 86 townhouse units. The majority took the offer; only about 20 single-family homes are now occupied.

In April 2005, Imperial Oil and Alberta Environment reached an agreement to remediate the land – Imperial will have to replace the soil and, once permits and approvals are in place, the top 30 cm will be removed The company also promised to pay $10,000 in compensation to each homeowner for inconvenience related to the cleanup. Imperial Oil has spent millions of dollars over five years in real estate costs, legal fees and remediation efforts.

This is just one case of contamination. There are many others, such as spills from collisions involving trucks carrying fuel. In one instance, Environmental Solutions was called in to contain a spill when two tanker trucks crashed over a bridge to a stream. The force of the collision tore open the fuel storage tanks. There was a considerable threat to water and soil contamination.

SLIDING TOWARDS REGULATORY STANDARDS

These kinds of situations have raised awareness among government and property owners, leading to tighter regulatory standards. In 2001, the Canadian Council of Ministers of the Environment released Canada-wide standards for petroleum hydrocarbons in soil, a precursor to acceptable limits for the protection of human and environmental health for agricultural, residential, commercial and industrial land. In addition, provincial environment ministries have standards for various contaminants, such as lead and benzene, which set out maximum acceptable levels in soil and groundwater.

There is also pressure on proper environmental remediation from lending institutions. In Canada, the Supreme Court has set out rulings according to the “polluter pays” principle. In general, the party that causes pollution damage is responsible for paying the costs of cleanup and any resulting economic losses for environmental damages. However, often the party that caused the pollution and sold the land is no longer in operation. The cost of remediation may fall onto the owner or lending agency.

Accordingly, banks and lenders are now much stricter about environmental testing and contractual requirements for land and real estate transactions. This applies to homes, as well. Residential properties cleaned up to government standards may not be considered clean enough for many lending institutions today.

“Clean to pristine” is the only sure way to be certain a property can be sold. Yet, “how clean is clean?” – a question that has been asked in the environmental industry for the last 35 years. Typically, the best answer relates to being able to use the property with an acceptable risk to human health and the environment.

Clean-ups of spills, especially where third party properties are involved, are ultimately driven by minimizing future liability, including adhering to the applicable property, not just environmental, laws. Minimizing future liability is necessary to close files and eliminate reserves. If third party properties are not returned to pre-existing conditions, there is potential that there may be lawsuits to recover diminished property values. The clean up to pre-existing is therefore driven by considerations governing environmental conditions and insurance companies.

RISKING THE SLIPPERY SLOPE

The concern about oil contamination should prompt greater awareness and due diligence amongst risk managers, especially those in the fields of transportation, oil and gas processing, real estate and manufacturing. Risk managers are noticing the potential for spills, the long-tail claim exposures, ways to reduce severity and the necessary steps for a comprehensive response.

Homeowners face similar challenges. One domestic fuel oil spill can cost homeowners their entire life savings if proper insurance coverage is not in place or if the spill is not cleaned up properly. Homeowners should always ask their insurance brokers to find out exactly what coverage they currently have. If there is a residential spill, the homeowner must receive a written report, which should be attached to their property deed.

Many factors determine the severity of a spill, such as the type and quantity of oil. For example, crude oil is made up of complex hydrocarbon compounds that range from light gases to heavier tars and waxes. Some, such as benzene, are known carcinogens, while others like toluene and xylene cause adverse heath effects. Governments are increasingly strict regarding permissible levels of these compounds.

“GROOMING” THE GREASE

Quick response is crucial in order to clean up the site according to current regulatory and scientific standards. Claims adjusters and remediation services must be highly experienced in residential, commercial and transportation related spills. They also should have access to a range of equipment necessary to contain oil spills or leaks, such as absorbent booms and pads, mobile fuel transfer units, air drills and excavating equipment.

Once a remediation service is at the spill site it must do a full assessment and conduct any emergency response activity necessary to contain the spill and prevent migration. As required, it should also immediately notify proper regulatory agencies. All work done to clean up the spill must comply with applicable environmental laws and guidelines.

In addition, there is a need to decontaminate all areas after cleanup and continue to monitor and sample if necessary. In some cases, the service of professional hydrogeologists or bioremediation specialists shoul d be retained. Finally, the service should provide a closure report to the proper regulatory agencies within a reasonable amount of time and a copy of report must go to the registered property owner.

Cleaning up to pre-existing conditions does not always mean cleaning up to below the laboratory method detection limits. In many urban settings and especially along major roadways, pre-existing (or background) conditions may have detectible concentrations of various hydrocarbon components, which result from typical road run-off. It is important to establish “background” conditions for these types of situations by collecting several samples away from the actual impact area.

For spills and contamination it is critical that claims managers retain the services of professional claims handlers and remediation services. The importance of quick response, a thorough understanding of regulations and notification requirements and the ability to access state-of-the-art clean-up procedures cannot be overstated. When it comes to due diligence for oil spills and contamination, risk managers and homeowners may want to dig a bit deeper.