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Liability Exposure

Liability in the Water: Lead Litigation Over Contamination Isn’t Going Away

More states are requiring schools to test drinking water for lead. Doing so puts them on the hook for costly remediation and opens them up to liability exposure.
By: | August 30, 2018 • 5 min read

Pennsylvania’s Butler Area School District tested the water in Summit Elementary School for lead contamination in the summer of 2016. Results showed the level of lead far exceeded the EPA’s “reasonably safe” standard of 15 parts per billion. Five months later, the school finally told students’ parents.

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Jennifer Tait, whose daughter was in kindergarten, filed a class action lawsuit on behalf of the student body, accusing school administrators of negligence and asserting the district was vicariously liable for the actions of the administrators.

With greater national attention given to the problem of lead-contaminated water after the crisis in Flint, Mich., more municipalities are under scrutiny. Schools — given their responsibility for the health and safety of children — are facing increased pressure to test their systems and remediate when dangerous levels of contaminants are present.

Federal vs. State Regulations

Lead was a legal material for pipes, solder, valves, taps and other plumbing fixtures until the passage of a 1986 amendment to the Safe Water Drinking Act (SWDA), mandating lead should not make up more than 8 percent of pipes’ composition and no more than .2 percent of solder and flux. The restriction for pipes was later reduced to a weighted average of .25 percent lead in 2014.

Essentially, any building more than four years old may be exposed to lead.

David Perez, executive vice president, national insurance specialty, Liberty Mutual Insurance

“The older the town, the more exposure you have to lead,” said David Perez, executive vice president, national insurance specialty, Liberty Mutual Insurance.

No federal law currently requires schools to test water for pollutants. The SWDA requires public sources of water — water utility companies, operators of rural wells — to test for contaminants but not the facilities where it’s consumed.

“The pipes that have lead are inside these buildings and in the feeder pipes that service them,” said Janice Nunziata, senior underwriter, environmental product manager, Philadelphia Insurance.

Though there is no federal directive, eight states do require schools to conduct lead testing. Several put the mandates in motion in the wake of Flint’s water crisis. The results only affirm how real and widespread the problem is.

Results from New York City’s public schools last year showed 83 percent of 1,500 buildings had at least one outlet with a lead level above 15 parts per billion.

One girls’ bathroom faucet had a lead level of 8,850 parts per billion. Thirty public schools in Newark, N.J., detected elevated lead levels.

A review by the Associated Press found that “1,400 water systems serving 3.7 million people in 49 states exceeded permissible lead levels since 2013.” Still, a July 2018 report released by the Government Accountability Office found 41 percent of school districts didn’t test for lead in the water in 2016 and 2017.

“I don’t think anyone has a handle on how big this issue really is,” Nunziata said.

Public Health Impact

In adults, lead can cause damage to the central nervous system, kidneys and reproductive systems. Lead is a toxic chemical that has no role in the human body, but it does bear a similar structure to calcium, and the body treats it as such, absorbing it into the bloodstream and storing it in the bones.

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Because their bones are still growing, children suffer greater developmental damage from lead exposure, including impaired growth, lower IQ, behavioral problems and learning disabilities.

Tait claimed that after five months of ingesting “poisonous water,” her daughter experienced episodes of anxiety, depression and nightmares.

“Don’t try to hide [test results]. That only makes people more upset because they feel like you don’t care about them or their children.” — Susan Kostro, chief underwriting officer, public entities, Liberty Mutual

In the case of Tait’s class-action lawsuit, the Butler Area School District argued her claims were pre-empted by the federal SWDA, absolving them of an obligation to act immediately on the results of the lead testing, since they aren’t required to test in the first place. That suit was eventually voluntarily withdrawn and went to mediation, but it acts as an indicator of what’s to come.

Liability and Coverage

Opinions are split around who will be held liable for children’s exposure to unsafe levels of lead in schools — school districts, municipalities, water utilities or even contractors or plumbers who worked on the schools.

Nunziata said parents will hold schools accountable for not monitoring or taking action on positive test results.

“They’re going to go after the school district, not the water utility,” Nunziata said. “The lead likely isn’t coming from the water supplier, because they’re subject to regulatory oversight and they already process the water so heavily. Rarely would you see a water company providing contaminated water.”

However, Susan Kostro, chief underwriting officer of public entities, Liberty Mutual, said liability may ultimately fall back to the municipality: “It’s an issue for municipalities, especially if they own their own water supply, which the school draws from.”

“And if they don’t own the supplier, they would always look to push the liability back to the water company.”

Susan Kostro, chief underwriting officer, public entities, Liberty Mutual

Renovations or plumbing work can disrupt the natural biofilms that form on the interior of pipes; biofilms which, if left alone, could prevent water’s direct contact with lead. Schools could shift blame to contractors or plumbers, asserting they should’ve been aware of the exposures they created.

Schools or municipalities could also raise doubt about the source of contamination or the resulting health impacts. A child’s behavioral problems, for example, could have other causes besides lead exposure.

“Could they be genetic? Caused by some other contaminant? How courts determine what damage was caused by lead exposure will be up to the medical experts,” Nunziata said.

Perez added, “If a municipality is brought into civil action, insurers are going to go back to the root cause.”

Most school districts do not purchase environmental liability policies, according to Perez, and most environmental policies exclude coverage for lead contamination.

Facing a lawsuit, schools may turn to general liability policies, and individual administrators could seek recovery from professional liability policies if they have them.

Risk Mitigation Strategies

Foremost, schools should be transparent about their findings.

“Don’t try to hide it. That only makes people more upset, because they feel like you don’t care about them or their children,” Kostro said.

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There are some remediation steps schools can implement quickly. Schools can shut off water systems and identify areas where contamination is heaviest. Adding filters to drinking fountains eliminates lead, as can flushing out the pipes periodically.

All these efforts, however, come at a cost. In Southern California, the San Ysidro School District will spend $24 million to replace fountains, sinks, pipes and faucets at three schools.

The city of Portland, Ore., has yet to replace fixtures, instead providing bottled water at its 90 schools, costing $850,000 per year. Newark’s public school district spent close to $1.5 million on testing and remediation.

The cost of a class-action settlement, however, could far outweigh these expenses. &

Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Insurtech

Kiss Your Annual Renewal Goodbye; On-Demand Insurance Challenges the Traditional Policy

Gig workers' unique insurance needs drive delivery of on-demand coverage.
By: | September 14, 2018 • 6 min read

The gig economy is growing. Nearly six million Americans, or 3.8 percent of the U.S. workforce, now have “contingent” work arrangements, with a further 10.6 million in categories such as independent contractors, on-call workers or temporary help agency staff and for-contract firms, often with well-known names such as Uber, Lyft and Airbnb.

Scott Walchek, founding chairman and CEO, Trōv

The number of Americans owning a drone is also increasing — one recent survey suggested as much as one in 12 of the population — sparking vigorous debate on how regulation should apply to where and when the devices operate.

Add to this other 21st century societal changes, such as consumers’ appetite for other electronic gadgets and the advent of autonomous vehicles. It’s clear that the cover offered by the annually renewable traditional insurance policy is often not fit for purpose. Helped by the sophistication of insurance technology, the response has been an expanding range of ‘on-demand’ covers.

The term ‘on-demand’ is open to various interpretations. For Scott Walchek, founding chairman and CEO of pioneering on-demand insurance platform Trōv, it’s about “giving people agency over the items they own and enabling them to turn on insurance cover whenever they want for whatever they want — often for just a single item.”

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“On-demand represents a whole new behavior and attitude towards insurance, which for years has very much been a case of ‘get it and forget it,’ ” said Walchek.

Trōv’s mobile app enables users to insure just a single item, such as a laptop, whenever they wish and to also select the period of cover required. When ready to buy insurance, they then snap a picture of the sales receipt or product code of the item they want covered.

Welcoming Trōv: A New On-Demand Arrival

While Walchek, who set up Trōv in 2012, stressed it’s a technology company and not an insurance company, it has attracted industry giants such as AXA and Munich Re as partners. Trōv began the U.S. roll-out of its on-demand personal property products this summer by launching in Arizona, having already established itself in Australia and the United Kingdom.

“Australia and the UK were great testing grounds, thanks to their single regulatory authorities,” said Walchek. “Trōv is already approved in 45 states, and we expect to complete the process in all by November.

“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group.” – Scott Walchek, founding chairman and CEO, Trōv

“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group,” he added.

“But a mass of tectonic societal shifts is also impacting older generations — on-demand cover fits the new ways in which they work, particularly the ‘untethered’ who aren’t always in the same workplace or using the same device. So we see on-demand going into societal lifestyle changes.”

Wooing Baby Boomers

In addition to its backing for Trōv, across the Atlantic, AXA has partnered with Insurtech start-up By Miles, launching a pay-as-you-go car insurance policy in the UK. The product is promoted as low-cost car insurance for drivers who travel no more than 140 miles per week, or 7,000 miles annually.

“Due to the growing need for these products, companies such as Marmalade — cover for learner drivers — and Cuvva — cover for part-time drivers — have also increased in popularity, and we expect to see more enter the market in the near future,” said AXA UK’s head of telematics, Katy Simpson.

Simpson confirmed that the new products’ initial appeal is to younger motorists, who are more regular users of new technology, while older drivers are warier about sharing too much personal information. However, she expects this to change as on-demand products become more prevalent.

“Looking at mileage-based insurance, such as By Miles specifically, it’s actually older generations who are most likely to save money, as the use of their vehicles tends to decline. Our job is therefore to not only create more customer-centric products but also highlight their benefits to everyone.”

Another Insurtech ready to partner with long-established names is New York-based Slice Labs, which in the UK is working with Legal & General to enter the homeshare insurance market, recently announcing that XL Catlin will use its insurance cloud services platform to create the world’s first on-demand cyber insurance solution.

“For our cyber product, we were looking for a partner on the fintech side, which dovetailed perfectly with what Slice was trying to do,” said John Coletti, head of XL Catlin’s cyber insurance team.

“The premise of selling cyber insurance to small businesses needs a platform such as that provided by Slice — we can get to customers in a discrete, seamless manner, and the partnership offers potential to open up other products.”

Slice Labs’ CEO Tim Attia added: “You can roll up on-demand cover in many different areas, ranging from contract workers to vacation rentals.

“The next leap forward will be provided by the new economy, which will create a range of new risks for on-demand insurance to respond to. McKinsey forecasts that by 2025, ecosystems will account for 30 percent of global premium revenue.

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“When you’re a start-up, you can innovate and question long-held assumptions, but you don’t have the scale that an insurer can provide,” said Attia. “Our platform works well in getting new products out to the market and is scalable.”

Slice Labs is now reviewing the emerging markets, which aren’t hampered by “old, outdated infrastructures,” and plans to test the water via a hackathon in southeast Asia.

Collaboration Vs Competition

Insurtech-insurer collaborations suggest that the industry noted the banking sector’s experience, which names the tech disruptors before deciding partnerships, made greater sense commercially.

“It’s an interesting correlation,” said Slice’s managing director for marketing, Emily Kosick.

“I believe the trend worth calling out is that the window for insurers to innovate is much shorter, thanks to the banking sector’s efforts to offer omni-channel banking, incorporating mobile devices and, more recently, intelligent assistants like Alexa for personal banking.

“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.”

As with fintechs in banking, Insurtechs initially focused on the retail segment, with 75 percent of business in personal lines and the remainder in the commercial segment.

“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.” — Emily Kosick, managing director, marketing, Slice

Those proportions may be set to change, with innovations such as digital commercial insurance brokerage Embroker’s recent launch of the first digital D&O liability insurance policy, designed for venture capital-backed tech start-ups and reinsured by Munich Re.

Embroker said coverage that formerly took weeks to obtain is now available instantly.

“We focus on three main issues in developing new digital business — what is the customer’s pain point, what is the expense ratio and does it lend itself to algorithmic underwriting?” said CEO Matt Miller. “Workers’ compensation is another obvious class of insurance that can benefit from this approach.”

Jason Griswold, co-founder and chief operating officer of Insurtech REIN, highlighted further opportunities: “I’d add a third category to personal and business lines and that’s business-to-business-to-consumer. It’s there we see the biggest opportunities for partnering with major ecosystems generating large numbers of insureds and also big volumes of data.”

For now, insurers are accommodating Insurtech disruption. Will that change?

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“Insurtechs have focused on products that regulators can understand easily and for which there is clear existing legislation, with consumer protection and insurer solvency the two issues of paramount importance,” noted Shawn Hanson, litigation partner at law firm Akin Gump.

“In time, we could see the disruptors partner with reinsurers rather than primary carriers. Another possibility is the likes of Amazon, Alphabet, Facebook and Apple, with their massive balance sheets, deciding to link up with a reinsurer,” he said.

“You can imagine one of them finding a good Insurtech and buying it, much as Amazon’s purchase of Whole Foods gave it entry into the retail sector.” &

Graham Buck is a UK-based writer and has contributed to Risk & Insurance® since 1998. He can be reached at riskletters.com.