Filling the E-Waste Insurance Gap
The technology industry cultivates a popular impression of itself as “clean,” with products packaged in spotless white boxes, but the manufacture — and ultimate disposal — of these products is far from clean and carries considerable risk.
For example, older circuit boards contain lead, tin, cadmium and mercury, which are regulated as hazardous waste and can cause contamination when released, said Bill McElroy, senior vice president, Liberty International Underwriters. Such contamination is difficult and expensive to remediate.
“We insure our clients against the risk that they make their neighbors sick or contaminate the environment,” he said.
Most e-waste recycling is about getting valuable rare earth minerals out of electronics for reuse in new products.
Less-valuable plastic components and metals are also recovered and recycled, but the unusable waste is landfilled or incinerated, a process that may release gasses into the air or toxins into groundwater.
E-waste recyclers often believe their general liability policies cover any accidental releases, only to find out too late that their total pollution exclusion leaves them liable — and pollution claims tend to be very high-ticket incidents.
“I wouldn’t recommend anyone in the waste management business not have pollution insurance,” McElroy said.
Elizabeth Bannister, managing director, Marsh, suggested that electronics recyclers look hard at the language in their general liability coverage. The standard coverage is likely to include a pollution exclusion that includes “materials to be recycled, reconditioned or reclaimed.”
If that is the situation, she said, such recyclers should consider filling the gap with affirmative coverage for pollution liability.
Recyclers may not understand that insurers define their products as “pollutants” or “hazardous materials,” since the EPA and other regulatory bodies use different definitions, said Ross Fields, manager of the e-waste insurance program, Leavitt Group.
But since recyclers’ business is the waste stream, nearly everything they touch is a “pollutant,” and the insurance industry considers their “product” to be a pollutant until it reaches its final point of destruction or reuse, he said.
These semantic nuances have big implications for potential liability.
The provision in a general liability policy covering “products and completed operations” would not cover bodily injury or property damage arising out of their product: pollution. To address this risk, experts said, a company in electronics recycling needs products pollution liability.
It’s also important for producers of materials to make sure their downstream e-waste recyclers have environmental liability coverage, said Matthew Pateidl, vice president, environmental risk, Lockton.
“Vet your vendors,” he said, noting that he audited an e-waste recycler before recommending it as a partner to his client, an electronics producer.
“If I were a plaintiff in an environmental suit,” he said, “I’d go after the producer. They have deeper pockets than the recycler.”
E-waste recyclers assume some risks that other recyclers don’t, including first- and third-person liability from the contents of computer hard drives.
Many general liability policies have exclusions for intellectual property. This applies to both licensed software, such as Microsoft Office, and to account and customer information.
A lot of big manufacturers, such as Hewlett Packard and Apple, are paying more attention to the end uses of their products and their disposal, said Garick Zillgitt, senior vice president, primary casualty & surety, environmental, Rockhill Insurance.
For example, a recycler can’t resell computers to the public still loaded with ongoing licensed software products or operating systems without risking sanctions from the owners of the intellectual property.
Producers and recyclers also face first- and third-party liability risks for data that ends up in the wrong hands.
“Is it your data? Do you want your competitors to see it?” asked Matt Gartner, assistant vice president of underwriting, XL Insurance.
And if a company fails to destroy customer information such as credit card numbers from a computer sent to a recycler, it is liable even if the recycler is contractually obliged to destroy data.
This is a particular concern to producers, since up to 70 percent to 80 percent of putatively recycled e-waste is actually sent intact to developing countries, according to the Basel Action Network (BAN). The licensed software still loaded on these computers can be used illegally and confidential data mined and exploited.
Gartner advises companies that recycle computers to make sure their recycling vendor provides data destruction or do it themselves. A lot of bigger companies that are more aware of data theft send someone to the recycler’s site to observe shredding of hard drives, he said.
“They ship hard drives separately, sometimes in armored vehicles, and security stands there and watches them be destroyed. Shredding hard drives is an important part of the recycling industry.”
The two certification programs specific to electronics recyclers, the Environmental Protection Agency’s R2/RIOS (Responsible Recycling/Recycling Industry Operating Standard) and the Basel Action Network’s (BAN) e-Stewards, both include procedures to protect data.
Recyclers that earn the certificates use those assurances as a marketing tool to differentiate themselves from other recyclers.