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.


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.


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.


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

Exclusive | Hank Greenberg on China Trade, Starr’s Rapid Growth and 100th, Spitzer, Schneiderman and More

In a robust and frank conversation, the insurance legend provides unique insights into global trade, his past battles and what the future holds for the industry and his company.
By: | October 12, 2018 • 12 min read

In 1960, Maurice “Hank” Greenberg was hired as a vice president of C.V. Starr & Co. At age 35, he had already accomplished a great deal.

He served his country as part of the Allied Forces that stormed the beaches at Normandy and liberated the Nazi death camps. He fought again during the Korean War, earning a Bronze Star. He held a law degree from New York Law School.


Now he was ready to make his mark on the business world.

Even C.V. Starr himself — who hired Mr. Greenberg and later hand-picked him as the successor to the company he founded in Shanghai in 1919 — could not have imagined what a mark it would be.

Mr. Greenberg began to build AIG as a Starr subsidiary, then in 1969, he took it public. The company would, at its peak, achieve a market cap of some $180 billion and cement its place as the largest insurance and financial services company in history.

This month, Mr. Greenberg travels to China to celebrate the 100th anniversary of C.V. Starr & Co. That visit occurs at a prickly time in U.S.-Sino relations, as the Trump administration levies tariffs on hundreds of billions of dollars in Chinese goods and China retaliates.

In September, Risk & Insurance® sat down with Mr. Greenberg in his Park Avenue office to hear his thoughts on the centennial of C.V. Starr, the dynamics of U.S. trade relationships with China and the future of the U.S. insurance industry as it faces the challenges of technology development and talent recruitment and retention, among many others. What follows is an edited transcript of that discussion.

R&I: One hundred years is quite an impressive milestone for any company. Celebrating the anniversary in China signifies the importance and longevity of that relationship. Can you tell us more about C.V. Starr’s history with China?

Hank Greenberg: We have a long history in China. I first went there in 1975. There was little there, but I had business throughout Asia, and I stopped there all the time. I’d stop there a couple of times a year and build relationships.

When I first started visiting China, there was only one state-owned insurance company there, PICC (the People’s Insurance Company of China); it was tiny at the time. We helped them to grow.

I also received the first foreign life insurance license in China, for AIA (The American International Assurance Co.). To date, there has been no other foreign life insurance company in China. It took me 20 years of hard work to get that license.

We also introduced an agency system in China. They had none. Their life company employees would get a salary whether they sold something or not. With the agency system of course you get paid a commission if you sell something. Once that agency system was installed, it went on to create more than a million jobs.

R&I: So Starr’s success has meant success for the Chinese insurance industry as well.

Hank Greenberg: That’s partly why we’re going to be celebrating that anniversary there next month. That celebration will occur alongside that of IBLAC (International Business Leaders’ Advisory Council), an international business advisory group that was put together when Zhu Rongji was the mayor of Shanghai [Zhu is since retired from public life]. He asked me to start that to attract foreign companies to invest in Shanghai.

“It turns out that it is harder [for China] to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

Shanghai and China in general were just coming out of the doldrums then; there was a lack of foreign investment. Zhu asked me to chair IBLAC and to help get it started, which I did. I served as chairman of that group for a couple of terms. I am still a part of that board, and it will be celebrating its 30th anniversary along with our 100th anniversary.


We have a good relationship with China, and we’re candid as you can tell from the op-ed I published in the Wall Street Journal. I’m told that my op-ed was received quite well in China, by both Chinese companies and foreign companies doing business there.

On August 29, Mr. Greenberg published an opinion piece in the WSJ reminding Chinese leaders of the productive history of U.S.-Sino relations and suggesting that Chinese leaders take pragmatic steps to ease trade tensions with the U.S.

R&I: What’s your outlook on current trade relations between the U.S. and China?

Hank Greenberg: As to the current environment, when you are in negotiations, every leader negotiates differently.

President Trump is negotiating based on his well-known approach. What’s different now is that President Xi (Jinping, General Secretary of the Communist Party of China) made himself the emperor. All the past presidents in China before the revolution had two terms. He’s there for life, which makes things much more difficult.

R&I: Sure does. You’ve got a one- or two-term president talking to somebody who can wait it out. It’s definitely unique.

Hank Greenberg: So, clearly a lot of change is going on in China. Some of it is good. But as I said in the op-ed, China needs to be treated like the second largest economy in the world, which it is. And it will be the number one economy in the world in not too many years. That means that you can’t use the same terms of trade that you did 25 or 30 years ago.

They want to have access to our market and other markets. Fine, but you have to have reciprocity, and they have not been very good at that.

R&I: What stands in the way of that happening?

Hank Greenberg: I think there are several substantial challenges. One, their structure makes it very difficult. They have a senior official, a regulator, who runs a division within the government for insurance. He keeps that job as long as he does what leadership wants him to do. He may not be sure what they want him to do.

For example, the president made a speech many months ago saying they are going to open up banking, insurance and a couple of additional sectors to foreign investment; nothing happened.

The reason was that the head of that division got changed. A new administrator came in who was not sure what the president wanted so he did nothing. Time went on and the international community said, “Wait a minute, you promised that you were going to do that and you didn’t do that.”

So the structure is such that it is very difficult. China can’t react as fast as it should. That will change, but it is going to take time.

R&I: That’s interesting, because during the financial crisis in 2008 there was talk that China, given their more centralized authority, could react more quickly, not less quickly.

Hank Greenberg: It turns out that it is harder to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.

R&I: Obviously, you have a very unique perspective and experience in China. For American companies coming to China, what are some of the current challenges?


Hank Greenberg: Well, they very much want to do business in China. That’s due to the sheer size of the country, at 1.4 billion people. It’s a very big market and not just for insurance companies. It’s a whole range of companies that would like to have access to China as easily as Chinese companies have access to the United States. As I said previously, that has to be resolved.

It’s not going to be easy, because China has a history of not being treated well by other countries. The U.S. has been pretty good in that way. We haven’t taken advantage of China.

R&I: Your op-ed was very enlightening on that topic.

Hank Greenberg: President Xi wants to rebuild the “middle kingdom,” to what China was, a great country. Part of that was his takeover of the South China Sea rock islands during the Obama Administration; we did nothing. It’s a little late now to try and do something. They promised they would never militarize those islands. Then they did. That’s a real problem in Southern Asia. The other countries in that region are not happy about that.

R&I: One thing that has differentiated your company is that it is not a public company, and it is not a mutual company. We think you’re the only large insurance company with that structure at that scale. What advantages does that give you?

Hank Greenberg: Two things. First of all, we’re more than an insurance company. We have the traditional investment unit with the insurance company. Then we have a separate investment unit that we started, which is very successful. So we have a source of income that is diverse. We don’t have to underwrite business that is going to lose a lot of money. Not knowingly anyway.

R&I: And that’s because you are a private company?

Hank Greenberg: Yes. We attract a different type of person in a private company.

R&I: Do you think that enables you to react more quickly?

Hank Greenberg: Absolutely. When we left AIG there were three of us. Myself, Howie Smith and Ed Matthews. Howie used to run the internal financials and Ed Matthews was the investment guy coming out of Morgan Stanley when I was putting AIG together. We started with three people and now we have 3,500 and growing.

“I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

R&I:  You being forced to leave AIG in 2005 really was an injustice, by the way. AIG wouldn’t have been in the position it was in 2008 if you had still been there.


Hank Greenberg: Absolutely not. We had all the right things in place. We met with the financial services division once a day every day to make sure they stuck to what they were supposed to do. Even Hank Paulson, the Secretary of Treasury, sat on the stand during my trial and said that if I’d been at the company, it would not have imploded the way it did.

R&I: And that fateful decision the AIG board made really affected the course of the country.

Hank Greenberg: So many people lost all of their net worth. The new management was taking on billions of dollars’ worth of risk with no collateral. They had decimated the internal risk management controls. And the government takeover of the company when the financial crisis blew up was grossly unfair.

From the time it went public, AIG’s value had increased from $300 million to $180 billion. Thanks to Eliot Spitzer, it’s now worth a fraction of that. His was a gross misuse of the Martin Act. It gives the Attorney General the power to investigate without probable cause and bring fraud charges without having to prove intent. Only in New York does the law grant the AG that much power.

R&I: It’s especially frustrating when you consider the quality of his own character, and the scandal he was involved in.

In early 2008, Spitzer was caught on a federal wiretap arranging a meeting with a prostitute at a Washington Hotel and resigned shortly thereafter.

Hank Greenberg: Yes. And it’s been successive. Look at Eric Schneiderman. He resigned earlier this year when it came out that he had abused several women. And this was after he came out so strongly against other men accused of the same thing. To me it demonstrates hypocrisy and abuse of power.

Schneiderman followed in Spitzer’s footsteps in leveraging the Martin Act against numerous corporations to generate multi-billion dollar settlements.

R&I: Starr, however, continues to thrive. You said you’re at 3,500 people and still growing. As you continue to expand, how do you deal with the challenge of attracting talent?

Hank Greenberg: We did something last week.

On September 16th, St. John’s University announced the largest gift in its 148-year history. The Starr Foundation donated $15 million to the school, establishing the Maurice R. Greenberg Leadership Initiative at St. John’s School of Risk Management, Insurance and Actuarial Science.

Hank Greenberg: We have recruited from St. John’s for many, many years. These are young people who want to be in the insurance industry. They don’t get into it by accident. They study to become proficient in this and we have recruited some very qualified individuals from that school. But we also recruit from many other universities. On the investment side, outside of the insurance industry, we also recruit from Wall Street.

R&I: We’re very interested in how you and other leaders in this industry view technology and how they’re going to use it.

Hank Greenberg: I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.

R&I: So as the pre-eminent leader of the insurance industry, what do you see in terms of where insurance is now and where it’s going?

Hank Greenberg: The country and the world will always need insurance. That doesn’t mean that what we have today is what we’re going to have 25 years from now.

How quickly the change comes and how far it will go will depend on individual companies and individual countries. Some will be more brave than others. But change will take place, there is no doubt about it.


More will go on in space, there is no question about that. We’re involved in it right now as an insurance company, and it will get broader.

One of the things you have to worry about is it’s now a nuclear world. It’s a more dangerous world. And again, we have to find some way to deal with that.

So, change is inevitable. You need people who can deal with change.

R&I:  Is there anything else, Mr. Greenberg, you want to comment on?

Hank Greenberg: I think I’ve covered it. &

The R&I Editorial Team can be reached at [email protected]