My company has already hired lawyers and is involved in coverage litigation; will the DRM process add any value to our effort to recover from the insurers which we have sued?
Many DRM clients have undertaken parallel litigation tracks, although our clients are often able to avoid active litigation or hold that effort in abeyance while resolution is pursued through the DRM process. We are experienced in coordinating our efforts with on-going litigation. We believe (and our experience bears out) that separation of the confrontational and resolutional modes (that is, the litigation and settlement process) invariably results in a substantially more productive resolution process. Those who spend their days waging war are not properly positioned to conduct peace talks. This is true for many reasons. The DRM structured resolution methodology is particularly meaningful in the middle of heated litigation.
We have already looked for our old insurance policies, but we can’t find them. How can my company find old policies?
There is no substitute for experienced policy archaeology. The problem of missing or lost coverage is not unusual. We know the obscure places where evidence of coverage may be hiding. We can access information held by Lloyd’s of London and broker sources. We know where evidence of coverage lurks in historical accounting records. Archival evidence of coverage may be found in executive, risk management, legal and other files. Insurers may deny that they have evidence of coverage, but they may possess secondary evidence of coverage. If you do not ask the right questions, you will not get any help from the insurers. Of course, sometimes all evidence of coverage is gone, and if that is true, then nothing can be done. However, in our experience, most coverage can be uncovered by our experienced DRM team.
How long will it take for the DRM process to resolve the claim dispute?
It will depend on the complexity of your case, and to some degree will depend upon the insurers involved. In the usual case, it will take DRM five to six months to prepare the case for submission to insurers, another two to three months to complete the briefing of presentations to all key insurers. After that, it will usually take six months to a year to complete negotiations. Some cases may take more or less time. By way of contrast, litigation to conclusion can take five to six YEARS, depending upon the court system involved.
How does DRM charge for its services?
DRM has developed an innovative approach to fees for the ADR process. The usual engagement includes a modest fixed monthly retainer and a lump sum fee paid upon resolution of the claim with each insurer dispute. The lump sum fee is determined based upon the complexity of the dispute resolution effort and the value received through the effort by your company. DRM will agree in advance to a maximum percentage of recovery, and will commit that the lump sum payment upon conclusion will not exceed that percentage of recovery. Your company would also pay out-of-pocket expenses incurred by DRM in furtherance of the engagement. We believe that this fee structure provides a system of incentives which are optimal. Your company and DRM both benefit from a quick, successful dispute resolution effort.
Will our effort to quantify the future cost of clean-up for the purpose of the insurance claim impact our financial disclosure requirements; won’t our auditors want to record reserves for that amount?
This is one of the most commonly expressed concerns. In fact, if the amount of the claim for future remediation were required to be recorded for reserves, virtually no companies would be undertaking such claims. Claims for future amounts as put forward in the DRM process do not involve GAAP issues relating to recognition of liability. Claims for future remediation costs are identified and expressed in the DRM process as future risks, not future liabilities. Of course, there may be some portion of the future risk which has already been identified by your company as a liability pursuant to the separate GAAP process. Those amounts may be included in the future component of the claim submission. As to those potential future costs which have not risen to the level of a recognizable liability pursuant to GAAP, DRM will demonstrate to the insurers that there is risk which must be considered in the claim evaluation and settlement process.
Which environmental clean-up costs can I recover from my insurers through the DRM process?
Generally, coverage may be available for liability associated with damage to the environment during past years. This means that today's cost of cleaning up damage done by yesterday's activities may be covered. The cost of on-going compliance with environmental regulations, such as the avoidance or treatment of current operation discharges, will usually not be covered. Legal expenses associated with covered clean-up costs may also be insured. It is important to inventory all known and potential sites and examine all costs associated with environmental regulation to determine which constitute liability for occurrences during old-year policy periods.
Can I recover reclamation costs through DRM?
It depends. Some portion of current reclamation requirements will usually address remediation of damage from historical operations. Where the legal clean-up requirements were not in place at the time of those operations, that portion of the remediation cost which is associated with clean-up of past pollution may be covered.
What percentage of my company's clean-up costs will I be able to recover through the DRM process?
The claim certainly must be discounted to achieve the compromise necessary to resolve the dispute without litigation. The insurers assert many defenses, and a compromise must recognize these defenses. The amount of such discount will depend upon several factors, including the ability to find old policies, the terms of old policies (including the amount of total coverage), the history of the operations that created the pollution being remediated, and other considerations relating to the strength of the insurer defenses. Each case is unique. In our experience, total settlements can range from ten to fifty percent of the total clean-up liability, depending upon the various factors. Some settlements will also fall outside those normal ranges.
We don’t know yet what the cost of our clean-up liability will be; how can we settle our claim if we don’t know how much we’re going to spend?
If reasonable estimates of future costs have been prepared by your company or your environmental consultants, those may suffice to allow an insurer to settle claims. If not, DRM will apply a risk exposure analysis to evaluate and demonstrate the extent of future cost risks. The selected risk exposure model will consider hypothetical remediation choices based upon known data and sequenced probability “not to exceed” assumptions. The identification of possible remediation alternatives (and associated costs) may require the engagement of engineering services. It is our experience that insurers are able to consider such risk exposure models and to resolve claims based upon such analysis.
The law regarding environmental insurance is particularly bad in my state; is there any reason to try to recover environmental costs when the case law is so adverse?
You will need to rely on legal counsel to tell you what case law will apply to your case. It is our experience, however, that most cases will involve choices with regard to venue and applicable law. For example, the case law in the state of your insurers’ residence may be more favorable. The issue of venue and controlling case law is another risk factor which may impact the settlement value of your environmental claim. There are very few cases where there are not several possible choices of controlling law. The issue should not preclude a compromised resolution to the claim.
How does DRM deal with multiple remediation sites?
An effective method for dealing with multiple sites is to bundle all possible risks, liabilities and damages into a single claim settlement. We usually recommend a company to assemble as many parts of the total environmental claim as possible for inclusion in the recovery effort. Insurers tend to pay a premium if they can eliminate all potential environmental claims associated with your company. They will always ask that you provide a “policy buy-back,” that is, a complete release of their policies for all past and future known and unknown risks. In some instances, there may be advantages to your company to agree to such terms. DRM can help you decide whether the policy buy-back approach is beneficial to your company.
Is there any risk that the insurers will raise our premiums in future years by reason of a claim for reimbursement for environmental costs?
There is, of course, no guarantee that your company’s premium cost will not rise in the future; in all likelihood, it will go up whether or not you make a claim for clean-up costs. We do not believe, however, that your claim will be the cause of such change. Insurers are facing huge exposure for these costs already, and that will cause your premium to go up. Most major U.S. property-casualty insurance carriers have reserved upwards of a billion dollars for this sort of liability. Lloyd’s of London has reserves in excess of $14 billion for environmental costs. We think that it is important for your company to determine whether it is going to pursue a share of those monies. And, if it would be helpful to your company to talk to risk managers at some of our clients, we can give you appropriate references.