New Risks Facing Directors and Officers around Environmental Liability

By: Brianna Scarfo

Corporate directors and officers are finding themselves liable for the companies they oversee – making environmental management more important than ever.

A number of high profile and high cost environmental related claims have recently been made against company directors and officers nationwide:

  • In April 2015, allegations against Florida-based Rayonier Advanced Materials, Inc. and its directors and officers, claimed there was insufficient investor disclosure about the company’s environmental remediation and related obligations. The suit, Oklahoma Firefighters Pension & Retirement System et al. v. Rayonier Advanced Materials Inc. et al,took place right after the company’s January announcement that it had increased environmental reserves by $69 million for formerly owned sites.
  • According to company regulatory filings, six shareholder derivative suits were filed in October 2014 against North Carolina-based Duke Energy Corp. over their release of approximately 39,000 tons of coal ash into the Dan River from their coal-fired power plant.
  • According to the D&O Diary, former directors of bankrupt Northstar Aerospace have agreed to pay a total of $CAN 4.75 million to the Ontario environmental regulator to remediate the company’s environmental contamination.
  • Four former directors from West Virginia-based Freedom Industries pleaded guilty in March 2015 to environmental crimes in connection with a January 2014 chemical spill in the Elk River, involving the release of several thousand gallons of a coal-processing chemical.There is an increasing awareness of the potential risk directors and officers may face for environmental liabilities regarding the companies they oversee, (Business Insurance® June 7, 2015). Executives should ensure their environmental D&O coverage sufficiently protects them from shareholder litigation. Comprehensive management of environmental risks from diligence on mergers and acquisitions through ongoing evaluation and analysis of environmental liabilities and risk management can help protect against claims.

Experts indicate that it is typical for D&O policies to exclude claims for the release of contaminants, causing potential for insurance companies to also file suit against directors and officers. These risks are most often found in connection with an acquisition or divestiture whereby confusion can result in determining whether an environmental liability is truly an environmental claim, or is it an issue associated with the corporate asset valuation. EHS Support advises directors and officers to take the following steps to evaluate whether they have adequate environmental protection with regards to an acquisition or divestiture:

  • Ensure that the environmental due diligence process is exhaustive and covers all potential environmental risks for the transaction
  • Ensure that environmental liabilities are clearly delineated and estimated costs are developed
  • Clearly define environmental liability estimates, develop good estimates on the timing of environmental liabilities and when spending for environmental liabilities is likely to occur

View the full Business Insurance® article.

We also recommend that directors and officers ensure adequate post closure risk management programs are in place to monitor and manage environmental exposures to their organizations.

EHS Support is an environmental consulting firm with offices across the U.S. and internationally. We offer a range of environmental services including merger and acquisition due diligence services, environmental risk management, remediation services, health and safety consulting, environmental compliance services,  and more.

For information on how EHS Support can help you manage corporate environmental liability including those risks faced by directors and officers, please contact Brianna Scarfo or Bruce Martin.

Brianna ScarfoABOUT THE AUTHOR Brianna Scarfo has over five years of hands-on experience in the environmental consulting industry. Her experience includes environmental due diligence including the preparation of Phase I and II Environmental Site Assessments (ESAs) on commercial, residential and industrial properties, the development and implementation of Remedial Action Plans and Stormwater Pollution Prevention Plans, and extensive research and analytical investigation associated with Environmental Impact Assessments… Read More

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