Insurance Jottings

Lloyd’s outlines plans to reopen underwriting room mid-April

Lloyd’s has set out plans to reopen the underwriting room the week commencing the 12^th April ahead of the UK government’s update on the roadmap out of lockdown next week., (beginning the 22^nd April)

150 Years of Spills: Philadelphia Refinery Clean-up Reveals Toxic Legacy of Fossil Fuels

Wearing blue hard hats, white hazmat suits and respirator masks, workers carted away bags of debris on a recent morning from a sprawling and now-defunct oil refinery once operated by Philadelphia Energy Solutions (PES).

Other labourers ripped asbestos from the guts of an old boiler house, part of a massive demolition and redevelopment of the plant, which closed in 2019 after a series of explosions at the facility.

Plans call for the nearly 1,400-acre site to be transformed into a new commercial hub with warehousing and offices. All it will take is a decade, hundreds of millions of dollars, and confronting 150 years’ worth of industrial pollution, including buried rail cars and a poisonous stew of waste fuels poured onto the ground.

A US refinery clean-up of this size and scope has no known precedent, remediation experts said. It’s a glimpse of what lies ahead if the United States hopes to wean itself off fossil fuels and clean up the toxic legacy of oil, gas and coal.

President Joe Biden wants to bring the United States to net-zero greenhouse gas emissions by 2050 to fight climate change through a shift to clean-energy technologies, while reducing pollution in low-income and minority neighbourhoods near industrial facilities.

It’s a transition fraught with challenges. Among the biggest is what to do with the detritus left behind. The old PES plant is just one of approximately 135 oil refineries nationwide, to say nothing of the country’s countless gas stations, pipelines, storage hubs, drill pads and other greying energy infrastructure.

In recent months, at least six other large US oil refineries – from New Jersey to California – have announced they will close or cease oil refining as the coronavirus pandemic has sapped global fuel demand.

“The energy transition will require massive attention to both new infrastructure and addressing aging or outdated systems,” said Morgan Bazilian, director of the Payne School of Public Policy at the Colorado School of Mines.

In Philadelphia, a private-sector company is taking the lead. Hilco Redevelopment Partners, a real estate firm which specialises in renovating old industrial properties, bought the PES refinery out of bankruptcy for US$225.5 million in June.

Asbestos abatement alone will require four years to complete, said Roberto Perez, chief executive of the Chicago-based company. “There’s enough pipeline to connect you from here to Florida, and the majority of that pipeline today is wrapped in asbestos,” he said.

The full extent of the pollution won’t be understood for years. Also uncertain is the ability of the refinery’s previous owners to pay their share of the clean-up. The facility has had multiple owners over its lifetime and responsibility has been divided between them through business agreements and legal settlements.

A lot is riding on the outcome. Transformation of the refinery, the oldest and largest on the US East Coast, could bring jobs to a low-income, racially diverse neighbourhood which needs them.

But residents also want a say in how the work proceeds after enduring the brunt of the refinery’s pollution. Some complained about feeling shut out of the process during a recent virtual public meeting organised by companies involved in the clean-up.

The refinery’s previous owner, Sunoco Inc, had gone years without holding city-mandated public meetings about pollution at the site.

Evergreen Resources Group, LLC, a subsidiary of Sunoco’s parent company, Energy Transfer LP, which is in charge of managing a share of the clean-up, declined to comment on the lapse in meetings. It pointed to a website it launched last year to engage with the public about the project.

Hilco’s Perez has no illusions about the work ahead. “This is a very heavy lift,” he said. “It’s probably one of the most complicated things I’ve ever done.”

Surprises in a toxic soup

Oil refining at the Philadelphia site began in 1870, 100 years before the creation of the US Environmental Protection Agency (EPA). Gasoline, once a worthless by-product of heating oil, was routinely dumped by the refinery into the soil, according to historians and researchers. Leaks and accidents spewed more toxins. The June 2019 blasts alone released 676,000 pounds of hydrocarbons, PES said at the time.

The Philadelphia site is not unique. About half of America’s 450,000 polluted former industrial and commercial sites are contaminated with petroleum, according to the EPA.

“That’s one of the reasons why a lot of these refineries have been kept going for such a long time,” said Fred Quivik, a Minnesota-based industrial historian. “They’re so contaminated, it’s hard to figure out what else to do with them.”

Clean up in Philadelphia will be painstaking. After asbestos abatement comes the demolition and removal of 3,000 tanks and vessels, along with more than 100 buildings and other infrastructure, the company said.

Then comes the ground itself. Hilco’s Perez said dirt quality varies widely on the site and will have to be handled differently depending on contamination levels. Clearing toxins like lead must be done with chemical rinses or other technologies, said Charles Haas, professor of environmental engineering at Drexel University in Philadelphia.

The site also has polluted groundwater and giant benzene pools lurking underneath, according to environmental reports Sunoco filed over the years with the federal and state governments.

Mr Perez, Hilco’s chief executive, said clean energy will be a centrepiece of the final project. The warehouse complex, for example, will aim to feature charging stations for a fleet of electric delivery vehicles, he said.

The company is also considering a hotel, residential homes, and a restaurant on the site, two people familiar with the plans said.

The project is expected to take 10 to 15 years to finish. Clean up and construction are projected to create about 13,000 jobs, the company said, with another 19,000 jobs tied to warehousing, offices and transporting goods.

Picking up the bill

The final price tag is unclear.

The development’s fate hinges on previous polluters paying their fair share. The site, founded by the Atlantic Refining Company, later known as ARCO, has cycled through several owners.

Sunoco, which owned the refinery for about two decades, sold its majority stake in 2012 to Carlyle Group Inc, which later formed PES. That deal stipulated that Sunoco assume all environmental liabilities dating to the plant’s inception in the 1800s. Energy Transfer, which bought Sunoco the same year as the refinery sale, now shoulders that burden.

Dallas-based Energy Transfer has US$205 million in insurance to cover all of Sunoco’s decommissioned sites, including PES, according to the company’s filings with the Securities and Exchange Commission.

Amanda Goodin, a lawyer with the environmental group Earthjustice who has litigated major environmental clean-up cases, said comparable projects, such as clearing shuttered mining operations, can run into the billions of dollars.

“These clean-ups are just enormously expensive, and companies basically never set aside enough money to fully remediate a site,” Ms Goodin said.

Energy Transfer would not say how much it expects its share of the PES refinery clean-up to

cost, but spokeswoman Vicki Granado said it is “fully funded.”

Hilco, as part of its 2020 purchase of PES, assumed liabilities tied to the last eight years of the refinery’s life, a tab it estimates will amount to “hundreds of millions” of dollars. The company declined to be more specific, but said it believes it has the funds for the job.

The Pennsylvania Department of Environmental Protection said it has consent orders against Sunoco and Hilco that enable the regulator to sue the companies if they attempt to walk away, spokeswoman Virginia Cain said.

Environmental Justice

Abdul Muhammad, 34, who lives near the Philadelphia refinery, says life has improved since it shut down. His asthmatic baby son now sleeps through the night, while his wife’s chronic headaches have become less frequent.

“I just don’t want chemicals and environmentally contaminated things going in and out of there,” he said of his wishes for the site.

Philly Thrive, a community activist group, has been pressuring Hilco and city officials to ensure that neighbourhood residents have a say in the clean-up and redevelopment.

Some of their hopes rest with the Biden administration, which has committed to direct 40% of any federal clean-energy investment to communities most impacted by industrial pollution.

But whether climate legislation emerges from a divided Congress remains to be seen.

Philadelphia officials hope PES can become a model for refinery clean-ups elsewhere. Kenyatta Johnson, a city councilman who represents neighbourhoods surrounding the facility, sees a healthy, more prosperous community emerging from its toxic shadow.

“Some may deem the site a health hazard and eyesore, but nevertheless it’s an opportunity,” Mr Johnson said.

UK Supreme Court Allows Suit Against Shell by Nigerian Farmers, Fishermen Over Oil Spills

On the 12^th February the UK Supreme Court allowed a group of 42,500 Nigerian farmers and fishermen to sue Royal Dutch Shell in English courts after years of oil spills in the Niger Delta contaminated land and groundwater.

Senior judges said UK-domiciled Shell, one of the world’s biggest energy companies, did have a common law duty of care, in the latest case to test whether multinationals can be held to account for the acts of overseas subsidiaries.

The ruling comes almost two years after a seminal ruling by the Supreme Court in a case involving mining company Vedanta. The judgment allowed nearly 2,000 Zambian villagers to sue Vedanta in England for alleged pollution in Africa.

That move was seen as a victory for rural communities seeking to hold parent companies accountable for environmental disasters. Vedanta ultimately settled out of court in January.

Nigeria’s Ogale and Bille communities allege their lives and health have suffered because repeated oil spills have contaminated the land, swamps, groundwater and waterways and that there has been no adequate cleaning or remediation.

Represented by law firm Leigh Day, they argued that Shell owed them a duty of care because it either had significant control of, and was responsible for, its subsidiary SPDC.

Shell countered that the court had no jurisdiction to try the claims.

“The ruling also represents a watershed moment in the accountability of multinational companies. Increasingly impoverished communities are seeking to hold powerful corporate actors to account and this judgment will significantly increase their ability to do so,” Daniel Leader, partner at Leigh Day, said.

SPDC is the operator of oil pipelines in a joint venture between the Nigerian National Petroleum Corporation which holds a 55% stake, Shell which holds 30%, France’s Total with 10%, Italy’s Eni with 5%.

A Shell spokesman said the decision was disappointing.

“Regardless of the cause of a spill, SPDC cleans up and remediates. It also works hard to prevent these sabotage spills, by using technology, increasing surveillance and by promoting alternative livelihoods for those who might damage pipes and equipment,” Shell said.

Shell has blamed sabotage for oil spills. It said in its annual report published last March that SPDC, which produces around one million barrels of oil per day, saw crude oil spills caused by theft or pipeline sabotage surge by 41% in 2019.

Shell CEO Ben van Beurden said last week that the firm would take “another hard look at its onshore oil operations” in the west African country.

The ruling is the second judgment against Shell this year regarding claims against its Nigerian operations. In a landmark Dutch ruling two weeks earlier, an appeals court held Shell responsible for multiple oil pipeline leaks in the Niger Delta and ordered it to pay unspecified damages to farmers, in a victory for environmentalists.

Leigh Day said that the amount of compensation sought would be quantified as the case enters the trial stage.

In 2015, Shell agreed to pay out £55 million (US$83.4 million) to the Bodo community in Nigeria in compensation for two oil spills, which was the largest ever out-of-court settlement relating to Nigerian oil spills.

UK Company Directors Could Become Personally Liable for Financial Statements

Company directors would become personally liable for the accuracy of their financial statements under landmark proposals from Britain’s finance ministry next week to improve corporate behaviour, sources familiar with the plans said on the 5^th February.

Directors would have to vouch for the accuracy of financial statements in a version of the Sarbanes-Oxley regime introduced in the United States to crack down on accounting fraud after energy company Enron collapsed, the sources said.

“We think this is a good thing and I would expect it to have teeth, but I don’t expect it to be a wholesale transplant from the US,” said Michael Izza, chief executive of ICAEW, an accounting body.

Currently, liability for the accuracy of corporate financial statements rests with the company.

Britain’s business ministry is expected to publish long-awaited reforms to raise quality and competition in company audits after a string of collapses and accounting scandals at companies such as retailer BHS, builder Carillion and cafe chain Patisserie Valerie.

Three government-backed reviews of the audit market set out 150 recommendations to boost competition in audit and strengthen supervision of accountants to improve standards by setting up a more powerful regulator, the Audit, Reporting and Governance Authority or ARGA.

Legislation is needed to implement some of the key recommendations, but parliamentary time has been clogged by Brexit and COVID-19 for the past two years or more.

“The government has accepted the findings of three independent reviews into audit and corporate reporting, and is committed to acting on their recommendations,” the business ministry said on the 5^th February, adding that comprehensive proposals would be published shortly.

A 200-page paper will be put out to a four-month public consultation, the sources said.

It is expected to ask whether all directors of a company should be made equally responsible – currently the focus is on the chief executive and chief financial officers – raising risks for directors.

“I think people holding very many company directorships will be a thing of the past,” Mr Izza said.

The consultation is expected to propose “managed shared audits” or a smaller auditor like BDO, Mazars or Grant Thornton auditing some operations of a blue-chip company to get more experience.

It could also toughen up rules on “capital maintenance,” such as by ensuring that companies have enough cash to pay any dividends, after Carillion went bust just months after announcing pay-outs.

So-called operational separation of audit and advisory work underway on a voluntary basis at the “Big Four” accounting firms – Deloitte, EY, KPMG and PwC – could be extended to the next tier down of auditors, the sources said.