What the Pending Updates to ASTM-E1527 May Mean for Environmental Insurance
By R. Ivy Riggs, CPCU, ASLI, AIS
No doubt many people are eagerly anticipating the end of 2020 and its many uncertainties. But at least one thing that remains uncertain for 2021 is exactly what will be changed by the pending revisions to the ASTM standard governing Phase I Environmental Site Assessments. Whether your clients include consultants who write these assessments or property owners and investors who rely upon them, having a good grasp of the basics can put you in a better position to provide the best advice as you guide their placements of environmental insurance. To strengthen that grasp, this article will offer a brief historical context, a look at two key proposed revisions, and an assessment of how these may impact coverage.
In 1980, the passage of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) created a federal “Superfund” to pay for the clean up of accidental spills, as well as uncontrolled or abandoned hazardous waste sites. It also granted authority to the US Environmental Protection Agency (EPA) to seek out those responsible for the releases and to assure their cooperation in remediation, including cost recovery efforts.
In seeking out these potentially responsible parties (PRPs), the EPA can investigate both past and current property owners/operators for liability and reimbursement. Moreover, prospective purchasers may be similarly implicated if they failed to complete appropriate environmental due diligence before acquiring land. But what does “due diligence” mean and how can the requirement be satisfied in order to qualify someone as an innocent landowner instead of a PRP? In the 1980’s, these were not easily answered questions because there was no single standardized approach. Clearly there was a need to agree upon best practices in this new industry of performing what became known as Phase I Environmental Site Assessments (ESA’s).
Fortunately, the American Society for Testing and Materials (ASTM) created the first such standard in 1993, known as ASTM E1527-93 because the last two digits represent the year the standard was adopted. It detailed the minimum sources of information to be reviewed, as well as what a site inspection should entail. It also considered the format expected for these ESA reports. After the adoption of the initial standard, it was quickly updated in 1994, with subsequent revisions made in 1997, 2000, and 2005. The 2005 version is particularly noteworthy because it was the first standard to be explicitly recognized by the EPA as satisfying the requirement for completing “All Appropriate Inquiry” (AAI) in environmental due diligence.
Since 2005, there has been only one revision to the standard, made in 2013. As such, ASTM E1527-13 is still the most current version. However, because ASTM requires that standards must be updated a minimum of every eight years, and because 2013 + 8 = 2021…we are due for a new update!
Many of the currently proposed revisions to the standard involve “housekeeping” items that may be of minimal interest to the broader community of insurance professionals. Yet some items under negotiation have been trending in headlines for some time and need to be addressed. These include emerging contaminants of concern (especially PFAS), as well as the opportunities and risks presented by the use of unmanned aircraft.
The topic of emerging contaminants in general—and of Per- and Polyfluoroalkyl Substances (PFAS) in particular—is a thorny one because they are not identified as a hazardous substances under CERCLA and the EPA has not yet set maximum allowable levels for them. As a result, they have historically fallen outside the scope of AAI even though they have already led to considerable liability for certain stakeholders. Now that the National Defense Authorization Act has added 172 PFAS to the Toxic Release Inventory under the Emergency Planning and Community Right-to-Know Act, it can be reasonably expected that public interest in and legal action involving these “forever chemicals” will only increase. Nevertheless, the inherent awkwardness of having an ASTM standard amended to require investigation of a contaminant not yet regulated by the EPA that certifies that same standard means that the next version may stay silent on this issue for now.
What the upcoming revision will include is recognition of the increasing reliance on the use of unmanned aerial vehicles (UAV’s or drones) in performing Phase I ESA’s. These tools have not only improved consultants’ abilities to assess very large or remote properties but have also enabled them to get visual access to features that might otherwise have been difficult, dangerous, or prohibitively expensive. On the other hand, UAV’s have also introduced new liabilities associated with privacy, security, safety and pilot training/licensing. While the exact guidance on this topic has not been finalized, just the fact it is forthcoming is exciting.
With ASTM E1527-13 scheduled to sunset very soon, the next step is for the final negotiated version to be submitted to the EPA in January 2021 for their review, approval and publication by December of next year. In the meantime, here are some points to keep in mind with your insureds. First, any client who performs or purchases Phase I ESA’s needs to be certain they are compliant with the most current ASTM standard to meet AAI requirements. Non-compliant ESA’s can lead directly to liability, and liability can lead to insurance losses. Second, know what ESA’s investigate and what they don’t. This is because sometimes getting a “clean” Phase I report may just mean the right questions weren’t asked of the data; nowhere is this truer than in the case of contaminants about which our knowledge is still evolving. Third, keep in mind that new technology always presents risk with reward, and make sure to address those new risks with your clients to confirm their insurance programs have adapted to cover their exposures. And finally, as always, should you need additional information or support in navigating the changing landscape presented by a rapidly approaching 2021, please reach out to us.