Overregulation or Common Sense?

For those of you not in the exciting world of commercial insurance, this tidbit has been making the rounds. It seems the fertilizer plant that exploded in West, Texas two weeks ago carried a mere $1 million in general liability coverage.

To put this in context, I myself carry a $1 million dollar umbrella policy to cover my one home and two little cars in the event of a worst case scenari…

  1. DocJay

    I carry a few million because I don’t want my life destroyed if some kid on the street crashes his bike near my driveway.  It’s ridiculous that the company did not have such a policy.  I daresay it should have been a requirement of doing business.  

    Nice article BTW and somewhat an indictment against how things used to be back when ladies all died from painting radium on watches.

  2. Misthiocracy

    If any company can get away with not having enough liability insurance, then why do nuclear power plants need government legislation limiting their liability?

  3. Lamont Cranston

    It would be very interesting to hear from a Texas attorney who is familiar with liability insurance and the idiosyncrasies of Texas torts.

    Does Texas permit “joint and several liability” claims? With what conditions? Can plaintiffs (and there will be hundreds of plaintiffs) plausibly claim negligence on the part of suppliers or other third parties in order to increase the size of the insurance pool that will pay out? Can plaintiffs, for instance, “pierce the corporate veil” and go after homeowners policies of company officers/stockholders?

    Does Texas make any distinction between claims made by uninsured victims, as opposed to subrogation claims made by other insurance companies? (The school across the street was insured–the insurance company will pay, but will in turn claim compensation from the plant’s insuror.)

    For that matter–what is the practice of other states? Does any state have minimum liability insurance requirements for handling a certain volume of hazardous materials?

  4. FightinInPhilly
    Does Texas make any distinction between claims made by uninsured victims, as opposed to subrogation claims made by other insurance companies? (The school across the street was insured–the insurance company will pay, but will in turn claim compensation from the plant’s insuror.)

    I think the other easy target is the broker. They have a serious Errors & Omissions suit coming, and that could be just the deep pockets the plaintiffs need. I suspect the broker was the brother in law or some similar close relationship. Clearly there was no reputable oversight of the account- and this kind of screw-up can (and should) take down even a large agency. 

  5. Skyler

    I think many people don’t realize that many companies, especially larger ones, don’t carry insurance at all. They have enough revenue to self-insure.

  6. FightinInPhilly
    Skyler: I think many people don’t realize that many companies, especially larger ones, don’t carry insurance at all. They have enough revenue to self-insure. · 17 minutes ago

    If they are truly are self insured thru a captive or other shared risk pool then yes, this story is moot. And its not uncommon for high risk industries (fertilizer certainly qualifies) to be unable to purchase traditional insurance. But I think that would have been one of the first things the insurance commissioner mentioned and there wouldn’t be this particular outrage. Stay tuned, I suppose. 

  7. BrentB67

    Don’t be surprised if very little comes of it. There was a heck of a story on NBC.com about how the people that lost their homes refused government assistance. Of course NBC painted it as Texas being a bunch of backwards rednecks, but it was really just a huge outpouring of support from around the state that made government assistance in the immediate aftermath not necessary.

    The legislature is only in session a few more days and then thankfully go home for 2 years before any more bright ideas spring up in Austin so nothing will be legislated as a result for at least two years. I have a hard time seeing Gov. Perry calling a special session to put more insurance requirements on small business. 

  8. FloppyDisk90

    What I find additionally interesting that there were no fewer that four government agencies (State Health Services, the Texas State Chemist, the Texas Commission on Environmental Quality, and the Texas Agriculture Department) that  had some jurisdiction over the plant. Not one required a basic umbrella policy.

    I think that’s the answer right there.  Risk, and the cost thereof, gets allocated in private contracts all the time.  Yet somehow when the government regulators fail to meet a 5th grade level of competency, the failure is laid at the feet of the private sector.  

  9. A42NT1

    I’ll take a different position here, bearing in mind that I know absolutely nothing about Texas liability insurance laws. So FWIW – One risk with regulation is you generally get what you require.  So, if Texas requires $1M liability insurance for companies this size, many companies would probably insure this amount, and nothing more. To put this in perspective, you probably carry $300k of liability insurance on your auto policy. You will blow this in a heartbeat if, say, you’re texting while driving and cause a head-on collision with a school bus, killing all onboard. Are you stupid for not carrying $10M of insurance? No, just being rational and making a personal financial decision.

    Re Misthiocracy:

    If any company can get away with not having enough liability insurance, then why do nuclear power plants need government legislation limiting their liability?

    I think the reason here is certain risks are essentially uninsurable – what is the probability of a catastrophic nuclear meltdown? Exceedingly small (and difficult to calculate), but the potential losses are exceedingly large (and difficult to calculate). Thus, to allow certain public services to exist, the government must either provide insurance directly or indirectly through immunity.

  10. Goldgeller

    That’s really crazy. 1 million in general liability coverage? That sounds like way too little.  It will be interesting to read about this. But perhaps that means the company will be paying out of its own coffers for the damages…

  11. A42NT1

    One other side question – what is government’s place to require insurance coverage of any sort? Mandatory homeowner’s insurance, extended warranties on your DVD player, or *gasp* health insurance?

  12. Joseph Paquette

    I’m normally against government overregulation.  In this case, it seems that the owners of the plant did not consider that the whole thing could blow up, but who does?   This was a pretty rare and unusal event, a company and probably town ending event for which there isn’t enough insurance.  I say let the market sort it out.  Texas has pretty strong protections agaisnt loss of personal assets in lawsuits.  You get to keep your home, car, one horse (no kidding), and retirement savings. 

  13. Joseph Paquette
    Goldgeller: That’s really crazy. 1 million in general liability coverage? That sounds like way too little.  It will be interesting to read about this. But perhaps that means the company will be paying out of its own coffers for the damages… · 13 minutes ago

    There won’t be a company when this is over, so why insure it.  The company ended in the explosion.  If I was the owner, I’d say on the very very chance the entire company blows up–it’s just over. 

  14. James Lileks
    C

    Hah! USAA sold me the million-dollar policy too. I told my wife to go ahead, cause a multi-car accident on the highway. We can cover it now.

  15. Paul Malchow

    The “requirement” for liability insurance is really more of a corporate risk decision.  This company should have alternative protection schemes; indemnifications from suppliers of all stripes, not to mention it’s own assets.  Subrogation claims will come in from all impacted parties/insurance carriers, but unless the company is willing to go bankrupt, the impacted local insurers, through subrogation, should force disgorgement of assets to cover the required losses (or a material portion thereof).

  16. BrentB67

    I think there is a legitimate zoning question. I don’t know who was there first, but I hope somebody is asking why there was a residential neighborhood, nursing home, and school in close proximity to that much chemical.

  17. FightinInPhilly
    James Lileks: Hah! USAA sold me the million-dollar policy too. I told my wife to go ahead, cause a multi-car accident on the highway. We can cover it now. · 0 minutes ago

    First Lileks introduced me to The Beast, now he commented on my thread. My Ricochet life is complete.

  18. MJBubba

    My guess is that the owners will take the company into bankruptcy.  They will form a new company in some other town, go back into business, leaving the devastated West in their wake.

    Unless the owners are all members of West families.

  19. FightinInPhilly
    A42NT1: One other side question – what is government’s place to require insurance coverage of any sort? Mandatory homeowner’s insurance, extended warranties on your DVD player, or *gasp* health insurance? · 17 minutes ago

    While I certainly agree with you with respect to health insurance, meaning if you drop dead (heaven forbid) from a heart attack, no skin off my nose. I’m getting at the idea that when your business involves things that go BOOM, that represents a very real hazard to people and property (unlike theoretical hazards like owls, CFCs in the ozone, biodiversity) and to have no protection in the event of a very large BOOM seems to give the Left ammo (only 8 rounds please) to say that the private sector cannot be left to sort its issues out. 

  20. Yeah...ok.

    Workplace violence in Texas can take strange forms.

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