Articles | Scrap Risk Insurance

Risk e-Business

Ross Fields, CLCS | Contact Ross 

Scrap eWaste Insurance

In the March E-Scrap News article “Legal Issues in Certification” concerning the legal issues of which e-scrap processors need to be aware, it was noted that “there is no dispute on the need for safe, responsible and ethical practices” in the industry. Indeed, the discussion surrounding the choosing R2 and/or e-Stewards as a certification has the industry’s best interest at heart. At this juncture, it seems to be a matter of determining the correct prescription to get there.

The article also mentioned the e-scrap industry’s need for sharing this important information relating to best practices. While both R2 and e-Stewards certifications are the marks of a processor who has gone to great lengths to implement the best practices for the industry as a whole, they really say nothing about risk management at the individual business level.

Protecting the environment and the public is of high importance to be sure; but what about protecting the business? This article is not an in-depth analysis of any certification’s handling of risk management issues in the electronics recycling industry. It is intended to help e-scrap businesses better understand the risks they face and how to mitigate against them.

What makes e-scrap unique?

To start, there needs to be a clear understanding that standard general liability policies do not protect an e-scrap processor from electronic recycling’s true risks. A general liability policy is tailored to a broad, similar group of risks that typical businesses face.

An e-scrap processor, however, is not a typical business. One who may have the exact same policy coverage as a machine shop, warehouse or maybe even an office building. The risks that e-scrap processors and handlers face are much different and more serious. A typical insurance policy will not – and will specifically say it will not – cover many of the risk exposures that these companies face. This means that these risks can be extremely damaging to a company should they have to endure the financial costs alone. Processors and handlers are better off to transfer this risk to a party who is better equipped to handle them. The best way to do so is to find a broker who focuses on the electronics recycling industry and procure insurance that is specifically tailored to their unique risks.

There seems to be a general lack of understanding in the industry about these risks. Often, processors and handlers rely on their lease, certifying bodies or state and local permits to determine what risks they need to manage. In other words, the mentality is often: “If no one is requiring me to protect against it, I don’t need to worry about it.”

This mentality is dangerous on a number of different levels and, moreover, to a number of different businesses. E-scrap processors and haulers work in the waste stream and this places them in a different category of risk exposure than a general business. From an insurance standpoint, these risks are not covered by general liability policies. So even though no organizations are classifying an e-scrap business or products as “hazardous” or maybe even as “universal” wastes, insurance policies do. Their reasoning hinges on what is known as a “total” or “absolute” pollution exclusion. In terms of insurance, “pollution” and “pollutants” are defined differently than they may be by a regulatory body. Therefore, if a processor or handler has an accident, fire or some similar event, their insurance may not cover it. These exclusions in the policy would preclude coverage and there have been numerous court cases upholding this position.

Regarding how insurance works, a “pollutant” does not have to be classified by EPA or any other regulatory body as a “pollutant,” “hazardous” or “universal.” Unless a processer or handler has specifically sought and placed environmental liability insurance, they do not have coverage for anything related to it. Since the main body of work for these businesses is in the waste stream, nearly everything they touch is a “pollutant” as far as insurance is concerned. Their “product” is waste and will be considered a waste (from an insurance standpoint) until it reaches its final point of destruction or reuse. So, the provision in a general liability policy covering “Products and Completed Operations” would not cover bodily injury or property damage arising out of their products. In order to address this risk, a company in electronics recycling needs to procure “Products Pollution Liability.” With so many nuances to the industry, there are a number of additional circumstances that could result in a lawsuit, injury or event that is easily denied by insurance and upheld in a court of law. Moreover, it could hurt other businesses both up and down stream if the proper insurance is not in place.

Understanding who is liable

The fact that processors and handlers of e-scrap work in the waste stream exposes them to what is known in law as “joint and several liability.” The basic theory is that there does not need to be any negligence for a company to be held liable. Every processor or handler who is part of the chain of custody can be held liable for injury or damages.

For example, if a processor in California inappropriately disposes of e-scrap that came from a company in New Jersey, the company in New Jersey could be held equally at fault, despite the fact that the company in California did the wrongdoing. Without some sort of environmental insurance in place, neither one of these companies would have any assistance with the costs of defense or damages from an insurance company.

This specific nature of joint and several liability is of high importance because it brings the risk management and safety practices of every business in the chain of custody into concern. If you are a processor or collector of used electronics, those businesses up and down stream are at risk because of your business and likewise, your business is at risk from their actions. Those upstream from you are at risk because of those businesses you choose to deal with downstream. In short: you are all in this together. Yet, so many choose not put appropriate risk management measures in place.

At the least, this should be unsettling. At the most, there should be an industry-wide understanding, like there is for so many other best practices, for some implementation of proper risk management standards. Each individual business needs to thoroughly evaluate their risk management program and those programs of their sub-contractors. To date, the best solutions are insurance products that are specifically crafted to handle the electronics recycling industry’s unique needs.

How to minimize your risk

While certification and insurance may still be optional, there are some important factors an electronics recycling business should consider in their risk management program. Again, unless a business has already specifically addressed these areas, it is currently uninsured for the potential risks that lie in wait.

The foremost and obvious risk is that of site pollution and some regulations and certifications do require this to be addressed. Site pollution will cover claims at the processor’s or handler’s site. Site pollution coverage will pay for the liability to remove and clean up resultant waste. Any contamination of the site over time from heavy metals found in electronics would also be covered under site pollution. The R2 standard currently requires “clean-up” to be addressed, but an e-scrap company’s exposures go well beyond their site.

Products and site pollution are two of the major areas of concern, but there are a number of other components that should be considered.

There are also concerns associated with transportation, sites owned and managed by others, the classification and weighing of waste and the reporting to regulatory bodies. All of these present a unique risk that a general liability policy, like so many businesses in the industry currently have, simply will not cover. Waste classification and reporting issues would only be covered under a professional liability, sometimes called “errors and omissions policy.” Professional liability is the only place to find coverage for damages arising out of your professional experience. Remember, just because the insurance doesn’t cover it, doesn’t mean that a business will not be required to pay for it should something happen. This can be devastating to a company’s balance sheet.

Above and beyond these risks is the concern of data and privacy liability. A large number of the end-of-life electronics in the industry have corporate or personal data which is private and needs to be handled in a certain manner. So to, does the risk associated with this data. A general liability policy will not cover this exposure. A general liability policy is designed to respond to only bodily injury or property damage to tangible property. This policy does not define “data” as tangible property – and it’s clearly not a body – so there is no coverage for data breaches or losses under general liability policies.

Data and privacy liability is an emerging risk for every business. In the e-scrap industry, however, it has been known for quite some time that the potential for loss of data is present. Wiping software, locked cages, security cameras and NAID certification go a long way. Like the other hazards discussed however, if something were to happen, the insurance that so many in the industry carry would not cover a claim.

There are specific policies that have a number of different protections in them that would cover a data loss and all the headaches that come with it; and those can numerous. There should be risk considerations for both first- and third-party loss exposures.

First-party coverage will reimburse the processor who suffered the loss of another individual’s or company’s data. This will help pay for the costs of the notifications and credit monitoring that will be the legal responsibilities of the e-scrap processor or collector who lost the data.

Third-party coverage will pay for the cost of the liability to the company as a result of the incident. This could include lawsuits, legal defense costs and fines as a result of regulatory actions against the processor or collector. These costs can be expansive and extremely damaging to the financial health of a company should they have to absorb the costs alone. Again, the best strategy a company in the electronics recycling industry (or any industry for that matter) can implement is to transfer the risk to a party better equipped to handle it.

While this article has concentrated its efforts on discussing some lesser-known risks and protections, there should be a few words mentioned regarding a well known and widely used insurance product: worker’s compensation.

Although specifics vary from state to state, the general ideas behind safety and loss control remain fairly standard. The idea is always to keep workers free from injury and, in turn, keep insurance costs down for employers. Partnering with a professional who understands the industry allows a business to protect against the most common injuries and establish a safety service schedule to keep work places injury free. Of course, one cannot protect against every contingency and should a workplace injury occur, it is important to have partnered with a worker’s compensation carrier who will work quickly with a business to get workers back on the job and minimize costs.

An up-front understanding of a service schedule and a return to work program are two important items in this venture. Although worker’s compensation rates get a lot of attention, it is the partnership between a safety and risk management professional and an EHS Manager (or other member of management) that truly keeps costs at a minimum for an employer. A solid understanding of the e-scrap industry, it processes, its products and its safety concerns are crucial to an effective worker safety program. Although all businesses with employees use worker’s compensation, getting the most out of the investment in the product is key to a business’ bottom line and a productive workforce.

Planning ahead

As one can gather, the risks facing companies in electronics recycling are ever-evolving and unique. Given that many of these risks fall under the aspect of joint and several liability, these risks can affect many companies simultaneously and unexpectedly. Because these risks are unique to the industry, a processor or hauler needs to partner with a broker who has developed products and services to prepare and protect against them.

A company in the electronics recycling industry has much to lose by simply choosing to self-insure against these risks. The transfer of risk to a third party via an insurance product is highly cost effective. Often, this can be done in-line with the costs associated with simple general liability coverage.

Fulfilling the requirements of certification and regulatory bodies, while important to the health of the industry, does not go nearly far enough to protect the well being of individual businesses involved in e-scrap. Seeking the advice and the experience of an individual who thoroughly knows the industry’s risks and how to manage them is one of the most important steps a sophisticated processor or collector can take.