Dam break should be a wake-up call for business owners

The recent dam break near Likely, B.C. and ensuing environmental disaster highlights the need for companies to match coverage to the exposure. Will Kramer, a senior risk consultant at Hub, takes a closer look at what lessons can be learned from the Mount Polley mining operations.

The recent dam break near Likely, B.C. and ensuing environmental disaster highlights the need for companies to match coverage to the exposure. Will Kramer, a senior risk consultant at Hub, takes a closer look at what lessons can be learned from the Mount Polley mining operations.

On August 4, a dam near Likely, B.C., broke, as dams occasionally will do. This particular dam was holding back a ‘tailing pond’ filled with millions of gallons of water and waste which represent the leftovers of Imperial Metals’ mining operations at the Mount Polley mine.

Although we do not yet know the ultimate impact of this release, the Mount Polley tailing pond reportedly contained significant quantities of lead, copper, mercury, and other heavy metals and potentially toxic substances.

When disasters happen in far-off places, away from cameras and reporters, it can be difficult to get a sense of the severity of the situation. Imagine that instead of occurring in the remote interior of British Columbia, this disaster had happened somewhere more recognizable to most Canadians: Parliament Hill, which covers 88,480 square metres.

The 14.5 million cubic metres of water and slurry released from the Mount Polley tailings pond would cover the entirety of Parliament Hill to a depth of more than 163 metres, completely submerging by far the famous Peace Tower. That is a lot of water and waste, all of which was meant to stay put indefinitely, and not flushed into the local waterways.

Luckily, it didn’t happen in Parliament Hill. (continued.)
#pb#

Regardless, it amounts to a very bad thing for Imperial Metals, and of course for the affected communities. (A ‘Very Bad Thing,’ of course, being the official insurance term for not having nearly enough coverage to meet the apparent costs of this tragic event.) Initial reports  indicate that Imperial Metals has only $15 million property and business interruption insurance, and $10 million liability insurance. Meanwhile, a Reuters report quoted analysts as estimating the costs of the disaster to Imperial between $50 million and $500 million.

This is a massive discrepancy between coverage and exposure. Worse, the company knew such a discrepancy was possible.

Imperial Metals’ latest Annual Report stated that, “the company’s property, business interruption and liability insurance may not provide sufficient coverage…. In addition, the company may elect not to insure against certain hazards where insurance coverage may not continue to be available at economically feasible premiums, or at all.”

An Internet search reveals that the exact same language has appeared in other companies’ annual reports, primarily other Canadian mining companies.  While this may be a simple case of plagiarism between companies in the same industry, it may also reflect a shared knowledge of an uncomfortable truth these companies have documented: their property, business interruption and liability insurance simply may not provide sufficient coverage for the hazards inherent to their operations. (continued.)
#pb#

This knowing failure to secure sufficient insurance limits should be a wakeup call to business owners in any industry. Purchasing commercial insurance is not a matter of buying whatever minimal level of insurance you think you can get away with to save a buck here or there. Determining your exposure to loss is not a guessing game in which numbers are pulled randomly out of the air. With the help of insurance and risk management advisors, it is the duty of any business to systematically evaluate the risk to the business and quantify the exposure to loss. Once that exposure is understood, steps must be taken to manage that risk.

If you do not go through this process before a Very Bad Thing occurs, you may end up in the uncomfortable position of Steve Robertson, Imperial Metals’ vice-president of corporate affairs, who stated in a recent interview that “I don’t know if it’s nowhere near (enough insurance) – it would be way too early to tell.”

Not exactly the reassurance that the local community, the news media, the company’s investors, and other stakeholders are hoping to hear.

Will Kramer is a Senior Risk Consultant – Organizational Resilience for Hub International.  To reach Will or a local HUB risk services expert click here.  For more information on Hub’s Risk Services visit the Hub’s Crisis Management Center.



 

Keep up with the latest news and events

Join our mailing list, it’s free!