Exploring Explosion Claims

take noteAt least annually an explosion somewhere in the United States or Canada temporarily becomes a media event. Explosions devastate entire cities, as occurred in 1946 in Texas City, Texas in the Grandcamp ship explosion, the 1917 collision of two war ships carrying explosives in the Halifax harbor, and almost in the 2008 Savannah, Georgia, sugar plant explosion. Many such explosions have involved materials such as grain dust, sugar, and fertilizer, the primary ingredient in the bomb that destroyed the Federal Building in Oklahoma City in the 1990s.

Fertilizer was again the culprit in the plant explosion on April 17, 2013, in West, Texas, where the West Fertilizer Co. plant blew up, destroying 140 homes, a middle school, an apartment building and a retirement center, as well as the plant itself. “The explosion killed 15, and injured as many as 200,” reported Chad Hemenway in the May, 2013 National Underwriter Co.’s Property Casualty 360. Supposedly 240 tons of ammonium nitrate and 50 tons of anhydrous ammonia were being stored at the factory.

Hemenway stated that Mark Hanna, a spokesman for the Insurance Council of Texas related the “concussion-type losses” of property to that similar to tornado damage. “’We’re hearing a lot of strange stories related to the force of this blast,’ says Hanna. ‘It’s like visiting the site of a tornado and hearing about straw going through wood. It’s hard to believe.’” Hanna says the town with a population of about 2800 is split in three sections. Residents of zone 1, the farthest away from the explosion, had been allowed back in their homes basically within a week. Zone 2 was opened later. The most affected areas remained closed off at the time the article was being written. Hanna reported that the Red Cross assisted about 180 families, including those from the apartment complex.

Cause of the explosion appears to have been ammonium nitrate, and PC360 reports that many facilities like the one in West “have stopped storing ammonium nitrate to avoid additional regulation. Facilities that do store the volatile chemical compound must register with the Department of Homeland Security. Reportedly, this plant did not.” Apparently the plant also had insufficient property or liability insurance to cover the disaster.

Explosion claims that devastate entire towns, while rare, do occur with enough frequency that claim adjusters need to be aware of their potential for any entity that is involved in the manufacturing, shipping, storing or handling of explosives including fertilizers, propane gas or other chemicals. When even grain, sugar or similar types of dust in a rural elevator can explode and destroy a town, the exposure to extensive damage is as great as from windstorms. But the explosion peril is different than the windstorm or flood peril as it combines both property damage in first party coverages with liability exposures to the owner or handler of whatever exploded.

This often requires detailed investigation that includes determining what first and third party coverages are involved, whether liability is considered “absolute” regarding the owner or transporter involved, and the factors that triggered the explosion. In the West, Texas, explosion the precise triggering mechanism was still under investigation as this was being written, but in many explosions the actual trigger of a spark or flame that creates the explosion must be identified. It may be something as simple as a run-away rail car or a vehicle out of control, or it may be a deliberate act of vandalism or terrorism or a defective piece of machinery at the plant or facility where the explosion occurs, and the manufacturer of that defective equipment may be a co-tortfeasor in a loss.

Coordination is crucial. As a number of insurers, governmental agencies, federal, state and local authorities and others will be involved, at least initially and often for the long run investigation, each insurer’s representatives must be cautious about making statements that might convey responsibility. When the television cameras are rolling, everyone wants their “15 minutes of fame,” but that can be disastrous if a statement is misleading. Anticipate confusion and litigation.

Any explosion will draw an army of attorneys seeking to represent victims. They, too, will be conducting investigations into causation, seeking as many co-tortfeasors as possible, especially in a “joint and several liability” jurisdiction. Where the primary tortfeasor may be insufficiently insured, even with excess layers of liability coverages, class actions may quickly develop a bankruptcy situation, and any early settlements that draw down assets available to the entire class may become suspect. Distribution of assets may be the role of the court.

Handling a disaster such as an explosion is a major part of what adjusters do, and it is also a major subject of Crawford & Company Educational Services’ classes, KMC on Demand courses and through Crawford & Company’s Catastrophe Services. Knowing how to respond quickly and correctly is key in any catastrophic loss.

This article comes from Take Note, the newsletter of Crawford Educational Services. You can subscribe here.

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