You will recall that we have written in previous issues about the chemical spill in West Virginia involving Freedom Industries. The spill happened in January when coal-cleaning chemicals seeped into West Virginia’s biggest water supply. A sheet of contaminants cruised down the Elk River, into the Kanawha River and hit the Ohio River. Five days after the spill, the City of Cincinnati stopped using the Ohio for its tap water for about two days and relied on other reserves. In late March, Greater Cincinnati Water Works sent a $113,484 bill to Freedom Industries for dealing with the company’s spill. The invoice covered testing, worker overtime and chemical costs. Thus far, the City hasn’t been paid on this claim.
Cincinnati’s water utility is one of thousands of agencies, businesses and individuals attempting to collect millions of dollars from the Charleston, W.Va.-based Freedom Industries, which is now a deflated, bankrupt company. About 5,000 groups were expected to file claims in the bankruptcy court, seeking to be compensated because of the spill. The total sought thus far is more than $160 million, and all the claims submitted haven’t yet been counted. Vendors, business partners and the Internal Revenue Service (IRS) are seeking several million more dollars Freedom owes them.
It appears that it will be most difficult to collect money from Freedom. The company does have $3 million in coverage from an insurance policy. But Freedom’s tentative settlement agreement of a class action lawsuit totals $2.9 million, using practically all of the funds provided by its AIG Specialty Insurance Co. policy. The funds will not go directly to the claimants themselves, but the proposal outlines a plan to distribute the funds to non-profit organizations “for the general good of the community of Charleston.” Distribution of funds will be determined by a committee, with long-term health monitoring being mentioned as a possibility.
But in September, West Virginia American Water filed an opposition to the settlement plan in U.S. Bankruptcy Court in Charleston, saying the insurance money should not be used to pay for the various projects. Representatives of the utility company argue that the proposed settlement would keep creditors from recovering on bankruptcy claims. The utility also wants Freedom to cover its potential damages in spill lawsuits. West Virginia American Water is named in a consolidated lawsuit for its part in the chemical spill. That lawsuit will not get a hearing until Sept. 25, 2015.
It is estimated that unsecured creditors’ claims against Freedom may total as much as $8.5 million. Even after liquidating its assets, which brought about $4.5 million in cash, the company only has about $834,000 left after paying professionals and other creditors that have high priority. U.S. Bankruptcy Court in Charleston is handling legal action against Freedom through a claims process.
There are a number of lessons to be learned from this debacle. The regulation of the chemical companies must be stronger and more effective. This industry must be monitored on a regular basis with good inspections carried out. Also, companies must be required to maintain adequate resources and to maintain a higher level of insurance coverage to pay claims. As has been stated before, regulation of the chemical industry is extremely weak and this spill is a prime example of the consequences.
Source: Insurance Journal
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