Colorado business owners could face unexpected financialrepercussions for environmental hazards that settled on theirproperty after the recent flooding in the state, anenvironmental expert says.

And a Sept. 9 spill of some 233,000 gallons of molasses intoHawaii's Honolulu Harbor near Sand Island has caused one of theworst environmental destructions to sea life in the island state'shistory, according to news reports.

Both incidents, says William McElroy, senior vice president ofenvironmental for Liberty International Underwriters, New York,serve as examples of the environmental exposures lurking in theshadows for U.S. businesses, although the events are “two verydistinctly different things,” he notes.

One event is an industrial-size activity involving an otherwisebenign, natural substance; the other is a natural disaster creatingnumerous small events. One occurred in the waters of Pacific Ocean;the other, high up in the Rocky Mountains.

In Colorado, what geologists are terming a “100-year flood”caused by more than 15 inches of rainfall in eight days, sent wallsof water up to 20 feet high rushing down the streets of Boulder andsurrounding areas. In the end, eight people lost their lives whilescores of others remain missing or homeless.

A secondary toll from the flood was damage to the state'spristine waterways, which are now contaminated with runoff from oilwells, smashed vehicles, torn up fuel pipes and whatever residentsmay have stored in flooded out homes, garages and tool sheds.

For business owners in the state, McElroy explains that,legally, the property owner where an environmental spill settles isliable for the cleanup.

“If you're in an industry operation that has hazardous materialsas far as processes, you bought pollution cover in case you createa problem to cover damages,” he says. Yet firms not actively in thebusiness of creating potential pollutants should insure against therisk that they become passively involved with migration of apollutant onto their property.

“Once you have a chemical or toxic event on your property, it'snot necessarily a matter of fault, but you have to do somethingabout it,” McElroy says. “You have to clean up an event on yourproperty whether it's your cause or not, or your material ornot.”

Luckily, environmental insurance protects clients that areactively involved in a spill as well as those that are passivelyinvolved, yet remain liable, McElroy says, adding that many U.S.businesses are recognizing the risks for being passively involvedin an environmental hazard, making this type of insurance “a farmore common purchase today” than it was 25 years ago.

“It's events like [these] that are always reinforcing inpeople's minds the need for this type of cover,” McElroy says

In Hawaii, the molasses spill occurred as the substance wasbeing loaded via pipeline onto a container ship owned by MatsonInc., a major carrier in the Pacific with business in Hawaii, Guam,Micronesia and China.

“To me, the lesson of the Hawaii molasses spill is that itdoesn't necessarily have to be hazardous waste to be anenvironmental problem,” McElroy says. Molasses is a refined naturalproduct made from sugar, not a man-made pollutant. “But if you putit in the wrong place at the wrong time, it has consequences.”

That's true for any benign substance or commodity: put enough ofit someplace where it's not supposed to be, and “there are going tobe consequences,” he says. “That's true of any industrial sizeoperation.”

Thousands of fish, crabs and other native animals have alreadydied, and the Hawaii State Health Department told local newsoutlets that the harm could spread to humans by way of an increasein predatory animals such as sharks, barracuda and eels, which havelost their food sources.

Given the thick, liquid form of molasses, such a sizeable spillas occurred in Honolulu Harbor can cause a unique amount of damage.One of the biological or chemical processes of molasses is that bynature, it sucks up all the available oxygen in the water, causingfish and other sea life to suffocate; in some cases, the stickymass simply blocked creatures' airways, not permitting them tobreathe, McElroy says.

Next Page: Insuring this Mess

Matson immediately ceased its molasses operations and said in apress conference and ensuing press release that it would “fullycooperate with the state” on cleanup response.

It's not yet known if Matson carried environmental insurance.That may not matter in this type of spill, McElroy says, as thefederal government does provide assistance for damages and cleanupcosts.

The Natural Resource Damage Assessment and Restoration Program,a project of the U.S. Department of the Interior, works to restorenatural resources that have been “injured” by oil spills or otherhazardous releases into the environment, according to thegovernment website. The NRDA Restoration Program assesses thedamages and negotiates legal settlements or other legal actionswith responsible parties, using this money—rather thantaxpayers'—to restore the damaged resources. The amount of fundsused for the restoration depends on details specific to the lossand materials needed for the cleanup.

The NRDA Restoration Program could also assist in the Coloradocleanup. According to The Guardian, the state's 17gas-and-oil inspectors were “completely overwhelmed” at the task ofassessing the state's 50,000 oil wells after the mid-Septemberflooding. Further assessment of the pollution damages alongColorado's waterways depends on a lot of different things in play,McElroy says.

“Rather than a single, discreet event, you're talking about anynumber of small events, which are aggravated by moving water,” hesays. Leaks from fuel oil tanks, gas stations, or chemicals storedin a neighbor's garage were all carried downstream byfloodwaters.

“In many cases, it may be very difficult to identify a singlesource [of pollutant],” McElroy says.

“It's the kind of thing you don't necessarily think of as thefirst problem when you have a natural disaster of this type,” hesays.

LIU insures industry and commercial businesses, largecontractors, and people in the gasoline business, he says. “Amongthe more common people that we take for granted every day are thosewho handle significant volumes of materials at the local gasstation.”

The same scenarios could be true for other natural disasters,such as a windstorm or earthquake, which is another reason why somany U.S. businesses are—or should be—taking a closer look atEnvironmental coverage.

“Certainly, Hurricane Sandy had any number of environmentalevents associated with it,” McElroy states.

The market for environment Insurance is basically a nichemarket, but the capacity and business have expanded quite a bitover the last few years, McElroy says.

“We're starting to see some correction related to rate, andmodest price improvement over the last year,” he says.

Over his nearly 30 years in the market, Environmental coveragehas grown “dramatically,” McElroy says.

“When I got into the business, people who bought environmentalcover were really precisely the people you would expect to buyenvironmental cover: large-scale industrial operations that handlelarge volumes of toxic and potentially toxic materials,” he says.“Now it is much more common to see people who are not obviously inthe business of handling dangerous stuff buy coverage, because ofthe awareness that develops from events like the Colorado floods,and hurricane Sandy, and things along those lines.”

The general public is also “much more sensitive” to theconsequences of environmental events than 30 years ago, he adds.Such catastrophically environmental events “capture the imaginationof the public.”