Tuesday, November 8, 2016



It is common knowledge that corrosion can make bridges fail, foundations collapse, tanks and pipelines leak, and electric systems short-circuit.  According to the National Association of Corrosion Engineers, corrosion damage costs U.S. industry and economy an estimated $300 billion annually. Since corrosion is a slow and predictable (although unavoidable) process, releases caused by corrosion damage are, in general, not considered sudden and accidental.
Many liability insurance policies contain qualified pollution exclusion clauses, under which there is an exception to the exclusion of coverage for liability arising from the discharge of pollutants where the discharge was "sudden and accidental."  Other policies expressly exclude coverage for loss due to specified risks such as corrosion, wear and tear, water damage, etc. When business interruption insurance is attached as an endorsement or rider to a property insurance policy, most courts have concluded that the exclusion of risks as to the property insurance did not apply to the business interruption coverage.

Conflict of Laws
The word sudden is directed at rupture or human error, an explosion, a spill, something which occurs abruptly. The term is used to specifically exclude the situation which happens due to the corrosion over an extended period of time of the pipes or tanks below ground which could cause a leaking situation over several years. There is conflict of laws regarding the meaning and application of the "sudden and accidental" exception to the pollution exclusion clause.
Applying New York law, the term "sudden" as used in such exception has a temporal aspect as referring to the discharge of a pollutant abruptly, precipitantly, or brought about in a short time.  It does not refer to actions which occur gradually over a period of time.
On the other hand, applying New Jersey law, one court held that the "sudden and accidental" language of the pollution exclusion clause does not bar coverage for gradual pollution, construing the term "sudden" as meaning unexpected or unintended, without a temporal aspect. There are several intermediate interpretations as well.
Courts are divided on who bears the burden of proving that any discharge was “sudden and accidental.” Some courts hold that the policyholder has the burden of proving exceptions to an exclusion. In contrast, a number of jurisdictions place the burden of disproving that the discharge was “sudden and accidental” on the insurance company.
Corrosion Fundamentals
Corrosion is the deterioration of a material (such as metal) due to interaction with its environment. Perhaps the best known example of corrosion is steel; as soon as iron ore has been smelted and refined to produce steel, nature begins to reverse the process. The steel reacts with the environment to form oxidation/reduction byproducts such as oxides, sulfates, sulfides, and carbonates.
The metal underground storage tanks (UST) have a finite life as they are subject to corrosion attack once they are placed in a corrosive environment. The average life of a UST (i.e., the time it takes to develop a corrosion leak) is less than 18 years. This average time to corrosion can be shorter or longer depending on the specific environment where the tank has been placed.
Corrosion can have many forms, both wet and dry:
                        General corrosion is the most common type of corrosion. It is defined as the uniform loss of metal from the entire exposed surface of the metal.
                        Pitting is a form of localized corrosion in which a small portion of the metallic structure is corroded at a rate much faster than the bulk of the structure. Although this type of corrosion is faster than the general corrosion, corrosion pitting forms gradually and is a predictable and known event associated with the underground storage tanks placed in contact with an electrolyte; therefore, it cannot be considered a sudden and accidental occurrence.
                        Galvanic Corrosion. This type of corrosion is caused when dissimilar metals are connected in an electrolytic solution under the proper conditions, one metal will experience accelerated corrosion.
                        Crevice Corrosion. Crevice corrosion is another form of localized corrosion. It occurs in crevices on metal structures/equipment.
                        Under-deposit Corrosion. This is a special type of crevice corrosion where the crevice or space is caused by a deposit on the metal surface. Scale, corrosion products or a variety of other debris can cause deposits under which accelerated corrosion occurs

There are several conditions that must be met before these reactions can occur.
1.      The metal must be reactive. It must be inherently unstable in the metallic form, thereby tending to corrode.
2.      The metal must be in contact with an electrolyte. An electrolyte is a solution, usually aqueous (i.e., water), which can conduct electric current and support ionized species.
3.      The electrolyte must contain dissolved species. This can be either dissolved gases, such as oxygen or chlorine, or dissolved ions, such as the hydrogen ion, which acts as an oxidizing agent.
4.      The kinetics of the situation (the rate at which the corrosion reactions can occur) must be rapid enough to be of practical significance.

The first requirement, that the metal must have sufficient reactivity, is exhibited by metals such as iron, copper and steel. They readily corrode under the proper conditions. It is important to note that without the presence of dissolved gases (such as oxygen) or minerals (such as chlorides) in an electrolyte (such as water) even highly reactive metals do not corrode.
What is Amenable to Corrosion?
All commonly used metals are vulnerable to corrosion. The following are some corrosion areas that have caused significant property damages.
Concrete. The corrosion of reinforcing steel in structures of every kind, including buildings, piers, bridges, roads, etc., is a major problem.  When cracking of the concrete occurs, it can quickly weaken the structure, leading to costly repairs, or even total replacement.  One of the biggest causes of corrosion of steel in concrete is the use of deicing salts on our highways and streets. In the United States, many million tons of salt or deicer is applied on a yearly basis to highways. In addition to contaminating the local groundwater, deicers also can cause additional property damages. Metropolitan witnessed the clogging of drainage systems due to the precipitation of calcium deposits found in the de-icing chemicals that had resulted in property damage.
Pipelines and Tanks. Most pipelines in the United States, are already well beyond their initial design life (averaging 30 years or so), and virtually every one traverses an area that is prone to corrosion. To manage corrosion risk, the oil and gas industries have been making large investments for many years in cathodic protection and other corrosion control systems.
Copper Piping Corrosion. Corrosion can also be found in hot water re-circulating systems in high-rise buildings, especially the ones that use groundwater. The insurance carriers must be aware that many underground waters are aggressive to copper piping. Metropolitan has witnessed such corrosion in geothermal system piping where groundwater drawn from a hard-water area (i.e., lots of calcium is present, as this is a common mineral present in most of the Northeast) is re-circulating.

Copper Pipe Corrosion Claim
Pinhole leaks are unfortunately a common occurrence.  A pinhole leak is the breakthrough of the pipe wall when the pipe is undergoing “pitting corrosion” or simply “pitting”.  When enough pitting occurs in the interior of the pipe, it will break through and water will begin to travel to the exterior of the pipe.  Pitting corrosion (pinholes) are directly related to water chemistry.  High or low pH balance and water softness/hardness (high/low mineral content of the water) will directly affect certain types of copper piping, and can cause accelerated corrosion.  Hot water and heating supply lines are statistically more frequently damaged by pinhole leaks. The high temperature of the water can accelerate corrosion. Certain types of pitting will not occur in low water temperatures.

A typical example was seen in a 4-story school building in Massachusetts that had a copper piping and hot water re-circulating system and drew its potable water supply from a groundwater well system. Pinhole leaks began to appear in the hot water pipes after about one year of use, causing property damage. 

A fact-finding investigation by Metropolitan showed that the groundwater supply was very aggressive (calcium was in excess of 250 ppm), while the velocity in the copper piping was extremely high, at about six feet per second.  Metropolitan opined that the combination of these two factors was the cause of the corrosion. Claim closed.

Tank Corrosion Claim
Two underground storage tanks (one fuel oil and one gasoline storage tank) were removed from the property of the insured. They were rusted and had several small holes (the largest was about one-half inch in diameter). Metropolitan performed a fact-finding investigation that consisted of record review, tank inspection, soil testing, and plume delineation. Metropolitan found that the pollutants escaped through leaks caused by corrosion, and that this corrosion occurred gradually over an extended period of time. Accordingly, the insurer concluded that any coverage otherwise provided by the policy was excluded under the policy's pollution exclusion.

Based on the fact-finding effort of Metropolitan and upon review of the results by the insured’s expert, the insured withdrew the claim for property damages.

Metropolitan Engineering, Consulting & Forensics (MECF)
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