Off-Loading Error

In November of 1995, a large wholesale distributor in West Virginia delivered 10,000 gallons of hydrochloric acid to a pharmaceutical company. Hours after the delivery, it was discovered that the product was off-loaded into the wrong tank causing damage to the tank, connected piping and other product along interconnected lines. Expenses for the purging, flushing, and cleaning of the tank and piping along with compensation for business interruption exceeded $90,000.

Causes and Precautions: Many factors contributed to this loss: lack of driver familiarity with this account, the absence of color-coded piping and tanks, and the failure of the insured and customer to adhere to documented standard operating procedures. All of these were preventable.

New drivers should always spend an orientation period during which the new driver is teamed with an experienced driver who is familiar with the customer's route. Color-coding both piping and tanks is a highly-efficient means of ensuring the delivery of specific chemicals to dedicated lines. Standard operating procedures including driver protocol, customer designation of receptacle for delivery and customer sign-off of acceptable delivery all could have helped avoid this loss.

Chemical Burns

In February of 1996, a minor in the state of Pennsylvania purchased red phosphorus, a known ingredient of pyrotechnics, from the retail division of a much larger chemical operation. The young boy proceeded to mishandle the chemical causing severe burns to over 70 percent of his body and causing the permanent loss of use of his right hand. An out-of-court settlement was reached at $840,000.

Causes and Precautions: This loss was caused by the failure of the sales clerk to exercise common sense and prudent business judgment. A list of classified chemicals should always be referred to before a sale to anyone — especially when age becomes a question. Release forms should be signed along with acknowledgment of the dangers of the chemical. Retail sales should not be handled by "whoever is around;" a dedicated sales clerk with a background in chemicals should always be present. Companies should also consider whether the risk to profit ratio warrants the operation of a small walk-in retail operation.

Uninsured Loss

In May of 1997, a small distributor of silicone sealer was named in a suit alleging that fumes from the sealer had entered the ventilation system of a popular Chicago restaurant forcing the evacuation and two-day closing of the establishment. Damages of $160,000 were being sought. The distributor, relying on vendors coverage from the manufacturer, did not own a products liability policy. After putting the manufacturer on notice, the distributor was dismayed to find that the manufacturer's insurer denied coverage based on an absolute pollution exclusion that excluded any loss arising out of the actual, alleged or threatened discharge of any solid, liquid, gaseous, or thermal irritant or contaminant including chemicals. Based on the inadequacy of the manufacturer's insurance, the vendors coverage was worthless and the distributor was left with an uninsured loss of $160,000.

Causes and Precautions: This loss exemplifies the danger of relying on a manufacturer’s coverage. Vendors coverage is extremely restrictive and demands strict attention to quality control, batch testing and compliance with industry standards. Also, if a company is going to rely on vendors coverage, certificates of insurance must be carefully monitored for proper coverages, expiration dates and acceptability of insurance carriers. Lastly, be aware that policy exclusions also pertain to the vendors coverage and limits may have been reduced by the past claims payments.