June 17, 2013

Planning for Catastrophe: Lessons in the Wake of West, Texas

Written By

Perry M. Bentley
Member, Stoll Keenon Ogden PLLC

Perry Bentley | June 2013

It could happen to you. That’s the lesson to take away from every catastrophe. From acts of nature to acts of terror, disaster preparedness is something every business should consider seriously. In the wake of the West Fertilizer Company explosion on April 17 that killed 15, injured more than 200 people and damaged at least 150 buildings, with costs exceeding $100 million, businesses in every industry should consider whether they are prepared for the worst.

Let’s use a chemical explosion like the fertilizer company to illustrate what happens to a business in the event of a disaster…

Moments after the explosion, federal, state and local authorities will descend on your business and shut it down.  The initial focus will be on rescuing and treating injured workers.  After this most important task is accomplished (which could take days), the focus will turn to criminal and civil investigation. And don’t forget, you’ll be dealing with an army of media, families and activists who want answers, and in some cases, retribution.

You can expect that the federal Alcohol, Tobacco and Firearms (ATF) and State Fire Marshall’s Office will be involved. The criminal investigations will have priority and can shut the business down. For example, within 24 hours of the West, Texas explosion, the National Response Team of the ATF along with its Houston Division arrived on the scene and assumed exclusive control of the incident site for investigation. In fact, the dominant presence of the ATF and state agencies frustrated some members of other investigating entities who felt that the problem was not merely that these agencies had exclusively occupied the premises for a month, but that they had altered or removed relevant physical evidence at the site.

Assuming there is no criminal involvement, other federal and state agencies will be involved.  The most prominent authority is OSHA – in either its federal or state capacity – the primary concern of which is the safety of employees and other on-site workers. Another entity that may be involved is the U.S. Chemical Safety Board (CSB), which conducts root cause investigations of industrial chemical accidents. While the CSB has no power to levy penalties or fines, its influence through the use of public hearings and reports is significant.

While federal, state and local governmental entities are investigating the explosion, teams of other investigators will arrive on scene from the various insurers, product manufacturers or other entities that fear they have some responsibility for the disaster.  Prudent business owners should give careful consideration to retaining their own team of lawyers and experts since conflicts of interest between the owners and their insurers often arise.  To the extent possible, your experts should retain control of the explosion scene and preserve the evidence.

So what do you do to prepare? Here are three things to consider in bracing your business for a disaster:

Insurance Coverage – West Fertilizer Company had only $1 million in liability insurance. Review your insurance policies to ensure that coverage is adequate for a catastrophic event. Some items to consider are business interruption, replacement cost, and layers of excess liability coverage for example.  Adequate insurance can be the difference in the survival of your business.

Continuation of Business Operation – Have a business continuity plan in place. There’s going to be a tremendous amount of work for you during the recovery, so an alternative location from which to continue operations is paramount. This may include making a mutual arrangement with nearby businesses, even competitors, to maintain a line of communication with your clients and customers during your recovery.

Litigation – Be ready for the litigation that is sure to follow any catastrophic loss. Potential sources of litigation include claims against your insurers; claims against 3rd parties responsible for the disaster; defending 3rd party complaints by manufacturers sued by injured workers; defending OSHA citations; claims by customers and vendors for contractual breaches; claims by injured people; and claims by people with property damage.

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