In the aftermath of the devastating April 2013 explosion at a fertilizer plant in West, Texas, the city of West sued Adair Grain, Inc., which owned the plant, and CF Industries, which supplied the chemical (ammonium nitrate) that contributed to the explosion. The lawsuit, which includes allegations of negligence, institutional neglect and cost-cutting against Adair Grain and CF Industries, illustrates the dangers of inadequate insurance and poor risk management strategies for employers in the chemicals industry.
The suit alleges that while West Fertilizer Co. had only $1 million in liability insurance coverage, the property damage alone - including the destruction of several hundred homes, a nursing home and a school - could reach $100 million. That figure does not include the damages stemming from severe injuries to over 200 individuals, including broken bones and burns.
The lack of adequate insurance is likely not illegal as the plant was not required to carry additional insurance by state law. However, carrying voluntary liability insurance is a prudent measure toward protecting valuable company assets and maintaining good relations with business partners.
Complicating matters is the "voluntary" workers' compensation system in Texas, which does not require most employers to carry workers' compensation insurance. Importantly, however, vendors, distributors and customers may require proof of workers' compensation insurance from employers in exchange for their agreement to do business in Texas. In the lawsuit, the city of West charged that CF Industries did not require proof of insurance from Adair Grain. This means that the workers injured in the blast could be left without any recourse for their injuries and loss of pay.
The suit also charged that CF Industries failed to properly inspect the fertilizer plant to ensure that its product - the ammonium nitrate - was stored properly and safely. As the lawsuit demonstrates, providing a product to a vendor or storage facility does not end or eliminate potential liability for damages caused by the product. Employers in the chemicals industry must be vigilant about their own safety standards, but should extend that vigilance to the companies with which they do business. Performing a job hazard analysis is a good way to gauge risk in this context when doing business with storage facilities or vendors.
Finally, considering that the state of Texas has no state-run occupational safety program, the federal Occupational Safety and Health Administration (OSHA) had jurisdiction to evaluate the plant's safety standards. OSHA last inspected the plant in 1985 and issued only a $30 fine against the plant for improper storage of anhydrous ammonia - hardly a deterrent to the plant's lack of safety efforts.
Importantly, however, the Department of Labor has a history of pursuing safety violations against large companies. For example, Wal-Mart was recently forced into a $190,000 settlement with the Department of Labor for repeat violations.