Shutting Down a Capital City: How High Will Business Interruption Claims Go?

by Cozen O'Connor
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On Thursday, January 9, 2014, a major chemical spill into West Virginia’s Elk Rivet cut off water to more than 300,000 people in the Kanawha Valley and surrounding nine counties. The chemical leak was from a facility owned by Freedom Industries, just 1.5 miles upstream from a major intake used by the largest water utility in the state, West Virginia American Water.

The chemical released into the water was 4-methylcyclohexane methanol, known as MCHM, and is used in the coal-washing process. The leak at the Elk River storage facility came from a one-inch hole in a 35,000-gallon steel storage tank. A retaining wall surrounding the tank, which was supposed to serve as a failsafe, was scheduled for $1 million in repairs. Mike Dorsey, with the state Department of Environmental Protection, stated the agency believes 7,500 gallons of crude MCHM leaked into the river. When West Virginia inspectors arrived at Freedom Industries late Thursday morning, they discovered that the company had taken “no spill containment measures” to combat the chemical spill and were subsequently cited by the state Department of Environmental Protection for violating West Virginia's Air Pollution Control Act and the Water Pollution Control Act.

Thursday, Governor Earl Ray Tomblin declared a state of emergency and, the following day, President Obama issued an emergency declaration. West Virginia American Water immediately issued a “do not use” order, effectively shutting down every restaurant, hotel, bar, school and business in the Kanawha Valley, home to Charleston, the state’s capital city. More than 480,000 people live in the affected area — one-quarter of the state’s population.

The Charleston Gazette reported so many people were affected that “residents swarmed grocery stores, convenience stores and anywhere else with bottled water Thursday evening, and shelves were quickly depleted.” Water was being transported from a FEMA facility in Maryland to the affected counties, and distribution centers were set up to provide water to the affected residents.

Local officials described MCHM as smelling like licorice and looking like “cooking oil floating on top of the water.” The West Virginia Department of Health and Human Resources said symptoms of MCHM exposure include “severe burning in throat, severe eye irritation, non-stop vomiting, trouble breathing or severe skin irritation such as skin blistering. ...” The emergency order issued by Gov. Earl Ray Tomblin advises residents not to use tap water for drinking, bathing, brushing teeth, or washing dishes or clothes. Not even boiling the water will make it safe, authorities said. The New York Times reported Saturday that at least 122 people have gone to local hospitals complaining of nausea, vomiting, and skin and eye irritation

The site of the spill had not been subject to a state or federal inspection since 1991. West Virginia law does not require inspections for chemical storage facilities — only for production facilities. Although no charges have been filed against Freedom Industries, the U.S. attorney’s office has already begun an investigation into the spill. “Whenever you have a discharge of a pollutant or a hazardous substance you have potential violation of the environmental laws,” said Booth Goodwin, the U.S. attorney for the Southern District of West Virginia, according to a news report on WVVA.com.

Meanwhile, as of Sunday night, downtown Charleston remained dark and shuttered. The Charleston Gazette reported:

The chemical spill … has closed schools, stopped commercial flights and converted the state capital’s downtown core to a “ghost town.” [It] also painted an unnervingly clear picture of what can happen to a city’s infrastructure when a chemical spill shuts down its main commercial facilities.

Despite the best efforts of state and federal authorities, they have not been able to return business to Charleston’s otherwise active commercial core. The Charleston Gazette notes:

Dining is at the heart of Charleston’s tourism business, with more than a dozen restaurants centered in and on the affected area. The spill has also cut short much of the travel opportunities to the city, with hotels and bed and breakfast inns unable to provide any safe washing facilities. After the tap water ban went into effect, commercial flights were suspended temporarily due to an agreement between airlines and a flight crew union that requires certain levels of service to be available at travel destinations. Some flights have not been reinstated.

Although the effect of the spill on the city’s economy have not been quantified, local newspapers have encouraged business owners to “consult their insurance policies” and review them for business interruption coverage. With every form of business in the entire capital city shuttered for now days on end, business interruption claims can be expected to be both wide-ranging and substantial.

Cozen O'Connor has been retained by a number of our clients to pursue recovery efforts on their behalves arising from time element and property damage losses resulting from this event. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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