Inside This Issue:
- Contractors Receive Criminal Sanctions for Failing to Dispose of Canister of Fumigant Found at Jobsite
- Don’t Let Your E-records Turn into Smoking Guns
- Stemming the Rising Tide of Insurance Costs
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McLean, VA – July 9, 2002 (the June Workshop Sold Out)
Philadelphia – July 11, 2002
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ARTICLE #1
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Contractors Receive Criminal Sanctions for Failing to Dispose
of Canister of Fumigant Found at Jobsite
By: J. Kent Holland, Jr.
If you think the only people or companies that suffer criminal penalty under environmental laws are big-time operators that cause terrible pollution, you should consider what happened to a contractor and subcontractor that were demolishing a building and constructing a new grocery store. After commencing work, the demolition subcontractor found two yellow canisters designed to hold gases under pressure. They had labels bearing crossbones and marked “poison.” They also were stamped “Property of Reddick Fumigants.” Mr. Case, superintendent for the contractor and Mr. Jerkins, the owner of the subcontractor, knew that the site owner had conducted an environmental site assessment which did not indicate the presence of any hazardous wastes or containers. They proceeded to remove the canisters from the building and set them in an open on-site area with the intent to have an environmental company remove them from the work site. Apparently, a few weeks after they moved the containers, an employee of the project owner stole them from the site and took them home to his cousin who connected them to her propane stove and died from breathing the methyl bromide that leaked from the canisters.
Both construction companies and their employees, Case and Jerkins, were indicted by a grand jury and charged with illegal storage of hazardous waste in violation of the Resource Conservation and Recovery Act (RCRA). They were found guilty and sentenced to five years probation and fines of up to $100,000. Throughout their trial, and on appeal, the defendants argued that they were “small quantity generators” exempt from permit requirements for the storage of hazardous waste. They also argued that the canisters were not waste at all but that they were usable products that could be returned to their manufacturer for use for their intended purpose. The gas in the canisters weighed less than 100 kilograms.
The court held that the defendants could not qualify for “small generator” status because they did not “generate” the waste — they merely disposed of wastes that were already in existence. They were not “generators” since the canisters were “already waste when” the project owner for whom they worked bought the property. The parties submitted that they had no knowledge that they would not be considered generators who were exempt from the permit requirements. They also argued that they had no idea that “merely finding the cylinders on a jobsite or placing them on the ground without further containment constituted a felony.” And they argued that even if the canisters were waste, they had no such knowledge, and that this negated an essential element of the criminal offense.
In rejecting all these arguments by the defendants, the appellate court held that the canisters were clearly discarded or abandoned and that “whether it was done intentionally is of no moment.” The court affirmed the criminal judgments under RCRA, concluding that “the factual basis was sufficient to support the crime charged.” United States v. Sims Brothers Construction, 277 F.3d 734 (5th Cir., 2001).
NOTE: This case should serve as a warning to anyone working of a jobsite not to remove containers filled with hazardous materials (no matter how small they are) without obtaining professional advice concerning compliance with environmental laws. In this case the canisters were not even moved off-site. They were merely moved from one location to another at the same site. Had there not been an intervening theft of the canisters, it is possible that they would have been properly returned to their manufacturer or disposed of by an environmental firm since the contractors had discussed both of these possibilities. It does not appear that the parties involved had any intent to mishandle the materials, harm the environment or people, or violate any law. But the court held that none of that is relevant to the issue of criminal culpability under the RCRA environmental law. CONTRACTOR BEWARE.
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Article # 2
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Don’t Let Your E-Records Turn into Smoking Guns
By: Kahn, Kleinman, Yanowitz & Arnson Co., L.P.A.
Companies have good reasons to preserve e-mail and other electronic records for a specific period. And also good reasons to destroy records at the end of that period. But preservation entails more than simply storing information on computers, disks and tapes—and destruction entails more than simply deleting old files.
Why You Need A Policy: A 1999 study found that 92 percent of companies store records in electronic form, but only 28 percent developed a policy for retaining electronic records. To understand why you need a comprehensive policy for preserving and destroying electronic records, let’s examine the increasingly central role that e-mail and other electronic evidence play in lawsuits and other disputes.
E-records and e-mail in particular have become smoking guns—especially in lawsuits. For example, an employee-plaintiff might use e-mail against the employer-defendant.
E-mail is a nearly instantaneous medium of communication in which users: (a) Write or include information that they wouldn’t dream of expressing in traditional business letters, (b) Tend to be less inhibited about making derogatory or disparaging comments and may tend to use profanity and vulgarity, (c) Often hit the “send” button without considering whether they revealed more information than they should, (d) Believe e-mail is private and secure as long as it doesn’t leave the company’s internal communications network, and (e) Assume the deleting e-mail removes it from the computer and renders it irretrievable, especially if deleted without ever being printed out.
These points are particularly dangerous when we recognize that information available electronically can be easily and quickly transmitted to many locations worldwide. New drive-imaging technology can recover deleted electronic files from, for example, computer hard drives, disks, servers, handheld devices, cell phones, voicemail and other media. Additionally, company policy may require system backups that regularly save and archive information.
Elements of A Good Policy: Few courts differentiate between paper and electronic records. Recent changes in the Federal Rules of Civil Procedure limit broad electronic discover requests, particularly relating to e-mail, and allow a court to weigh the benefits and burdens of proposed discovery. A court can assess all or part of the costs of computerized discovery against the requesting party. So you should develop a comprehensive preservation-and-destruction policy that includes electronic records. Plan your policy carefully and apply it consistently. Consider these elements in developing your policy:
1. Backup. Develop a team composed of your managers, information technology staff and attorney to decide how often—and on what storage media—to back up and store all the data on your workstations, mainframe and network—including all files on company servers. Many companies back up their systems daily.
2. Retention. Work with your attorney to determine how long to preserve records whether or not governed by statute. For instance, consider how long you might need to maintain records that may be required to defend a substantial claim brought against your company. Also consider retaining all necessary software and equipment required to retrieve those records.
3. Organization. Catalog your electronic backup data—you might want to index it by date, user or any other criteria—for easy retrieval if needed for business, legal or other purposes.
4. Destruction. At the end of the retention period for each kind of electronic record, destroy the data. Don’t just delete it. You must “wipe” all tapes, disks, and other electronic storage media (and “scrub” hard drives)—or else physically destroy them. You can buy off-the-shelf utilities that will wipe and scrub, such as Symantec’s WipeDisk and Cipher Logics’ SecureDelete. Some companies establish a maximum of 60 or 90 days for retaining e-mail messages on individual employee’s hard drives, unless related to ongoing projects. Some systems automatically purge e-records, e-calendars or similar information, so you must act to retain them.
5. Exceptions. Don’t destroy evidence that is subject to a discovery request in litigation or that you are required by a court, or the the rules of a court, to retain; otherwise you may be subject to serious sanctions or penalties. Consult your attorney before you destroy any information that may be relevant to a lawsuit, dispute or litigation (even if you are not a party to that suit). You may need that information to defend or prove a claim that might eventually involve you. Consider establishing a special process of suspending regular document maintenance and destruction practices when litigation occurs.
6. Encryption. Consider encrypting some types of e-records, particularly privileged information. If you encrypt any data, keep a record of the encryption program used, the decryption passwords and decryption software in case you later need to produce the data.
Enforce Your Policy. Give careful thought to your retention-and-destruction policy because of the long-term ramifications that could result if a court orders you to produce electronic records. Of course, you must communicate your policy to employees and regularly inform them of updates and changes. Designate an employee or department to monitor the retention and destruction of electronic records. And enforce your policy consistently and firmly.
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Acknowledgement: This article is reprinted with permission from the March/April issue of “Legal Alert” newsletter published by Kahn, Kleinman, Yanowitz & Arnson Co., L.P.A., 1301 East Ninth Street, Suite 2600, Cleveland, OH 44114-1824; (216) 696-3311. For back issues of this newsletter, or additional information about the law firm, visit: http://www.kahnkleinman.com.
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ARTICLE # 3
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STEMMING THE RISING TIDE OF INSURANCE COSTS
By: C. Clay Haden, Esq.
One of the industries hardest hit in the aftermath of September 11 is the insurance industry. It is estimated that the insurance claims associated with the events of September 11 will approach, if not exceed $45 billion, which, by anyone’s measure, is the largest insurance claims event in U.S. history. And the insurance industry will absorb another blow with the Enron collapse, as most of the major sureties are exposed, and the losses are estimated at $2.5. billion. All of this means higher insurance premiums for businesses in all sectors of the economy, as the insurance industry attempts to recapture these massive losses.
Over the course of the next year, contractors could see worker’s compensation insurance premiums increasing 30 to 40 percent, property insurance premiums doubling, and premiums for umbrella policies more than tripling. Unfortunately, even contractors with outstanding loss prevention programs and relatively clean claims histories will not be immune from the increases. Of course, these contractors will fare much better than those who may find themselves unable to secure adequate limits of coverage, if any coverage at all. IN short, it is important for a construction business to take steps that will minimize these increases and reduce the burden of insurance expenses as a whole.
Renew Policies Early. In the short term, it is extremely important to renew policies early. Insurance companies look favorably upon contractors who renew policies at least 90 days prior to their expiration. Conversely, contractors who wait until the last month to renew their policies may be perceived as distressed businesses and be penalized with larger premium increases.
Develop Insurance Specifications and Shop Package Policies. Of course, early renewal should not come at the expense of proper planning. Prior to renewing current policies, a contractor should examine past claims events and reexamine company goals. A contractor should then, with the assistance of an experienced insurance broker, determine which coverages are best suited to the future needs of the company. The contractor will then be in a position to consolidate coverages into package policies with a single insurer, which often yields lower premiums.
Although early renewal and negotiation of package policies may yield favorable results, the premium levels and policy limits will hinge in large part on the contractor’s claims history and payment record, two factors which are not easily influenced (at least favorably) in the short term. Thus, aside from shopping for the lowest premiums, a contractor may also need to examine ways to reduce insurance expenses as a whole. Several ways a contractor can reduce insurance expenses are described below.
Eliminate Overlapping Coverages. Examine the coverage offered by each policy of insurance with your broker, with an eye toward spotting areas of duplicate coverage which can be eliminated. While this process may seem tedious, keep in mind that this is just good business. Why pay for something twice?
Transfer Insurance Risks to Others. Whenever possible, the general contractor should require the subcontractors and owner to carry insurance which names the general contractor as an additional insured. The contractor can thus obtain greater coverage without paying additional premiums. Conversely, if a contractor is requested to name another party as an additional insured under its own insurance polices, the contractor should carefully examine whether the policy limits will still provide adequate coverage for potential claims. Additional insureds effectively dilute the coverage available under the policy by increasing the potentional for claims without a commensurate increase in policy limits.
Assume Acceptable Risks. This method involves examining current polices and coverages and making hard choices about which insurance is truly necessary. For example, property damage coverage for older pieces of equipment which are nearing obsolescence might be eliminated. A contractor might also consider eliminating certain endorsements to its CGL policy, especially endorsements tailored to specific types of work that the company no longer intends to pursue. In short, a contractor should make a top to bottom assessment of whether the insurance coverages under its current policies are narrowly tailored to fit the specific needs of the company — eliminating unnecessary and extravagant coverages. Alternatively, a contractor might consider increasing deductibles on certain coverages. This typically results in significant premium reductions. Of course, no one should fly without landing gear. There are certain basic coverages and policies that every contractor should maintain, including basic CGL and umbrella policies with adequate coverage limits. And the advice of qualified professional should precede the elimination of any coverages. It is important to keep in mind that although taking on additional risk might yield significant short-term savings, it may also have serious consequences for the long-term viability of the business.
Perform High Quality Work in a Safe Manner. The best way for a contractor to influence premiums and overall insurance expenses over the long haul is by performing high quality work in a safe manner. Meeting these two objectives requires careful planning, good day-to-day management, and learning form past mistakes. Thus, in the current environment of escalating insurance costs, it is more important than ever that contractors develop and implement effective loss prevention programs, keeping in mind that such programs seldom succeed without the strong advocacy of upper management and the right financial incentives for employees in the field.
Develop Long-Term Relationships with Reputable, Reliable Insurers. Finally, remember that the lowest premium is not always the best premium. When purchasing insurance, a contractor should always examine the financial stability of the insurer, the quality of service that the insurer provides, and the specific coverage language in the insured’s policy. While it is tempting to ignore these considerations in favor of short-term financial savings, it is best to build a long-term relationship with a reputable, reliable insurer.
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About the Author: C. Clay Haden, Esq. is an attorney in the construction law practice of the law firm, Seyfarth Shaw, located in the Atlanta office at 1545 Peachtree Street, N.E., Suite 700, Atlanta, GA 30309; 404-885-1500; chaden@seyfarth.com.
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ABOUT THIS NEWSLETTER & A DISCLAIMER
This newsletter Report is published and edited by J. Kent Holland, Jr., J.D., a construction lawyer and risk management consultant for environmental and design professional liability. The Report is independent of any insurance company, law firm, or other entity, and is distributed with the understanding that ConstructionRisk.com, LLC, and the editor and writers, are not hereby engaged in rendering legal services or the practice of law. Further, the content and comments in this newsletter are provided for educational purposes and for general distribution only, and cannot apply to any single set of specific circumstances. If you have a legal issue to which you believe this newsletter relates, we urge you to consult your own legal counsel. ConstructionRisk.com, LLC, and its writers and editors, expressly disclaim any responsibility for damages arising from the use, application, or reliance upon the information contained herein.
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Copyright 2002, ConstructionRisk.com, LLC
Publisher & Editor: J. Kent Holland, Jr., Esq.
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