Playing It Safe: Areas of Focus for Safety Compliance

By Darren Small | June 02, 2008
New ethanol plants have been sprouting up throughout the United States over the past few years as the growing demand for renewable fuel draws new players into the industry. More than 160 ethanol plants have been built in the United States and more than 40 plants are under construction.

These plants are being built according to the latest technology and safety standards, and contractors strive to get projects up and running quickly. With so many new plants going up so quickly and with new entrants getting into the field, mistakes can happen. Even the most experienced, safety-conscious producers need to remain cognizant of possible accidents. The industry's rapid growth is reason enough to focus on the potential risk of these situations.

The process of ethanol production carries inherent risk because it involves distilling corn into ethyl alcohol. The flammable liquid, when handled improperly, could create a fire resulting in death, injury and significant property damage and loss of revenue. Insured property damage, including the loss of business income, could easily range from $100 million to $200 million. Ethanol production is a single-train process. If any of several critical components of the process is disrupted, the entire operation could be shut down for an indefinite period of time. Damage to the facility, therefore, could result in a significant loss of business income.

The insured losses from damage to the plant and a disruption of the production process could be steep, but the economic losses could be even worse. For every dollar of insurable loss, ethanol producers can face that much or more in economic losses. The economic losses could include, for instance, the losses of staff, market, feedstock, and additional costs in order to meet contractual obligations. It could also result in the loss of senior management's focus on the business at hand.

While property damage is a significant concern for ethanol producers, as with any industrial-sized producer, they also face the potential for losses from workplace injuries and a variety of third-party liability claims. The following is a look at the variety of concerns ethanol producers should remain cognizant of prior to and during operation. While the industry has a tremendous safety track record, accidents can happen at any industrial facility over time.

Fire Hazard
In businesses that deal with highly flammable liquids, fires are an ever-present threat that could put a facility out of production for months. While fires are a serious risk for any industry, they can be especially hazardous for ethanol producers if the fire is being fueled by ethyl alcohol.

Standard fire suppression foams are not 100 percent effective in fighting ethyl alcohol fires. Unless firefighters use an alcohol-resistant foam, these fires can be difficult to extinguish.

Fires can start in a number of different areas. The key area of concern is in the distillation process where high concentrations of alcohol are produced. Fires can also occur in the natural gas-fired distillers grains dryers if particulate matter or pieces of grain get stuck in the dryer.

The fuel tank storage area is another area where safe handling procedures are of utmost importance. Ethanol producers store both the finished ethanol product as well as gasoline (denaturant) in these fuel storage tanks. Lightning strikes, vehicle impacts and other external events can cause damage to this area of the plant.

Contractors need to follow proper "hot work" procedures when welding or doing similar work to minimize the risk of starting a fire.

Ethanol producers also need to take precautions in the ethanol load-out area, where the flow of liquid from storage tanks to a railcar can create static electricity. Sparks could trigger fires. The railcar and load-out area need to be grounded to prevent static electricity from building up.

Finally, as with any grain-handling system, explosions can be caused by dust, which can conduct electricity. The right mixture and amount of oxygen and dust stirred up from grain storage and handling can trigger an explosion. Such incidences, although infrequent, occur at grain elevators and handling facilities.

Natural Disasters, Premises Liability
In addition to fires, property can be damaged by natural catastrophes. In the states where many of these ethanol plants are located, such as Nebraska, Iowa and Minnesota, the main risks typically stem from floods or tornadoes. E3 Biofuels suffered minor tornado damage during its construction. Although not much can be done to avoid a natural catastrophe, ethanol producers can take steps to reduce the risk of a fire or explosion. To mitigate these risks, ethanol producers should follow National Fire Protection Association Standards as well as other ethanol and insurance industry guidelines.

Any damage to their property can set back production, disrupt operations and result in a significant loss of revenue. But events causing losses can arise on other fronts as well. As with all companies, ethanol producers could experience losses from workers' compensation claims, bodily injury claims, product liability claims, fines and clean-up costs for pollution discharges.

Ethanol plant workers and visitors should remain vigilant at all times to avoid slips and falls. Something as simple as a contractor forgetting to wear a safety harness could result in a slip-and-fall incident.

To minimize premises liability, ethanol producers should make sure to restrict the areas where visitors can wander to keep them from inadvertently injuring themselves. Ethanol producers should make sure their facilities meet Occupational Safety and Health Administration safety standards to minimize the risk of injury for their own employees and any contract workers.

Producers should also ensure that contractors have the appropriate insurance so that they are indemnified for any accident that was the result of the contractor failing to follow proper procedures.

Producers are also at risk if one of the trucks hauling their ethanol product gets into an accident. Even though the truck drivers are not employed by the ethanol producers, the producer can still be a target in any bodily injury or property damage lawsuit related to the accident. Ethanol producers should make sure that their contracts with the distributors or haulers, which employ the drivers, have hold-harmless clauses and that they are named on the insurance certificates so that they are indemnified in case of an accident or a spill.

Product Liability
Product liability claims are also a potential problem for ethanol producers. Ethanol itself is highly regulated and there is not much risk of a product liability claim related to it.

However, ethanol producers are at risk for product liability claims if the distillers grains sold to farmers is contaminated with mycotoxins and harms the livestock. The problem begins with the corn that producers use to make the ethanol. Corn can occasionally contain mycotoxins, which are produced by several families of fungus. During the ethanol production process, the mycotoxins in the corn can become concentrated, making the distillers grains potentially unsafe for consumption. If there is any adverse effect, the ethanol producers could be sued by the farmers who used the product.

In spite of the risks, ethanol producers have experienced few significant losses. The industry has been spared the complete loss of a plant and has not experienced any significant restrictions in the availability of insurance. With losses low, insurers have been more than willing to insure the property and operations of ethanol producers.

By understanding their risks and taking steps to mitigate them, ethanol producers can continue to avoid a major loss, keep workers and visitors safe, and keep their operations running smoothly.

Darren Small is assistant vice president of Chubb & Son and the biofuel segment leader for Chubb Commercial Insurance. Reach him at (908) 903-2000.