Hell on rails: the Industrial Accident Scenario: fires spread from a tanker car and jeopardize the facilities of Texas' largest city. "Houston, we have a problem," is the understatement of the day

Risk & Insurance, April 15, 2004 by David Miller

Operations resume, but only at reduced capacity. It takes more than a year before all the facilities are back in operation. Many businesses are disrupted by the damage to the port. Property loss is extensive: A commercial business center about half a mile from the port is badly damaged with most of its 300 commercial offices, hotels and retail buildings suffering severe structural damage from the blast of the LNG tank explosions.

Hundreds more buildings further away in Pasadena and South Houston suffer broken windows and other minor damage, requiring engineering inspections before they can be reoccupied.

Smoke densities overwhelm intake filters on air conditioning systems in many of the high-rise buildings in the eastern part of downtown Houston, resulting in minor smoke damage to interiors and spoiling of sensitive electronic equipment.

The evacuation of the city means that most businesses in the city are closed for at least three days, while some closest to the scene remain closed for a week or more, as damage assessments continue. Workers and managers are reluctant to return while the city's air quality remains poor. It takes more than 10 days to return to normal.

Dying plants in many areas show chlorine contamination in the soil and the water table. U.S. Environmental Protection Agency divisions have been monitoring contamination levels and cordoning off areas that remain above their safety guidelines. No one is allowed to return to live or work in the hardest-hit areas until the cleanup is completed. Property prices plummet as businesses and residents relocate out of the contaminated areas.

The costs to property and infrastructure are estimated at more than $5 billion. Workers' comp, life and health insurance payouts amount to around $1 billion. Business interruption losses are estimated at $10 billion to $15 billion. Only $3 billion to $5 billion is likely to be recovered from insurers. The longer-term economic impact of the disruption and consequential losses to other businesses is impossible to quantify, but is likely to exceed the direct loss costs.

Losses from a Hypothetical Industrial Accident in Houston

Type of Loss                               Total Loss    Insured Losses

Property and infrastructure damage           $5 billion      $3 billion
Workers' compensation, life and
  health costs                              $1.5 billion      $1 billion
Direct costs of business interruption    $10-15 billion    $3-5 billion
Other costs (e.g. emergency response)      $500 billion              --
Total Direct Costs:                      $17-22 billion    $7-9 billion
Estimated Human Losses/Injuries
Total number of people killed:                  600
Total hospitalized with serious
  injuries:                                   7,000
Total treated for light injuries:           250,000

Source: Risk Management Solutions

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In the early morning of April 16, 1947, as the French Liberty ship the SS Grandchamp, was being loaded with Marshall Plan ammonium nitrate fertilizer, a small fire erupted in the hold.