Few insurers have appetite for coal-mining risks.

Best's Review spoke with mining expert Roger Hermann, who is a senior vice president with broker Aon Natural Resources, about mining risks, types of liability coverages available to mining companies, and the incidence of such fatalities in the industry.

It's a hazardous industry, so who is insuring coal mines these days?

You're right, not a lot of insurance companies have the appetite to do mining risks. But there area few out there. The largest insurer that's underwriting coal mines is American International Group Inc. Following AIG would be Chubb & Son, and once you get beyond that there really aren't a lot of large insurers. The smaller ones that come to mind are Old Republic Insurance Co., Rockwood Casualty Insurance Co. and American Mining Insurance Co.

How much do coal-mining companies spend, on average, on liability coverage?

The average industry account buys about $50 million in liability limits. A smaller mine might only buy $5 million, and our larger clients may buy $200 million to $300 million. What they get is an occurrence form that typically offers coverage for employers' liability, general or public liability, automobile liability and environmental liability.

What ate some of the factors that influence cost?

It matters whether the mine is above or below ground. The coverage is generally going to be the same, whether it's a surface mine of underground, but the premiums are going to be radically different. An underground mine is going to cost more to insure than a surface mine because they ate inherently more hazardous. In the U.S., there ate as many surface coal mines as there ate underground mines. It depends on the region of the country: In West Virginia, you've got a lot of underground mining and you have surface mining. As you move west, and you go into states like Montana and Wyoming, the bulk of the mining is surface mining.

What underwriting expertise is needed to write liability coverage for coal-mining companies?

One of the first things an underwriter looks at before they agree to provide coverage is the management of the company. They want to know if the company is well run, the experience of the management team, and whether or not the company is financially sound. Then, they'd begin to drill down to the specifics. They'd take a look at the company's safety program to sec if they are enforcing the program, look for violations, and physically inspect the site. Mining is heavily regulated, there's lots of public data on each of the mine sites, and the insurance companies utilize that data in pricing their product.

So, it's not completely impossible to find coverage, correct?

Well, if the mining company has a good safety record, they can find coverage. The problem the mining companies have is that coverage is expensive because of lack of competition in the marketplace--not a lot of people are willing to write mining insurance.

Does pollution coverage cover a blast, for example?

The pollution coverage that's available is for sudden, unforeseen events, such as an explosion, a rupturing of a dam, a retention pond, of the bursting of a vessel. These sorts of environment risks are covered in most liability programs. What isn't covered ate gradual sorts of events such as mine leaching and acid seepage. What is most important for miners is having employer's liability or public liability coverage--this covers the survivors of injured or deceased workers. Public liability covers nonrelated parties that ate damaged by a mining company's activities. Those incidents happen more frequently than dam breaks or tank ruptures.

How does the U.S. compare with the rest of the world when it comes to coal-mining losses?

In general, severity of coal mining losses in the test of the world is not the same as in the U.S., because, obviously, we're in a very, litigious society here in the U.S. and human life, sadly, has a higher value in the U.S. than it does in many other parts of the world. As a result of that, we're going to have much higher dollar cost per loss than we would if our mines, for example, were in Indonesia. On the other hand, frequency of coal-mining losses tends to be greater for non-U.S, exposure. That's because coal mining in the U.S. is very heavily regulated. In places like China, where they do a lot of coal mining, there's very little regulation by the government.

How would this West Virginia tragedy impact the coal mining industry?

What we might see is mining companies, as a result of this tragedy, purchasing higher liability limits. The miners have to have insurance coverage before they can turn the first spade of dirt. Another good thing that may come of this is a renewed focus on safety.