Kuraray : Dec. 2023, Management briefing material (U.S. EVAL Plant Fire Incident Investigation Results) (with script) (1809KB)

KURARAY CO., LTD.

Management Briefing

Session 1. U.S. EVAL Plant Fire Incident Investigation Results

Presenter:
Hitoshi Kawahara	President and Representative Director
December 18, 2023

Kawahara: Thank you very much for taking time out of your busy schedules today to attend the KURARAY CO., LTD. management briefing. My name is Hitoshi Kawahara, President of the Company. I will explain the investigation system in the following slides, but today, Director Tanaka is here as a representative of the Incident Investigation Committee, and Managing Executive Officer Omura is here as a representative of the Investigation Team established under the Incident Investigation Committee.

First of all, let me explain the purpose of the investigation. The EVAL Plant Fire Investigation results have already been posted on our website, so please take a look at that as well.

I would like to begin with an overview of the fire incident at the EVAL plant in the United States. This incident occurred on May 19, 2018, at the EVAL Plant of Kuraray America, a US subsidiary of the Kuraray Group. Fortunately, there were no casualties, but many workers of outside contractors were affected by the incident.

Following the incident, an on-site investigation was conducted by the US authorities, OSHA, the Occupational Safety and Health Administration, and the CSB, the Chemical Safety Board. The investigations have been completed, and the results and decisions have been made public.

In addition, civil lawsuits have been filed against Kuraray America in connection with this incident. 164 workers of outside contractors and others had demanded compensation for damages, and in April of this year, a settlement was reached with the last plaintiff, and a settlement has been reached with all plaintiffs, resolving the lawsuits.

With the lawsuits resolved, we are now in a position to verify the incident. In addition to addressing the technical and safety management issues raised by the US authorities' investigation of Kuraray America, Kuraray decided that it was necessary to conduct an in-depth review of Kuraray America's internal controls and governance structure, as well as litigation risks that are particular to the United States.

We believe that it is essential to investigate the root causes of the incident and steadily implement measures to prevent recurrence based on the results of this investigation to ensure that the same

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type of incident is not repeated. Furthermore, by horizontally disseminating the investigation results of this incident within the Kuraray Group, we aim to strengthen the safety and risk management systems not only of Kuraray America but also for the entire Kuraray Group.

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Next, I would like to explain our incident investigation committee and the method of investigation. In order to conduct an objective investigation of the incident, we established an Incident Investigation Committee in May of 2023, consisting of the five members listed on this slide, led by an outside director.

In addition, to collect data to be used for the investigation and conduct practical work, an Investigation Team was established under the Committee, consisting of internal members who have expertise in the relevant fields and are familiar with the Company's internal situation. The investigation team conducted its work from the perspectives of technology, governance, and dealing with litigation and reported its progress and results to the Incident Investigation Committee. The committee received the report, discussed its contents from an objective standpoint, and subsequently reported to the Board of Directors.

In the material disclosed on our website last Friday, we presented the contents of the report from the committee based on the deliberations, specifically, the background of the incident, the results of the investigation, preventive measures, the status of their implementation, and future efforts to further strengthen the safety management and risk management systems of the entire Kuraray Group.

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Next, I will provide an overview of the fire incident.

As mentioned earlier, this incident occurred on May 19, 2018, at 10:28 local time. The location was near what is known as the polymerization process of the second line of Kuraray America's EVAL plant. The 23 victims who were transported to the emergency center were subcontracted workers. There were a large number of subcontract workers on site because the plant was in the middle of a shutdown maintenance.

The actual events leading up to the fire are described on the slide, but the subcontracted workers who were working in the vicinity were affected by the fire when ethylene was released into the atmosphere from the pressure control valve ignited.

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Earlier, I mentioned the 3 perspectives of technology, governance, and dealing with litigation, but let me first discuss the technical aspect of the case.

Based on the results of interviews with the employees involved in the incident and the evidence collected and analyzed, we focused on the 3 items listed on the left side of the slide as the main causes of the incident conducted various analyses on them, and extracted the issues behind them.

First, an erroneous operating procedure caused an abnormal pressure to increase in the polymerization tank, and appropriate measures were not taken afterward. Measures to prevent recurrence include design changes to safety devices that do not rely on human operators to solve this incident, maintenance of operation work standards, countermeasures against unclear work instructions, and measures to compensate for the lack of operator understanding. These measures include visualization of the condition inside the polymerization tank on the control computer, which has been completed. In addition, in order to avoid the safety management system from becoming a mere formality, Kuraray America's corporate HSE, which is an organization that oversees occupational safety at Kuraray America, Inc. HSE stands for Health, Safety, and Environment, respectively, is strengthening its involvement in safety activities at each Kuraray America plant and working to improve communication with each plant.

Second, there was insufficient risk assessment and measures to prevent ignition risk after the safety valve was activated due to a lack of risk extraction for the release method of the safety valve discharged to the atmosphere. As a measure to prevent recurrence, after this incident, we changed the release port to a safer position that is less likely to affect employees.

Finally, the third point is the lax enforcement of restrictions on work-related permissions, including for fire-using operations and access by unrelated personnel during high-risk startup operations. At the time, the EVAL plant was undergoing shutdown maintenance, and there was inadequate interdepartmental schedule management and risk management for shutdown maintenance. As a result, a large number of subcontracted workers continued to perform construction, repairs, and other work that had been planned for shutdown maintenance during the startup process.

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As a measure to prevent a recurrence, we believe that the lack of career opportunities for the plant manager and other managers was one of the factors. After the incident, we enhanced the system by appointing personnel with expertise in production technology as the president and business manager of Kuraray America. As a countermeasure, relevant regulations were formulated and put into operation after the incident. In addition, there were no clearly documented standards regarding restrictions on entry by persons other than those involved in startup work and evacuation warnings in the event of plant malfunctions. After the incident, we have established internal rules and standards and started operation.

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Next, I would like to discuss the investigation from the aspect of governance.

Each production site in Japan had previously established an objective system of supervision and support from outside the production department, including the head office and site managers. On the other hand, at the time of the incident, Kuraray America's EVAL plant was being operated under an autonomous safety and disaster prevention system in which almost all operational decisions were made under the direction of the plant manager. Thus, there was a strong element of personal judgment on the part of the plant manager, and the governance system was easily influenced by the demands of local business.

As a measure to prevent recurrence, we have been working to strengthen the safety governance system based on the reflection of this incident since its occurrence.

Originally, Kuraray America was established in 2008 through the merger of a New York-based trading company, an EVAL manufacturing and sales company and SEPTON, an elastomer manufacturing and sales company both in Houston, Texas. The corporate HSE was created and expanded as part of the indirect functions. Still, its activities had focused primarily on responsible care certification and compliance with laws and regulations.

Since the incident, Kuraray America has been working on the safety management of production processes at each of its plants and occupational safety by appointing a dedicated safety manager at Corporate HSE. It is gradually preparing common guidelines for all Kuraray America plants and setting standards to be met at each plant. In addition, Kuraray America is strengthening its overall safety governance system regarding the four points listed at the bottom of this slide.

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Next, the investigation from the aspect of dealing with litigation.

In relation to this incident, 34 lawsuits have been filed against Kuraray America by 164 plaintiffs. In view of the fact that the lawsuits were related to the same case, we aimed to streamline and expedite the trial process by consolidating the trial procedures prior to the trial by jury. Still, it took approximately five years to resolve the series of lawsuits, and the settlement amount required for the resolution was approximately JPY80 billion. Out of settlement amount, approximately JPY10 billion was covered by insurance.

The lawsuits not only required an enormous amount of time and resources for the disclosure of evidence, recording of depositions, and evaluation and analysis of documentary evidence for 164 plaintiffs but also, as noted on the slide, plaintiffs had little incentive to accept early settlements. These factors made the litigation more difficult to handle, prolonged the time required to resolve the case, and resulted in a higher settlement cost.

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This slide includes measures to prevent a recurrence of litigation aspect of the case.

As shown in the investigation results, many unavoidable external factors contributed to the extended duration of time in dealing with the Lawsuit and the high settlement fee. However, based on this discussion, we are implementing the measures described on the slide regarding insurance policies, understanding the damage caused by the incident, and dealing with litigation risks specific to the US as part of our efforts to reduce future litigation and indemnity risks.

The first is an increase in the maximum amount of insurance coverage under the Group's common corporate general liability policy and the introduction of an owner-controlled insurance program at Kuraray America.

Second, Kuraray America installed additional surveillance cameras around the plant's perimeter and at entrances and exits, implemented a strict access control system, and introduced a process for obtaining testimony from on-site personnel.

Third, addressing litigation risks that are particular to the United States, we are providing education on information management and communication, particularly in the context of the discovery process.

These are the results of the investigation from the three perspectives of technology, governance, and dealing with litigation, as well as measures to prevent recurrence.

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