Let’s Clear the Air on Environmental Coverage
Deep breath in. Can you smell the fresh air? Maybe…maybe not…depending on where you are. Earth day is April 22, and I couldn’t think of a better time than now to share some basic information about Environmental Liability, also known as Pollution Liability. If you have a General Liability policy, why would you need Environmental Liability? You should be covered, right? Well, that may not be the case.
Environmental Liability was introduced in 1978 and was created as a way to close the coverage gaps from the pollution exclusions in property and liability policies. The standard General Liability policy provides little coverage for pollution liability. You still breathing OK now? I know, I know…you’re probably thinking you have very little reason to need this type of coverage. But, let me play the devil’s advocate for a bit.
The word pollutant contains a very broad spectrum of potential loss exposure. A pollutant could be a solid, liquid, or a gas. A manufacturer may produce fumes or vapor from their operation that, as a result, cause people nearby to get sick. A trucking company hauling fuel may be involved in an unfortunate accident, and in the process, release hundreds of gallons of fuel which run into a nearby pond contaminating the water. A convenience store that has underground fuel tanks could discover there’s a small hole in one of the tanks, and it’s been leaking unknowingly for some time causing the soil around it to become contaminated. Or, a contractor who’s doing demolition work could unknowingly come into contact with asbestos and it’s possible the cost of clean-up could be substantial. These are just a few examples of possible environmental claims that aren’t covered on your standard General Liability policy and may be covered on an Environmental Liability policy.
When shopping for Pollution Liability coverage, unlike most policies, there are no industry standards. The environmental insurance sector is constantly changing and evolving at a fast pace. There are more than 100 different environmental policy forms, which can make it confusing and difficult when comparing one option to another. This makes it very important to have open communication between you and your agent to fully understand your business needs and help ensure you’re purchasing a policy that best fits your risk exposure. Don’t be surprised if you’re asked to complete a separate application specifically for your environmental coverage; each carrier has its own application specific to the environmental form and underwriting guidelines it’s created.
There are many different variations of coverage that can be purchased, but they all come down to three different areas of focus — Environmental Impairment Liability (written for listed locations), Contractors Pollution Liability (written for contractors while out on jobsites), and Professional Liability. There are also more specific policies you can be purchase that target a particular risk, such as underground storage tanks, asbestos, and tanker truck spills…just to name a few.
Within all of these policies, there are common coverages you see throughout. Pollution Liability can typically cover 1st party losses (losses sustained to your business). You may also see the policy will cover 3rd party losses (bodily injury or property damage sustained to someone or something outside of your business). But, what about the cost to clean up the damage caused by your loss? You’ll typically see coverage for this as well. This policy could also help cover defense costs associated with a 3rd party claim. And not to overlook this point, there are many other coverage options available, such as Business Income, Extra Expense, and Reputational Damage.
When identifying and assessing the various risks your business is exposed to, Environmental Liability may not be at the top of your list. We get it. But, although your potential for a loss to occur may be low, when something does happen, it’s often very costly.
I encourage everyone who hasn’t considered Environmental Pollution Liability to identify areas where there’s the potential for a loss to occur and have a conversation with your agent about it. Environmental policies can be purchased at affordable rates right now and knowing you’re covered in the event of a claim will be a breath of fresh air. As always, if you have any questions about this, don’t hesitate to either comment below or reach out directly!