Comprehensive environmental coverage
In today’s environmentally conscious world, comprehensive environmental insurance has become as necessary for many businesses as general liability and automotive insurance. Driving the need are numerous liability risks, some of which will be detailed here.
Absolute Pollution Exclusion
Typically, Commercial General Liability (CGL) insurance does not cover environmental hazard remediation costs. In 1973, in response to a number of high-profile environmental contamination cases, the insurance industry began adding an absolute pollution exclusion clause to CGL policies. Insurance carriers took that step to protect them from covering the high cost of long-term and gradual pollution.
The exclusion limits coverage to “sudden and accidental” environmental events. When played out in a court of law, the debate becomes a question of whether a pollution incident resulted from years of malpractice in the manufacture, handling, storage, disposal or transportation of contaminants (pollutants) or whether it was “sudden and accidental.”
Just as businesses have become more aware of their environmental responsibilities, so, too, have insurance companies. They have developed flexibility in customizing coverage; adding enhanced endorsements; and providing on-site expertise for reducing risk.
Defining Pollutants
While it may read like a science textbook, the list of “pollutants” spreads its liability risks across many industries — making it an important topic for anyone in business to understand. A pollutant is defined as a “solid, liquid, gas, thermal irritant or contaminant, including, but not limited to” the following:
- Acids, Alkalis, Asbestos
- Dust, Fumes
- Hazardous Materials
- Lead, Medical Waste
- Mold, Radon, Silica
- Toxic Chemicals
- Waste Materials
When any of these — and more, not listed — are released into or on the atmosphere, buildings, land or water (including groundwater), there is the possibility of environmental liability. Such liability may include four areas of responsibility and cost: bodily injury, property damage, clean-up, and legal defense. Comprehensive environmental insurance provides coverage that closes the gap created by the absolute pollution exclusion.
Industries at Risk
The range of industries at risk for environmental pollution liability is broad. It includes, but is not limited to, the following types of business:
- Airports, Auto Dealerships
- Builders, Contractors, Excavators
- Chemical Producers
- Environmental Engineers
- Food Processing Plants
- Fuel Transporters, Gas Stations, Oil Terminals
- Golf Courses, Marinas
- Hospitals, Healthcare Clinics, Nursing Homes
- Landfills, Lawn-care, Pest Control
- Lenders, Real Estate Developers
- Manufacturing Plants
- Municipal Governments
- Power and Utility Providers
- Warehouses and Ports
- Waste Treatment Facilities
Because the range of potentially liable companies is so wide, it is important to note some of the contributing business practices they may have in common. Basic areas for consideration in assessing and reducing risk include, past property use, housekeeping standards, waste disposal (even at un-owned sites), incinerator emissions and wastewater treatment.
Good risk management addresses the following areas before they lead to environmental liability.
- Air Pollution Control
- Surface and Groundwater Protection
- Pesticide Management
- Hazardous Waste Collection
- Vehicle and Equipment Maintenance
- Land Use Planning
- Public Safety Planning
- Building Maintenance
Environmental Liability
“Environmental liability” is a legal obligation for actions — or inaction — that adversely affects human health and/or the environment. Environmental liability may be caused by the past or present “manufacture, use, release or threatened release” of dangerous substances. It is a field of risk with many federal, state, local and common (case) laws, which — for better or worse — is closely followed by the media and citizen watch-dog groups.
Environmental liability cases may result in significant punitive fines and judgments and even result in jail terms for those found criminally liable. For some industries, the risk of environmental liability is inherent in the product or service they provide. Those companies must minimize their risk and protect against worst-case scenarios with comprehensive environmental liability insurance.
Financial Obligations
Environmental liability may be categorized into areas of obligation. The major areas of obligation include:
- Compliance — Adherence to laws and regulations
- Remediation — Payment for cleanup of polluted sites
- Fines — Penalties for civil or criminal noncompliance
- Compensation — Payment for loss or damages
- Natural Resource Damages — Fines for damage or destruction of public natural resources
- Punitive Damages — Penalties intended to punish and deter wanton disregard
Federal Laws
Highly publicized cases have made the Environmental Protection Agency (EPA) a household name in America. The EPA delegates many federal laws to the states. Among the numerous federal environmental protection laws which have had an impact on the environment and business are the following statutes. The phrase summarizing each barely hints at the complexity of the law.
- Clean Air Act of 1970 regulates air emissions.
- Federal Insecticide, Fungicide, and Rodenticide Act of 1972 created control over the sale and use of pesticides.
- Clean Water Act of 1977 set water quality standards.
- Comprehensive Environmental Response, Compensation, and Liability Act of 1980 created a clean-up fund for the nation’s most dangerously polluted sites.
- Endangered Species Act of 1968 created a protection program for threatened animals, plants and habitats.
Numerous other federal, state and local laws impact the gamut of environmental liability and public safety. Perhaps most applicable to recent events is the federal Oil Pollution Act of 1990, created to strengthen the EPA’s prevention and response to “catastrophic oil spills.”
Minimizing Exposure
To reduce the odds of loss caused by environmental liability, the first step is to identify potential risks. Step two is to develop and enforce proactive management practices. Some private and public organizations create an Environmental Management System (EMS). Such a system puts in place processes and procedures for analyzing, managing and reducing negative environmental impact, based on international standards. Third-party accreditation in this area can result in greater operational efficiency and reduced risk — in addition to recognition for contributing to the greater global good of the environment.