Going “Green” with Environmental and Pollution Insurance

Environmental/pollution coverage is a practical way for a company to protect itself from the potential impact of a contamination event. It provides for bodily injuries, property damage, clean up of the contamination and the costs of defending the company from lawsuits filed by other parties as a result of the event. Pollution of the air, the ground, or water can come from contamination caused by chemicals or elements used by the company during normal operations or be caused by an accident incurred that releases toxins that are not under a company’s control.

Changes in environmental regulation can have significant impact on company responsibilities due to the requirements in the laws. Because environmental regulations involve every level of government (local, state, and federal), it can be a complicated and challenging task to make sure you are meeting all of the requirements that are named in the various laws. Many companies are under the mistaken belief that their general liability policy will cover them for environmental or pollution claims. Unfortunately, this assumption is wrong.

Since the 1980s virtually all general liability policies have excluded pollution and environmental claims. Some companies may have endorsements that can add a small amount of coverage for pollution/environmental claims, but the limits are usually very small from $25,000 to $100,000. For companies that deal with chemicals, fertilizers or fuels, these limits will not provide coverage for a significant spill or contamination event. In this situation, the company should consider purchasing an environmental/pollution policy with higher limits that will pay for any pollution or environmental loss that might occur. Although many businesses may not regularly deal with chemicals, fuel or fertilizer, pollution losses can, and do, occur.

The following are some actual examples of claims that have occurred:

• Years after a mechanical contractor had installed a heating/air conditioning system, mold and mildew growth in the duct work had caused poor indoor air quality. Claims against the contractor for bodily injury and property use loss exceeded $100,000.
   
• A county built a housing project at the location of a retired oil storage facility. The county bought the land for $1.  When the project was built, no environmental study was conducted. Tenants claim that they were exposed to toxins resident in the soil of the development. They sued for medical costs, loss of rents and the deaths of 38 residents. Defense costs and settlements are expected to cost millions of dollars.
   
• A utility contractor excavated a sewer trench and hit a gas line with a backhoe bucket. The gas release forced evacuation of the immediate area. Loss of business claims against the contractor exceeded $75,000.
   
• A general contractor used gas powered generators and equipment on building renovations but failed to properly vent or contain the emissions from the equipment during the operations. Employees working in a nearby area of the building became ill. The contractor was liable for causing building-related illnesses that resulted in 30 bodily injury claims totaling over $100,000.
   
• A road contractor sprayed a tack coat on a parking lot prior to paving. During the evening, a major thunder-storm caused the tack coat to wash off and flow into a nearby stream. The general contractor was responsible for cleanup costs which exceeded $200,000.

Only in the last example did the company regularly use chemicals or related items. So companies that would not normally consider their activities capable of generating a pollution claim can experience pollution losses. In order to be protected from the potential of an uncovered pollution claim, companies that use chemicals, fuel and fertilizers, should consider buying a pollution/environmental policy. Companies that perform work away from their premises should also consider this coverage in case those activities inadvertently release toxic elements into the environment and damage property or cause injuries or illness. Pollution policies can be purchased for as little at $1500 and can provide coverage for the actual injuries and damage, the clean-up costs and the legal defense costs for dealing with the claim. Limits usually begin at $1 million but can be purchased for many times that amount. A company should review its particular situation to determine the correct amount of coverage.

If you are interested in reviewing your business coverage or pollution and environmental coverage, please call Greg Nelson, Director of Commercial Lines at (949) 885-2287 or gnelson@wga.com.