Over the past couple of decades, there
has been a surge of environmental liability claims brought against property owners. Fueled in part by environmental
statutes and state environmental cleanup
laws, the claims are often in the millions of
dollars.
The failure to have environmental insurance in place can lead to serious repercussions. “Currently, companies are under
even greater scrutiny when it comes to the
environment and can be faced with an
ever-expanding list of environmental liabilities,” points out Chris Falbo, area vice
president, environmental specialist for
Arthur J. Gallagher & Co.
Smart Business spoke with Falbo about
environmental insurance, the benefits that
this type of coverage provides and how to
go about selecting a suitable policy.
What is environmental insurance?
Environmental insurance provides an
insured protection from remediation (or
clean up) of pollution conditions and from
bodily injury or property damage that may
result from those pollution conditions.
Obvious examples include leaks from past
unknown underground storage tanks or
from past dry cleaner operations that may
have affected subsurface soil or groundwater and are required to be cleaned up.
Property damage claims may result if sub-surface contamination migrates from an
insured property and affects an adjacent
third party’s property, reducing the value of
that property. Indoor air quality, including
mold infestation can generate claims for
bodily injury. These are some of the more
obvious examples that may trigger pollution liability. However, I’ve also seen coverage for claims for hydraulic oil releases in
elevator shafts and for releases from
sewage lines that have required clean up —
situations that are less obvious to most
people.
How can having environmental insurance
benefit a company?
Pollution liability coverage benefits a
company by reducing its risk to environmental exposures. Prior to the 1970s, most companies could not have anticipated the
environmental liabilities that would occur
from the results of their operations and
previous waste disposal practices.
Pollution liability insurance can protect the
assets of a company faced with these risks.
What types of environmental insurance policies are available?
Essentially, pollution liability policies
break down into two categories: Those
that are considered fixed-site policies and
those that apply to service providers.
Fixed-site policies include pollution legal
liability, remediation stop loss, storage
tank liability and closure/post closure.
These types of policies are designed to
address contamination that is located at, or
emanating from, a specific property.
The policies that apply to service
providers include professional liability and
contractor’s pollution liability (C.P.L.)
types of policies. Professional liability
polices typically cover environmental consultants, professionals conducting environmental site assessments or designing remediation systems. Contractor’s pollution liability covers both environmental contractors and nonenvironmental contractors —
companies with operations ranging from
road construction to steel framing.
How should a company go about selecting a
policy that is right for its needs?
There are a number of companies currently offering these types of pollution policies. All have strengths, weaknesses and
specific appetites for the types of exposures for which they’re willing to offer
terms. We recommend soliciting competitive bids from all appropriate markets for
review. From there, the specific policy
forms and terms and conditions for coverage should be analyzed to identify potential
gaps that need to be addressed. This is the
point where a broker experienced in placing environmental insurance coverage can
be crucial. An experienced broker knows
where to look for those coverage gaps and
the best ways to address them.
How long should the policy term be?
It depends on the exposure to be covered. For professional liability policies and
contractor’s pollution liability policies, you
typically will have a one-year policy term,
although on C.P.L. policies, two-year policy
terms may be available in some instances.
For fixed-site pollution liability policies
that would cover a portfolio of properties,
policy terms range from one to three years.
Most clients opt for a three-year term,
which eliminates the need to address
renewal of the coverage each year. If a pollution liability policy is designed to address
a specific transaction, such as the sale of a
property, you would choose a longer policy
term, either five or 10 years.
How much does environmental insurance
typically cost?
Premiums can range widely, depending
on what the exposure is and the type of
policy concerned. A minimum premium
for a contractor’s pollution liability policy
is $5,000, and premiums can range from
three to more than seven figures for policies covering more complicated land transactions and large portfolios.
CHRIS FALBO is area vice president, environmental
specialist for Arthur J. Gallagher & Co. Reach him at
[email protected] or (818) 539-1320.
