With a growing consciousness of pollution and a movement toward going “green,” businesses should be aware of the availability of insurance coverage for environmental claims.
“The good news is that courts, especially in Indiana, have sided mostly with businesses and interpreted insurance policies to provide coverage for environmental issues,” says Robert Clark, partner with Taft Stettinius & Hollister LLP. “Still, you need to be prepared.”
Smart Business spoke with Clark about environmental insurance claims and what businesses need to be aware of.
What kind of insurance coverage is available for environmental issues?
Most business policies can cover environmental claims. Almost every business has a comprehensive general liability (CGL) policy. Environmental coverage generally can be found through an interpretation of the provisions of those policies, particularly the older ones. The insurance companies have changed the language of the more recent policies to avoid coverage, but particularly in the older policies, most of which are applicable today, is where we find the coverage.
What kind of environmental issues do businesses run into?
We’re talking about environmental contamination from various forms of pollutants, like leaking underground storage tanks or contamination that results from an industrial operation. Sometimes dry cleaners cause groundwater contamination because the fluids they use, basically solvents, end up going down the drain and into the ground water. Almost anybody in manufacturing or who deals with petroleum products or solvents has potential to contaminate the environment. Even bakeries can do it. They put flour and yeast into the water when they discharge through their sewers, which sucks up biological oxygen demand, killing plants and fish.
How successful have businesses been when litigating with insurance companies?
The requests to the courts are usually for the cost of the investigation, cleanup and associated attorneys’ fees and expenses. Generally speaking, law firms have been very successful in obtaining coverage for these claims, particularly in Indiana. Indiana’s Supreme Court issued a series of opinions that interpret these CGL policies in such a way as to provide coverage for policyholders, and those opinions created a climate in the state that’s more liberal toward policyholders than almost any other state in the country. Therefore, the availability of insurance coverage for claims in Indiana is probably much higher for the typical business owner than it is in any other state.
Other states interpret the pollution exclusion language in the insurance policies to favor the insurance carriers. In Indiana, the Supreme Court has said the language is ambiguous and therefore construed it against the insurance company and in favor of coverage.
What constitutes an environmental claim?
This can be a sticky issue. There has to be a claim made against an insured or business before the policy kicks in. You can’t just say ‘I have some dirty stuff here so you have to pay to clean it up.’ Generally, there must be a claim. The questions are: What’s a claim? Do you have to be sued? Is an EPA letter telling you to clean up enough? Is an inspector being sent out enough? What if you voluntarily enter into a governmental cleanup program? Has someone made a claim against you? These issues frequently come up.
What are some bases for denial of coverage?
It’s tough to find one, but the ‘claim’ issue is pretty common. What typically happens is the insurance company will send a denial letter saying that its pollution exclusion covers this, which is often the case when you make a claim against a national insurance company. Those guys routinely send out denial letters, and business people think, darn, my insurance company denied coverage. The truth is, in Indiana, those denials are just wrong. The insurance companies interpret their policies incorrectly according to Indiana law, and businesspeople should know that just because an insurance company says they don’t have coverage, it doesn’t mean they don’t have coverage, particularly for an environmental claim.
How can a business safeguard itself against environmental hazards?
There are many ways. The best one is to comply with all the environmental laws and regulations, but unfortunately that doesn’t always get it done because a lot of the environmental laws are retroactive. You could have been doing something in the 1960s that was completely legal, and then somebody comes along and says, ‘Guess what, that’s no longer legal,’ and you have to comply.
What is the first thing a business should do if it runs into an environmental issue?
Talk to an environmental consultant or an environmental lawyer. Most small businesses don’t have the resources to have someone on staff who is responsible for such matters. An environmental consultant or environmental lawyer can offer compliance advice.
ROBERT CLARK is a partner with Taft Stettinius & Hollister LLP, with significant experience in environmental, commercial and science-based litigation. Reach him at (317) 713-3523 or email@example.com.