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 Chris_Falbo@AJG.com or (818) 539-1320.