An important element for anyone seeking pollution insurance is understanding the limitations in other coverages that may be in force, according to Jamin Valdez, a risk specialist with DLD Insurance Brokers Inc.
Smart Business spoke with Valdez about the different types of coverages available.
Who needs pollution liability coverage?
Who doesn’t? When people think of pollution liabilities, people primarily think of catastrophic events like Love Canal or the Exxon Valdez oil spill. In reality, pollution liabilities can span a large array of operations and business activities.
An initial thought is that a contractor might not be considered a prime candidate for a pollution policy, but in fact an issue could result simply from its day-to-day operations. All real estate owners are subject to pollution liability at one level or another due to their and/or their tenant’s operations. Possible exposures could include standard day-to-day operations causing a pollution condition; encountering polluted soils and/or groundwater; mold; issues as result of historical operations; or migrating pollutants left undetected due to adjacent property operations.
Have any new regulations recently been released?
Regulations that brought further light to this exposure include Sarbanes-Oxley and, more recently, Financial Accounting Standards Board (FASB) Interpretation No. 47 or FIN 47, which went into effect to fiscal years ending after Dec, 15, 2005.
These regulations are now in full steam, resulting in detailed scrutiny of corporate financial statements. With transparency requirements and environmental law, companies need to become more specialized and aware of remedies environmental/pollution markets present.
Is it a required coverage? If so, by what agency?
Certain agencies that authorize specific operations may require financial assurance that can be satisfied via coverage. For example a recycling or temporary storage and disposal facilities may fall under the oversight direction of the Department of Toxic Substance Control (DTSC). Required financial assurance could be satisfied by this route. Specific insurance companies have successfully negotiated coverage issues to satisfy DTSC requirements. A financial institution could impose coverage in order to obtain funding for a project as well.
What other lines of pollution-related products and creative placement capabilities are available?
Pollution coverage can be added to multiple lines of coverage. For example, a freight hauler that causes a pollution incident could have its transportation coverage supplemented with pollution. Large environmental projects that are estimated to cost millions of dollars could be evaluated and possibly placed to cap expense overruns associated with the project. Some package deals could include pollution, general and professional liability resulting in a decrease in premium for placing multiple lines versus individual placement of each.
Pollution liability coverages have the advantage of being flexible. One example is that coverage can be placed either on a site-specific or multiple-location basis, which could assist in achieving lower costs per site due to economies of scale.
Both site-specific and portfolio placements are available for multiple-year terms and could include pre-existing, new exposures, transportation, nonowned disposal sites, business interruption, mold or any combination of these coverages.
Coverage can be assigned to a new property owner in the case of property acquisition, making once-unattractive properties more attractive in today’s market. Coverage would also provide an additional layer of protection to unknown exposures that could be discovered during activities or tenant operations.
Why is it important to have pollution coverage?
Most general liability policies exclude coverage or provide extremely limited pollution and/or mold coverage, leaving the client with a gap in coverage.
A claim scenario that comes to mind is a residential portfolio served with a claim alleging bodily injury due to fumes from a unit’s heating equipment. The claim was sent to the general liability carrier and denied, due to the policy’s pollution exclusion language. Coverage for this exposure could be obtained through pollution markets and also demonstrates how pollution can take on many forms.
The old days of asbestos exposures have transformed into today’s termed phrase, ‘mold is gold.’ No one can predict what tomorrow’s contaminant of concern will be. Companies need to not only determine what they are doing to ultimately protect and maximize their own business capabilities but should also take into consideration the accountability to the communities in which they operate.
JAMIN VALDEZ is a risk specialist with DLD Insurance Brokers Inc. with an emphasis on environmental/pollution exposures. Reach him at firstname.lastname@example.org or (949) 553-5680.