How to tell if your business insurance covers pollution Featured

10:45am EDT September 1, 2011
How to tell if your business insurance covers pollution

If your company becomes involved with a pollution-related claim, there is a good chance your liability insurance will not cover it. There are several steps you can take to determine if your company needs extra coverage for such claims.

“First, a company has to establish whether there is any pollution coverage in its policies, then it must find out what that coverage is,” says John P. Azpell, AVP, director — client services at ECBM Insurance Brokers and Consultants. “Then, the company will have a better idea of what standalone coverage might be worth pursuing.”

Smart Business spoke with Azpell about how much pollution coverage is written into your current policies, and what types of exposures fall under this coverage.

How can a company determine whether it has pollution coverage in its standard policies?

The obvious answer is to contact your broker for a full review of the coverages available under the standard commercial insurance policy. For instance, the basic unendorsed general liability policy excludes pollution in its entirety, with very limited exceptions.

Those exceptions generally have to do with the release of pollutants from a heating, air conditioning, or dehumidifying system, or the release of pollutants from a hostile fire. ‘Hostile,’ in this case, means not a furnace but an accidental fire on the premises. If that fire causes the release of pollutants into the ground, then that resulting property damage and bodily injury will be covered. But the actual cleanup of pollutants is typically not covered in a standard general liability policy.

Why is it important to check your company’s policies for pollution-related coverage?

An unendorsed policy has those limited exceptions, but many insurance carriers add a total pollution exclusion endorsement to the policy, which can eliminate even those exceptions for coverage. Business owners should look for those total pollution exclusions, which can come in more than one format.

There is a total pollution exclusion that does exactly what it sounds like -- excludes all exceptions. Another is a total pollution exclusion with a hostile fire exception. That endorsement will exclude everything, even the release of pollutants from an air conditioning system, but it will cover pollutants from a hostile fire. The bottom line is that the business owner has to be aware there is a very good chance that its insurance carrier has added an endorsement to the general liability policy that further narrows, or even eliminates, any exception to the pollution exclusion.

What about pollution coverage in automobile insurance?

Commercial automobile policies also have strict pollution exclusions, with some exceptions. For example, if your vehicle is involved in an accident, and gasoline or hydraulic fluid that is used to operate the vehicle escapes as a result of the accident, coverage typically would be provided. However, if you are in the business of hauling gasoline or hydraulic fluid in a tanker, for example, that escaped pollutant would be excluded from the standard unendorsed automobile policy.

If you are a fuel dealer, gasoline supplier, or similar chemical company, there is no automatic coverage in a commercial automobile policy for the product you’re hauling. However, there are endorsements that can extend coverage for such operations. Only the cargo you’re hauling is excluded from the standard commercial automobile policy. If one of your insured vehicles was involved in an accident that resulted in the release of chemicals or gasoline being hauled by the third-party’s vehicle, the resulting claim would likely be covered by your commercial automobile policy.

What type of pollution coverage is typically written into property policies?

Commercial property policies generally contain very limited pollution cleanup coverage on your own insured site. Coverage is generally limited to $10,000 and must result from a covered loss. So it doesn’t provide coverage if your oil tank is leaking into your ground, but if a fire or some other accident that was covered under your policy occurred and caused a pollutant release as a result of that covered loss, the commercial property policy would provide up to $10,000 in cleanup coverage. Many carriers would consider increasing that limit, so it’s worthwhile to discuss with your broker if that can be increased.

What should companies that need more coverage do?

If your company is in the business of selling fuel oil or chemicals, it is important to have some pollution liability separate from the limited coverage available under standard policies. The types and amounts available under the standard commercial packages are very limited. However, there are specialty coverages available from many sources to cover more comprehensive pollution exposures.

Not only companies in the business of selling or transporting hazardous materials have exposure that is not covered under their standard policies. Contractors are also particularly vulnerable. For instance, a contractor may release a pollutant as a result of its operations on a third-party site. There is specific specialty coverage available for that exposure.

How would a company get started with seeking more comprehensive coverage?

Contact your broker for coverage details and quotes for specialty pollution liability and cleanup coverage. You don’t have to be in the business of manufacturing, selling or transporting hazardous material to need pollution coverage. If you have storage tanks for heating oil or propane, the release of those pollutants would not normally be covered under standard commercial insurance policies. You need to seek specific coverage, through site pollution coverage or specialized tank coverage. These coverages are readily available in the insurance market.

John P. Azpell is AVP — director, client services with ECBM Insurance Brokers and Consultants. Reach him at (610) 668-7100, ext. 1329, or