Government agencies are upping the ante on pollution liability.
By William Atkinson
As chair of the Safety, Environmental and Health Committee of the California Precast Concrete Association, William V. Reese, CPCU, has been working to increase awareness among precasters in that state of the importance of taking a serious look at pollution and environmental liability insurance coverage. Now he wants to take the
“Pollution liability coverage is a big area these days,” says Reese, who is the risk manager and an agent/broker with G lenn G oodwin & Associates Insurance Services in Redlands, Calif. “I believe this will become a nightmare for the precast industry if something isn’t done.” According to Reese, most states are enacting laws relating to water runoff and pollution of streams, etc. He also believes that pollution liability is
undersold by insurance companies and under-taken (not taken) by clients when it is offered.
“Pollution liability coverage is a big area these days. I believe this will become a nightmare for the precast industry if something isn’t done.”
– William V. Reese – Glenn Goodwin & Associates Insurance Services
“One reason for the lack of interest among precasters is that they think it is expensive,” he says. However, Reese believes that, on the whole, it is cheap. The reason is because precasters don’t realize they have an exposure in this area for which they might be called upon to pay hundreds of thousands, sometimes millions of dollars, simply because some environmental group has raised an issue with a local
governmental agency. “These groups may claim that stormwater runoff is polluting streams, or the perchlorate levels in the groundwater are increasing,” he notes. “Cities and counties are then eager to go after businesses that they perceive to be wrong-doers, even if there is nothing that can be proven. This is happening all over the United States.”
Fifty years ago, Reese notes, virtually no one was concerned about pollution. Thirty years ago it became a concern. However, the need for this type of insurance has not risen to the same level of interest that the concern for the environment in general
has risen among the public and among governmental agencies.
Reese notes that pollution and environmental issues are big in California, but they are also becoming major concerns around the whole country. “In sum, it is a nationwide problem, and it is going to get worse – and it is going to get worse fast,” he emphasizes.
The good news is that pollution liability coverage is much less expensive today than it was 10 years ago. One reason, according to Reese, is that there are more carriers offering this coverage. “I think that insurance agents do their clients a disservice if they don’t bring this type of coverage to their attention,” he adds.
Of course, obtaining coverage is only part of the solution. The other is to reduce your exposure as much as possible in the first place. A lot of what determines your exposure is your physical location. “If you are near water, such as a stream, river or lake, you need to make sure you are preventing any water runoff from your property,” says Reese. “Make sure the site drainage is appropriate for your environment.”
Another step is proper routine equipment maintenance. For example, according to Reese, if you do auto maintenance on site, you need to make sure you properly collect grease, oil and other liquids into a holding tank, which is then hauled away.
Another broker who is committed to getting the message out to businesses about pollution and environmental insurance coverage is Susan Neuman, Esq., J .D., Ph.D., president of Environmental Insurance Agency in Larchmont, N.Y., an environmental insurance brokerage that sells coverage from AIG, ECS, Kemper, Seneca, United Capitol and Zurich.
Neuman sees three possible areas of exposure for precasters and suggests that they assess all of these and determine if coverage is needed, and if so, what kind.
1. The first is manufacturing exposure, along the same lines Reese was discussing. “You may be using some hazardous substances during the manufacturing process that may spill or otherwise get into the soil or groundwater,” she explains. “As a result, there could be claims by an environmental agency to clean this up.” There could also be claims from individuals or other organizations. Neuman admits that these tend to be very low frequency events. However, they can be very high risk and high cost if and when they do occur.
To protect yourself, Reese recommends site pollution liability (SPL) coverage, also known as pollution legal liability (PLL) or environmental impairment liability (EIL) coverage. This covers liability, including cleanup costs and other remediation costs, as well as third-party bodily injury and property damage claims, arising from pollution conditions on, at or under the manufacturing site.
“Also, if your site is an old one that has been operating since the 1950s or 1960s before environmental laws went into effect, chances are pretty good that there were some ‘messy housekeeping’ and sloppy waste disposal practices back then, either by your company or whoever who operated the site before you did,” she says. This type of policy will cover these pre-existing environmental conditions, which is especially important if you are considering selling the site.
2. The second relates to installation exposure for precasters who engage in installation as contractors. That is, the installation process could pose an environmental or pollution problem. For this, Neuman recommends contractor pollution liability (CPL) coverage. This is primarily designed for environmental contractors, such as those who are involved in mold or asbestos abatement services. “However, it can be used for general contractors, whose operations might create pollution, such as damaging a sewer line,” she says.
CPL policies cover bodily injury, property damage and cleanup costs arising from pollution conditions created by a contractor’s activities. Neuman adds that it is important to note that traditional general liability policies don’t cover these exposures.
“In sum, it is a nationwide problem, and it is going to get worse – and it is going to get worse fast.”
– William V. Reese, Glenn Goodwin & Associates Insurance Services
3. The third is product exposure. If one of your products is defective, it should be covered by product liability coverage within your general liability policy. However, most general liability policies have a total pollution exclusion. “This means that if you have a product that creates pollution, this won’t be covered,” she notes. “For example, a defective septic tank could cause pollution.”
The solution here is product pollution coverage. This is not a separate environmental policy. To obtain this kind of coverage, you need to get a special general liability policy that does not have a total pollution exclusion and that does provide product pollution coverage. “You usually need to get these policies through a carrier that specializes in providing environmental coverages,” she says.
Regardless of which type or types of environmental and pollution coverage you want, Neuman emphasizes that it is important to deal with a very knowledgeable broker for these kinds of policies. “These policies tend to be different from traditional insurance
policies,” she explains. “These are highly technical and highly specialized.”
Sidebar: One Carrier’s Offerings
Not all property, casualty and general liability insurance carriers offer pollution and environmental insurance coverage. One that does is the Chubb Group of Insurance Companies, Warren, N.J.
One product that Chubb offers is what it calls environmental site liability (ESL). “Some people use environmental impairment liability (EIL) interchangeably with ESL,” explains John Gibson, senior vice president and product line manager for environmental at Chubb. ESL provides insurance for environmental damage as a result of existence hazards (the potential for liability associated with owning or operating facilities at sites).
For example, it covers toxic chemicals or fuel oils that are kept on the premises. It also provides coverage for bodily injury and property damage, as might occur if chemicals or fluids from your site end up on adjacent property, either in the groundwater or in the soil itself. The policy also provides coverage for remediation costs, such as if you discover problems on your premises and are required to clean it up.
The coverage can also be used in transactional situations, such as would be the case if you are buying or selling property, according to Gibson. “In fact, these days, when buying or selling property, almost all financial institutions require that you have environmental site liability coverage,” he says.
To protect yourself in general from exposures in this area, Gibson recommends arranging to have a site survey done by an environmental consulting firm. “They will determine if you have any issues and will also provide you with information on how to deal with anything they find, as well as how to mitigate future potential problems that might arise,” he says.
Chubb also offers contractors pollution liability (CPL) coverage. This covers the exposure resulting from the release of things such as fuel oils, chemicals or toxic gases from accidents such as broken pipelines or hitting underground tanks during excavation and installation activities. “Interest in these policies is increasing,” he says. “There was a time when contractors showed up and may or may not have had this coverage. These days, it is becoming more of a requirement.”
William Atkinson, Carterville, Ill., is a freelance writer who covers business and safety issues.