Pollution Insurance: Liability, Programs, Costs & More
September 14, 2020
Pollution insurance and environmental liability are specific coverages aimed to protect against losses related to the effects of air pollutants and ground pollutants over a wide range of risks. Whenever there is potential for the contamination of air, water, or land due to the sudden and accidental release of hazardous materials, pollution insurance is advisable. This report provides a guide to the different types of pollution insurance and environmental liability coverages.
When in-force, environmental insurance provides first-party coverage of contaminated insured property. Typically, a policy will cover cleanup costs and may insure for releases from underground storage tanks. Intentional acts are expressly excluded.
Before the mid-1980s, pollution liability was included under standard Commercial General Liability (CGL) insurance. Since then, insurers began adding "absolute pollution exclusions" to their CGL policies, thus creating demand for pollution coverage.
The following excerpt from Coverwallet provides this description of pollution liability insurance:
Pollution Liability Insurance coverages are designed to handle related losses to the business carrying the insurance policy (1st Party) or losses caused by the business to others (3rd Party).
First party property losses are addressed by Premises Pollution Liability policies, which are designed to protect insureds from pollution losses related to property that they own, rent, or occupy. Environmental Liability Insurance is coverage for legal fees and judgments arising from third party claims of damage caused by pollution from the business.
Two types of policies cover third party liability pollution losses. Contractors Pollution Liability coverage provides both indemnity protection and defense of claims in which a pollution incident is alleged to be the fault of an entity engaged in building, developing, and general contracting. Pollution coverage added to Errors and Omissions insurance for Architects and Engineers can protect them from allegations of a pollution-related loss caused by their work. Pollution liability insurance for truckers is also important when taking into account the hazardous materials many truckers haul throughout the country.
Who Needs Pollution Insurance?
Pollution liability insurance is beneficial for companies that produce hazardous waste emissions as part of their manufacturing processes. Prime industries include oil, agribusiness, construction, excavation, waste depositories, and asbestos abatement contractors. Any business with risks to hazardous waste exposure, such as asbestos abatement or waste depository, needs pollution liability insurance. Protection as a precaution also extends to the owners of industrial sites that are not involved in hazardous waste. That's because the liability of underlying hazardous waste missed in the inspection of the property before purchase leaves the owner potentially responsible for losses due to pollution.
Many jobs that independent contractors will bid upon require them to have pollution liability insurance with proof of coverage before beginning work. Contractors need to protect themselves with pollution liability against any claims of pollution damage caused while on the job. Policies cover bodily injury claims and property damage and cleanup costs caused by contamination from toxic waste materials.
What Does Pollution Insurance Cover?
Despite being structured differently per case, the most common components of coverage for pollution insurance include:
● Claims from third parties for bodily injury, property, and environmental damages on an insured site
● Cleanup costs to remove pollutants found on an insured site
● Expenses related to emergency responses
● Expense costs in response to CDC required cleanups for disinfections
● Business interruption losses incurred due to pollution events
● Claims against insureds utilizing non-owned disposal sites
Coverage for claims relating to transportation of waste materials and disposal of hazardous waste to and from a site
Examples of Targeted Classes include:
● Chemical Products
● Paints and Coatings
● Cleaning Products
● Oils and Lubricants
● Remediation Products/Absorbents
Air Cleaning Equipment/ Products/Filters, etc.
Pollution Insurance Programs
A standard pollution program insurance plan will include:
● General Liability/Pollution Combined Form
● Products Pollution
● Pollution in Transit
● Bodily Injury and Property Damage
● Clean up coverage for Onsite and Offsite Pollution Events
● Non-Owned Locations and Non-Owned Disposal Sites
● Separate Limits or Claims Expense
● Outside the Limit of Liability
● Vendors Coverage
Prospective industries for pollution risk management programs include:
● Restoration Contractors
● Asbestos Abatement
● Mold Remediation
● Storage Tanks
● Above Ground Storage Tanks (AST)
● Underground Storage Tanks (UST)
Liquid Propane Gas Facilities
Premises Pollution Liability
Also known as Site Specific Pollution Liability, it covers first-party claims associated with the pollution condition on the premises of the insured. An example is finding that contaminated soil rather than clean soil was used to fill the space where a leaking underground storage tank was removed. Remediation costs are covered in such instances. Third-party plans associated with the pollution condition are also covered.
Contractors Pollution Liability (CPL)
Covers pollution conditions that cause bodily injury, property damage, and remediation costs caused by a liable contractor. CPL policies can be issued for projects specific to the contractor. They can also be part of an Owner Controlled Insurance Program or Contractor Controlled Insurance Program.
Product manufacturers and distributors with high risks for pollution-related claims associated with their operations, facilities, products, and transportation of goods also need CPL coverage. A CPL policy will generally cover cleanup costs, and in some cases, will include coverage for releases from underground storage tanks. Intentional acts are expressly excluded.
Errors & Omission Liability
Covers losses due to professionals’ wrongful acts, such as architects and engineers, while providing their services. A typical example is a soil engineer who provides a professional opinion that no underground storage tanks exist on the property. Then later, a failing fuel oil storage tank that is leaking into the ground is found.
Legal Defense Fees
Legal defense fees, which can quickly run into the millions, are included in pollution insurance policies. Insurers will pay legal expenses arising from pollution claims and will provide defense attorneys who specialize in pollution-related lawsuits.
Catastrophic and Non-catastrophic Coverage
A business that uses chemicals or hazardous materials during its operations requires coverage for accidents or oversights that can cause pollution. Coverage can include the costs of brownfield restoration and cleanup, liability for injuries or deaths caused by pollution. For these situations, two types of coverage are available:
● Catastrophic Coverage protects losses occurring from a sudden, pollution-inducing event such as a fire or explosion.
Non-catastrophic Coverage protects losses that arise when pollution occurs over a long period that causes harm to nearby businesses or residents.
Site pollution insurance will pay some of the costs incurred by insureds whose companies are required by law to clean up contaminants. Options to purchase stop-loss coverage to limit the amount a company will be responsible for during the cleanup are often advisable. Such coverage protects against escalating costs due to the discovery of additional pollutants identified during the cleanup process.
Property owners should include property transfer coverage when purchasing a parcel of land or a building polluted or contaminated by building a previous owner. It protects the new owner by paying for necessary cleanup costs due to an earlier owner’s pollution.
Energy-related insureds operate in a wide range of businesses, including massive oil field operations to contractors who focus on alternative energy sources. Energy risks include companies involved in the energy service and support industries. In comparison, those doing oil fieldwork are prime examples of energy-related businesses, various services in the category range from prep contractors and consultants to lease cleanup operations.
Excess Insurance offers additional limits above those covered by the underlying policy. The coverage is different from an umbrella policy because it does not increase the underlying policy’s terms or scope. Instead, it allows for higher limits to protect against unforeseen, catastrophic claims, and losses.
Underground & Above Ground Storage Tanks
A storage tank liability policy will cover environmental pollution cleanup costs due to releases from scheduled tanks at a tank owner's facility. Targeted classes include:
● Auto Dealerships
● Manufacturing Plants
● Hospitals/Medical Facilities
● Service Stations
● Convenience Stores
Petroleum & Motor Fuel Distribution Facilities
Standard Coverages for Storage Tank Operations include:
● UST/AST Physical Damage
● Third-party Bodily Injury & Property Damage
● Off-Site Coverage
● Clean-up or Corrective Action Costs
● Business Interruption
● Remediation Costs
Pollution Insurance Costs
Pollution insurance coverage costs can vary significantly. Premiums for a pollution liability policy can start at $2,500 with a $5,000 deductible. Limits are available up to $100,000,000 in some programs. Pollution insurance is a class of business that requires unique information for underwriting purposes. For more than many other coverage types, the insured’s information will affect both the underwriting provisions and the policy costs.
Best Pollution Insurance Programs
The key to maintaining costs and providing superior service for pollution insurance coverage and its unique exposures is to work with insurance carriers experienced with the class and who are active in the market.
Finding sources for pollution insurance online is made convenient and easy with the Program Business market directory. There you will find a listing for USG Insurance Services, Inc. It is an experienced pollution insurance program operator, a national wholesale broker and managing general agent (MGA) with 20+ offices across the country. USG represents a variety of A-rated