Retail agents face many challenges, but one of the greatest is to convince a company in a clean industry to buy pollution insurance.
Most often, it’s not a required coverage and the companies wonder how they could incur pollution liability anyway?
What to do? Just cite the milk company. When a milk truck jack-knifed on a road and burst open a few years ago, milk containers fell on to the roadway and the contents seeped into a nearby waterway. The ecosystem was upset and the price tag to clean the stream hit $800,000.
And that’s milk. What could be purer?
“The fact is, almost every insured faces some kind of environmental exposure, though most don’t realize this,” says Gina Jones, director, specialty programs, at Burns & Wilcox.
”A small contractor working on a small remodeling job tears down a wall and suddenly becomes responsible for a complicated, costly asbestos cleanup. Similarly, when a painter repairs a crack in the wall and his painting disrupts the asbestos fibers inside the wall, he’s responsible. Neither contractor worked with asbestos or did anything out of the ordinary, but without coverage afforded by a contractors pollution liability policy, each could face steep defense and remediation costs,” adds Jones.
Clearly, a creative attorney can make a pollution case of almost any substance, says Marla Donovan, vice president, product development at Burns & Wilcox. William Bell, national environmental manager at Chubb, reports that sometimes clients believe they haven’t had an environmental claim so they don’t need coverage, but “absence of loss doesn’t mean absence of risk.”
“The way federal legislation is written, it casts a net so wide that insurers, unassuming property owners and organizations can be pulled into environmental liability lawsuits,” says Bell.
”And regardless of whether they’re held legally liable for payments, at end of day, there will be defense costs.”
Bell mentions a landfill out west that was established 45 years ago with government site approval and proper permits. But operating within the law was no shield for its owners, who recently received a notice from the government that they are being held responsible for pollution.
Insurance carriers have developed specialized policies to mitigate environmental risk for the past 25 years – since the identification of Superfund sites in the 1980s. Subsequent environmental litigation has made carriers pay claims for previously unknown risks they never intended to cover. Carriers tightened the language in general liability policies to create absolute pollution exclusions, then developed new policies to address those excluded risks.
“Superfund is still out there, but pollution liability has gone far beyond simple site pollution, and clients need to be aware of all the environmental liability they face,” Jones says. “An office building may have an oil tank used on site or a boiler or indoor air quality problem which can result in biological contaminants such as mold. Strip malls have dentists and doctors using X-rays, photo labs using chemicals, drycleaners or a gas station with underground tanks on the corner. Owners of the building or the small strip mall should require their tenants to have appropriate insurance so the burden of remediation doesn’t fall on them,” says Jones.
Environmental insurance includes both first-party and third-party forms and can address activities and operations that create or unleash pollution and the pollution events from a particular site. It’s truly a specialty area, since each insurance company creates its own proprietary policies, some taking a leaner approach.
The major types of coverage include:
- Site pollution liability
- Contractors pollution liability
- General liability for contractors and consultants
- Professional liability for environmental consultants
- Storage tank pollution liability
Beyond those, carriers provide specific coverages, either as special add-ons or as features included as part of a broad policy. These can include: transportation pollution liability; products pollution liability; employee benefits liability; microbial matter (mold), asbestos, lead, EIFS (exterior insulation finish systems) and silica liability; natural resource damages and non-owned disposal sites (NODS).
Many agents believe it is difficult and expensive to get environmental coverage, that they need an engineering background or a contact in the London market. Actually, environmental coverage is readily available for more carriers, and minimum premiums – which of course vary by size and type of risk, features and limits – are often less than expected. A contractors pollution liability policy frequently starts at $2,500, says David Price, executive vice president and chief underwriting officers at Burns & Wilcox.
Some agents are aware that a client has an exposure, but believe they need to be an expert in environmental coverage before bringing it to the attention of that client, fearful of questions the client might pose. There is help, though. For those in a larger brokerage, help may be within their organization.
Excess and surplus brokers and underwriters at Burns & Wilcox are another resource. A Burns & Wilcox professional can walk agents through all the steps and help match the clients’ needs with an appropriate policy from one of a dozen carriers it represents. This type of service is especially important, since each carrier’s coverage is different from the others, and retail agents need to present coverage that best matches the client’s needs.
“We have established a pollution unit for multiple markets to make it easy for agents to obtain a quote and buy a policy,” says Price. “Clearly, being aware of the exposures, and making the client aware, is the important thing. Agents know that if they fail to provide or offer the coverage, they could be subject to a lawsuit from an insured who doesn’t have coverage or wasn’t told of it. It’s a common E&O claim against the retail agent.”
It’s not just cautious agents getting involved in the environmental risk area, though. The fast is, “there are some brokers who have embraced environmental liability coverage and see that as their ‘in’ to new accounts. It’s a great door-opener to call new clients and talk to them about environmental,” says Bell.
The risk is there, and because of its complexity, a pollution-liability policy may become the lead coverage for the entire account. Make certain that it is the most appropriate policy, placed with a financially sound carrier that has good claims-paying reputation. “Environmental risk is a growing field,” says Price. “As government creates the awareness of more risks, there’s more need for coverage for things we haven’t thought of yet. Once an exposure emerges, we can perhaps see a way to address it by coming up with something new. It never gets dull.