Environmental insurance (also known as pollution insurance or pollution coverage) is a type of business insurance product that is designed to respond to claims for loss or damage resulting from unexpected releases of pollutants. These losses or damages typically arise in the form of claims against insureds for bodily injury (a.k.a, toxic torts), property damage, cleanup costs, and business interruption. Insureds often think they have coverage for pollution releases under their General Liability and Property policies, however, in our experience, those policies either restrict coverage by having time-element clauses, exclude coverage for certain pollutants altogether, or do not provide enough limits to investigate a pollution-related claim, let alone provide enough limits to adequately respond to a claim or clean up a pollution condition.
The State of the Environmental Insurance Market
There are currently approximately fifty insurance companies offering environmental insurance products. The environmental market capacity is in the range of $4 billion. In the broadest sense, environmental insurance products can be categorized as follows:
- Products for site owners and operators
- Products for contractors and professionals
- Products for storage tanks
Insurers have developed products within these categories to support specific sectors, situations, and job sites/projects. Examples of sector-specific policies include policies for healthcare facilities, educational facilities, and real estate entities. Examples of policies designed to respond to specific situations include environmental policies over indemnifications, policies that facilitate transactions, policies that are excess over other environmental carrier forms in order to obtain additional limits, and policies that consist of combined General Liability and environmental forms with the goal of reducing coverage gaps, overlaps, and coverage disputes. Examples of job site/project policies include specific types of project policies such as restoration or green projects, and practice policies that can provide coverage for any project a contractor or professional works on during the year.
Types of Environmental Insurance Products
- Site Owner/Operator policies: also known as Site Pollution Policies (SPP), Environmental Impairment Liability Policies (EIL), and Pollution Legal Liability Policies (PLL)
o Stand Alone Site Owner/Operator Policies
o Combined General Liability and Site Owner/Operator policies
- Contractor Pollution Liability policies: also known as CPL policies
o Stand Alone Contractor Pollution Liability Policies
o Combined Contractor Pollution Liability and Professional Liability Policies
o Combined General Liability/Contractor Pollution Liability/Professional Liability Policies
- Storage Tank policies
Significant Environmental Regulations That Have Environmental Liability Provisions
There are numerous environmental regulations with which companies must comply. Not complying with these regulations could result in fines, penalties, and legal actions by environmental regulators or third parties. Some of the most notable ones that include environmental liability provisions are:
1970: Environmental Protection Agency (EPA) formed. Clean Air Act (CAA) becomes a law that regulates air emissions from stationary and mobile sources as a means to protect the public and regulate hazardous air pollutants. The impetus for this is widely believed to have been the beginning of the Earth Day movement and public pressure for Congress to adopt regulations to control air emissions.
1972: Clean Water Act (CWA) becomes a law that regulates pollutant discharges into the waters of the United States and the quality standards of surface waters. The impetus for this is believed to have been reports and studies that were done on various populations with respect to water quality such as fishing industry losses in the Chesapeake Bay, mercury levels in fish, and drinking water quality. It was determined that uncontrolled dumping was taking place into waterways which was compromising water quality throughout the United States.
1976: Resource Conservation and Recovery Act (RCRA) becomes a law. It provides a regulatory scheme for the generation, treatment, storage, and disposal of hazardous waste. It imposes requirements on facilities that conduct these activities to show that they have the financial means to respond to a pollution event if one occurs at their facility through state approved mechanisms, insurance typically being one of them. These mechanisms are used to show that a facility has the financial means to respond to third party claims and conduct cleanup operations related to pollution events. RCRA also imposes rules for certain storage tank owners/operators that include requirements for them to have proof of financial means to respond to pollution releases from storage tanks.
1980: Comprehensive Environmental Response, Compensation and Liability Act (CERCLA aka Superfund) Enacted in response to environmental incidents such as Love Canal and Times Beach. It provides for a Federal fund to clean up spills or releases of pollutants at hazardous waste sites. There are three types of liability provisions within CERCLA as follows:
1) Strict liability for cleanup costs on past and present owners and operators of sites, transporters to sites and any party that generated hazardous materials at a site. On a state level, laws have been enacted which require that certain properties be investigated in order for landowners and prospective purchasers to obtain relief from CERCLA liability.
2) Administrative orders or judicial injunctions to stop the actual or threatened release of hazardous substances at a site.
3) Liability on responsible parties for “damages for injury to, destruction of, or loss of natural resources”.
Glossary of Terms
The following is a link to a page on the Environmental Protection Agency website that is titled “Environmental Insurance and Risk Management Tools, Glossary of Terms”:
Some of the information for this page was obtained from the following source: www.epa.gov