By Ivy Riggs, Executive Underwriter
“You sold me the wrong policy!” is a terrible claim no producer ever wants to hear from their client…especially when it’s true. But being an expert in all product lines, and understanding the nuances of each, can be a challenge for even the most diligent of professionals. With highly specialized products like Site Pollution Liability insurance, it can be even more daunting. This overview will briefly explore one of the more common questions fundamental to this product: what is the difference between sudden & accidental (S&A) site pollution coverage and a sudden & gradual or “broad” site pollution policy?
The differences are numerous and were born in litigation. As headline-making tragedies like Love Canal caught the public’s attention in the 1970’s, it became clear that new legislation was necessary to address the legacy of indifferent and unregulated disposal of toxic waste in this country. Taking action, Congress passed the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA, or “Superfund”) in 1980. With its “polluter pays” mandate, it took the extraordinary step of creating strict and retroactive liability for the cleanup of environmental pollutants.
Because earlier versions of Commercial General Liability (CGL) policies contained only a qualified pollution exclusion or none at all, a surge of cleanup claims were filed against these occurrence-based forms, in some cases dating back decades. As losses mounted, insurance companies responded by denying such claims on the grounds that the CGL only covered S&A pollution. For example, a sudden spill from an accidentally severed fuel line might be covered, but not the gradual seepage of toxins over many years from an unlined waste pit. They also denied cleanup of contaminated sites on the basis of the CGL’s owned property exclusion. Such arguments were not always successful.
To reinforce their stance, however, some insurance companies developed the 1980’s first generation of site pollution policies that explicitly covered third-party liability claims from gradual or “legacy” pollution, in response to the demand created by CERCLA. By being written on a claims-made basis instead of the CGL’s occurrence-based terms, such policies would be profitable by controlling the long-tail exposure of such risks. Or so it was thought. In fact, pollution losses continued to grow, with the result that standard markets adopted the total pollution exclusion in 1986. Even in the specialty lines market, site pollution coverage became both scarce and prohibitively expensive for the narrow terms it provided.
A new, multi-faceted approach arrived with the 1990’s. Environmental engineers, geochemists, hydrogeologists, and other specialists increasingly made up the underwriting staff of pollution carriers. Their expertise facilitated a deeper understanding of the risks while strengthening loss control and profitability. Simultaneously, marketing efforts broadened to include a wider variety of target classes than ever before. By looking beyond traditional classes comprised of fuel depots, manufacturers and other hazardous waste generators, insurers crafted tailor-made coverage forms to better appeal to those clients who had traditionally self-insured their pollution exposures: e.g., hospitals, universities, laboratories, warehouses, hotels, and apartment buildings. Such enhanced diversity in the book of business helped to stabilize performance results over time, leading more carriers to enter the pollution marketplace.
Depending on the risk tolerance of each carrier, different types of site pollution coverage might be offered. At the narrowest end of the spectrum, only S&A coverage might be extended. Even standard markets in some cases have found it more profitable to provide a very limited give-back of S&A coverage—say, perhaps with a low $25,000 or $100,000 sublimit—rather than litigate the definition of pollution. At the broadest end of the spectrum, full site pollution coverage may provide not only S&A (often treated as a sort of “freebie”) but also first-party cleanup of both new and pre-existing contamination, third-party liability for bodily injury/property damage/cleanup, non-owned disposal site liability, transportation pollution liability, and defense. Additional enhancements that might also be offered include mold and other biological contaminant liability, products pollution liability, business interruption loss, emergency response costs, and mitigation of adverse media attention in the event of a headline-attracting pollution loss.
With more than 40 carriers currently competing for your business in the pollution marketplace, the choices available may feel overwhelming. This feeling may be compounded by the fact that there remains neither a standard site pollution form among carriers nor even agreed-upon definitions of key coverage terms. Fortunately, much of this work of comparing competing forms has been completed for you. Reaching out to an insurance specialist in the field of environmental insurance can help both you and your client feel confident that the proper coverage has been purchased.
For more information on environmental insurance and the products we offer, feel free to call (800) 596-2156. You can also contact us for additional information on Sudden & Accidental vs. Gradual Pollution coverage.