By Bill Pritchard, President & CEO
Over the last several weeks we have been asked multiple times about the applicability of environmental policies to the potential claims arising from the Coronavirus outbreak. Our response has been that yes, in certain circumstances some environmental policies should be responsive, but not all. We then discuss the key aspects of pollution insurance policies that come into play, and some of the issues related to an actual claim itself.
While this interpretation of existing coverage is important, there are also forward-looking coverage issues to consider. Understanding what can trigger an environmental policy, and where the coverage might be provided (or excluded), is very important for the many businesses facing this exposure going forward. While risks with the exposure may not have had the proper coverage in the past, they certainly should consider it now.
It’s important to remember that every environmental policy is different, with carriers having their own unique position on how to offer coverage. This development of forms in carrier silos has led to real differences in key aspects of the form, and thus the extent of coverage in any given situation. Some policies explicitly offer coverage for certain things, while others specifically exclude them. Finding the right combination of coverage and terms is the first step towards having a responsive policy.
Any review of potential coverage, however, needs to be tempered by an appreciation for the differences in actual claims filed and the role those differences play. How a demand is made, and the specifics of the allegation against an insured, are fundamental components of a coverage determination. While an insured might check all the coverage boxes regarding their form, the ultimate coverage decision will be based on the intersection of the demand and the policy in force.
There are key issues in the coverage form that need to be evaluated to begin the determination of whether coverage might be available. They include:
Does the policy define “Virus” as a “Pollutant”?
Fundamentally, environmental policies cover losses related to pollution conditions, and those pollution conditions involve defined pollutants. The most basic pollutant definitions include:
“Any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapors, soot, fumes, acids, alkalis, chemicals, and waste…”
For a policy to affirmatively offer coverage for viruses, the definition would need to include the term, or a functionally similar synonym. Some policies do this, including the term “virus” in the definition, usually in conjunction with other broad language.
Other policies put the word “virus” in a sub-part of the definition of pollutant. This might be a definition for “Microbial Substances” or “Indoor Contaminants”. Virus might be found in that definition, and then the parent term is inserted into the Pollutant definition. It is important to review these carefully and follow the chain of language all of the way to the source.
Many policies, however, do not specifically list “virus” as a pollutant, but do contain otherwise suggestive language that could include viruses. For example, the definition might include the phrase “including, but not limited to” language while discussing types of pollutants. This “silent” status means there is the chance a pollution condition including a virus might be covered, it is certainly no guarantee. In the absence of any other exclusionary language, the actual virus would have to meet some other part of the definition of “Pollutant” for there to be a potential for coverage.
Finally, some policies provide defined coverage for viruses as part of a sublimited coverage enhancement, often for disinfection costs. While this does affirmatively provide coverage for viruses, it is often at a more limited level than other pollutants, in many cases only providing for the cost of disinfecting the area without providing Bodily Injury, Property Damage, or related Business Income coverage. In addition, the sublimits on these coverages are often quite low.
Understanding where virus is defined, and what coverages are attributable to that definition are crucial.
Pollution condition or event
Another factor to be considered is how the policy requires a pollution event to occur. Many policies contain language that reads as follows:
“Discharge, dispersal, release, seepage, migration, or escape of pollutants…”
Clearly this language requires an action to occur. The pollutant must escape containment, or disperse, etc. to be covered. While dispersal may be easy to evidence in some situations, it might be prudent to look for “presence of” language similar to that used by some carriers for Mold and Legionella. This would remove the need to assign a particular movement to the virus.
The specifics of this will again be tied to where virus is defined in the policy. In some instances, it is part of “Microbial Substance”, and that specific defined term may be tied to a “presence of” trigger. You need to be very clear on this as you review policy forms.
Does the policy contain any exclusions related to “Viruses” or “Communicable Diseases”?
Many environmental policies specifically exclude coverage for viruses in the Exclusions section of the policy. The language can occasionally also be found as an exclusion within the pollution condition definition itself.
It is important to also review for exclusions related to communicable diseases, infection via bodily fluids, and other language that excludes anything transmitted from person to person. While possibly not using the word virus specifically, the exclusion would still apply to the transmission of a virus and effectively negate coverage.
Has a pollution condition occurred?
Assuming coverage exists for viruses based on the above criteria, you still need to have a pollution condition, or event, occur for coverage to be triggered. This is true for the Bodily Injury, Property Damage, Environmental Cleanup or Business Interruption coverages resident in many environmental forms. Without a Pollution Condition, there is generally no coverage triggered.
In the current Coronavirus outbreak, many losses have stemmed from the need for social distancing, and the closure of businesses by order or necessity. These losses stem from the threat of an exposure, not an actual exposure. Given this scenario, it is difficult to see how a pollution policy could actually be triggered in the majority of cases.
However, assuming there is a known case of transmission at a site, or the absolute presence of the virus is confirmed, it would be reasonable to notify the carrier that a pollution condition has occurred.
How is the claim presented?
As mentioned earlier, the final challenge when determining coverage stems from how the claim itself is presented. Policies respond to specific allegations, and the structure and phrasing of that claim has a direct and significant impact on the scope of coverage. This is of course why carriers don’t like to say things are covered or not covered. The only way to be sure is to see the actual allegations and details of the loss.
Taking all of the above considerations into account, there are many areas where this coverage would be valuable not just in hindsight but for risks moving forward. As we have all learned over the past several weeks, this is an exposure every business has. Agents will be working with their clients to determine if coverage should be pursued using traditional Risk Management principals.
A few representative risks who might consider the coverage include:
Facility based exposures
Many facility-based risks have been considering environmental coverage for some time. We expect the vast majority of them to look even more seriously at the coverage now. Senior Care Centers, Hospitals, Day Care Centers, Apartment complexes, Commercial Office buildings and more will need to explore coverage. Anyone who owns a facility will need to be concerned about visitors, residents, or even employees alleging they have been exposed to the virus at the site and contracted a related disease.
As outlined in the above section, these facilities will need to very carefully review what they are offered as they seek the broadest possible coverage. The ability to buy coverage for virus-related exposures will hinge on the facility’s procedures, safety measures and history. For healthcare-related risks, underwriters will want to know what their infectious disease protocols are, what are their maintenance processes, and what their historic loss experience has been. Commercial office buildings will have to have a regular and robust cleaning program as well as disinfection stations and more.
Carriers will be asking for a great deal of information in order to consider offering this coverage, and will most likely only offer it to the best-in-class insureds. Facilities with robust procedures will have the best chance of buying the appropriate coverage.
Operationally based exposures
There will be a growth in businesses going after the Coronavirus and related contamination concerns. Disinfection contractors, janitorial firms, restoration contractors, abatement contractors and more will be contracting to clean and disinfect commercial and habitational spaces. There will be a surge in environmental consultants shifting to exposure mitigation consulting and similar pursuits.
While all risks have an exposure to the virus outbreak, only those that can document they have experience with the tools and technologies used will be able to purchase coverage with affirmative coverage. Remediation contracting firms with experience in the field of hazardous materials handling, mold and asbestos abatement, and other specialized firms will be more likely to have the right credentials to qualify for coverage. Startups with no practical experience will have a much harder time finding coverage that includes virus as a named pollutant.
The true impact of the current crisis will not be calculated for some time, but it seems clear already that the economic loss will be in the trillions of dollars. Many of the businesses shuttered during this crisis will not reopen, and the future will most likely look a bit different than the past.
Despite all of that, it is also clear that we will work through this and come out the other side. We will learn new and better ways to run our businesses and keep our employees and customers safe. The insurance industry will be a big part of that resurgence, as we help our customers protect themselves going forward.
As carriers try to make prudent risk selections, it will be important for agents to support the process. Now is the time to overwhelm our carriers with details on why our clients are a qualified risk for this important coverage. Carriers will not be offering this to firms who don’t want to provide supporting information, or those that are only shopping price. Agents will need to work hard to advocate for their clients in an effective way. For those risks that have the right experience and expertise, there will be coverage for this dangerous situation going forward.