Coverage Options for Products Manufacturing Companies

Manufacturers face numerous and potentially severe environmental risks, whether stemming from their facility operations, products, services, waste disposal practices, or even their over-the-road exposures. Because they can be held liable for damages resulting from any of these sources, a thorough risk mitigation program cannot be considered complete without pollution coverage for these businesses.

Companies that produce chemicals, whether they are synthetic or organic, have the potential to experience a pollution problem. One of the most common misconceptions is that pollution events can only be caused by materials known to be hazardous. This is a mistake that can be very costly in the event of a release. Even products such as consumables (milk, beer, produce), natural cleaners, or other non-toxic substances have been associated with hefty liability claims when their uncontrolled release into the environment has resulted in business interruption, fish kills, wetland destruction, or other natural resource damages. Pollution insurance policies typically have an extremely broad definition of “pollutant,” providing a breadth of coverage far beyond those generally perceived as known and regulated threats to the environment. Common exposures and coverage used to address them include:

Presence or generation of contaminants.

Unlike many types of pollution exposures, manufacturing risks have a high level of inherent exposure in their operations. Whether it is the raw material used in the manufactured product, cleaners used in the manufacturing process, or the substances used to run and service the machinery, facilities have a significant on and off site pollution exposure. The exposure extends not only to the actual materials handled, but to the waste stream generated by the facility, as well as long term incremental contamination of the property. Exceeding discharge permits or contaminating the local ground water are both significant environmental liabilities all manufacturing risks face.

The coverage designed to address this exposure is:
Premises Pollution Liability (also called Site Specific Pollution Liability, EIL or PLL): coverage designed to address onsite cleanup of new or unknown preexisting contamination, as well as third party Bodily Injury & Property Damage and Cleanup costs.*

Manufactured product causes a pollution event.

A significant exposure for manufacturers remains the liability associated with the product. While most CGL programs provide coverage for the failure of the product, many exclude any pollution resulting from that failure. In the case of a manufactured product failing and releasing into a person’s eyes, into a body of water, onto the ground which leaks into the soil, etc., this could lead to a pollution claim. If a product is a blended chemical and it interacts with the environment improperly through miss blending, it could cause a significant pollution problem. It is important to recognize that the CGL carrier may be able to take any resulting pollution event and use it as grounds for declination of coverage.

The coverage designed to address this exposure is:
Products Pollution Liability: Coverage designed to respond specifically to the pollution element of a product failure.*

Contracting operations performed away from the site.

Some manufacturers may be involved in the installation of their product or in service after the sale. These job site operations can lead to potential environmental issues. Exposure can come from materials brought to the site by the service team (fuels, lubricants, solvents, cleaning agents, etc.) or from an actual accident caused by the service people directly, such as a cut fuel pipe, breached tank wall, etc.

Coverage for the liability associated with these operations is:
Contractors Pollution Liability (CPL): coverage used to address the insureds’ liability for pollution conditions they cause at a job site.

Disposal of waste – Non-Owned Disposal Site coverage.

Every manufacturing process generates a waste stream of some sort. This may be discharged under permit into the sewer system or a stream, or it may be collected in drums for disposal. Waste retention lagoons are regularly pumped and cleaned, with the resulting byproduct disposed of. As the generator of the waste, the manufacturer retains a degree of liability for the waste, even when it’s been properly disposed of. This can lead to claims at locations completely removed from the insured’s site.

Coverage for the liability associated with that disposal is called:
Non-Owned Disposal Site coverage (NODS): coverage that deals with the insured’s liability for pollution conditions at a non-owned disposal site. Some carriers provide for scheduled or blanket coverage for this endorsement.*

Over the road transportation of products, contaminants, or waste.

Transportation creates a wide range of exposures for all insureds. Whether it is the insured bringing in raw materials or delivering their product, or a third party hired by the insured disposing of waste, a spill on the highway presents an environmental exposure for the insured. This over the road exposure can come from the insured operating their own vehicles, or through their contingent liability for those they hire.

Coverage for the liability associated with that transportation is called:
Transportation Pollution Liability (TPL): This form is for the insureds’ liability for pollution conditions arising from transportation of their products or waste generated by their processes.*

* Each of these coverage lines can be endorsed on to the Premises Pollution policy. Coverage provided can still vary by carrier. It’s important to understand what the individual carrier’s endorsement states.

Claim Scenarios for Manufacturing Companies

  • Over the weekend, vandals climbed the fence at manufacturing & distribution facility. Besides breaking a few windows; they also damaged a valve on a 10,000-gallon tank of chemicals. The damaged valve leaked until Monday morning when it was discovered by facility employees. While most of the contents of the tank just needed to be removed and disposed of from the containment area, local environmental officials required subsurface testing of soils and groundwater so that total costs reached $90,000.
  • An unknown party illegally placed a container of liquid waste into a dumpster at a small manufacturing facility. The container leaked and contaminated the contents of the load which in turn contaminated the waste on the tipping floor of the transfer station. Clean-up costs and legal fees exceeded $150,000.
  • An automotive manufacturer was sued for polluting groundwater with vinyl chloride. A judgement of over $1 million was made against the manufacturer.
  • A tank failed in a manufacturing facility, which caused the release of 1,000 gallons of heating oil in the basement. The spill caused all operations at the plant to shut down. The insured had an environmental insurance policy which responded to the insured’s claims for business interruption as well as to remediate the oil spill.
  • A high tech manufacturing entity used to discharge rinse water from their operations directly into underground pits. In the mid-1980’s those pits were excavated and filled so that a new facility could be built on top of them. Years later, the local environmental regulatory agency and EPA found that drinking water wells in the vicinity of the manufacturer were contaminated and traced the source back to the manufacturing facility. The manufacturing facility settled with local property owners for over $15 million and the building which was built over the pits was demolished to extract the source of the regional contamination.

For more information on exposures and product details for manufacturing businesses, please contacts us.

*While the coverages we offer are designed to address these general issues, we make no guarantee or warranty that any individual policy we offer will respond to all issues as described herein. Please refer to the actual policy wording in each offered form to determine coverage applicability and acceptability.