By Patrick Manning, Vice President
When it comes to the energy sector, the understanding of very real pollution exposures has been evident for years. We see reports of various pollution conditions in the field all over the media, which keeps those in the industry focused on maintaining proper coverage in case a loss arises. One way well owners and energy companies make sure their servicing contractors are properly covered before coming onto their site is via a Master Service Agreement (MSA), which contains specific insurance requirements (generally including $5 million limits for pollution). An MSA is great for making sure that the servicing contractors have coverage, but what about coverage specific to the well that will help protect the well owner?
Generally speaking, well-owners carry Sudden and Accidental Pollution coverage for their site. Sudden and Accidental coverage exists to provide coverage for claims that occur and are detected quickly. Some forms require the loss to be discovered in as few as 3 days, while others give a longer but still limited period of discovery. Depending on what the well-owner’s discovery period is, there is a valid concern that if the discovery of the loss falls outside of that defined period, coverage may not be provided for that claim.
Other limitations that may exist in a Sudden and Accidental Pollution form include the absence of clean-up cost coverage. So, while a covered claim may handle Bodily Injury and Property Damage, it may exclude funds needed to clean the site of contaminants, which directs the financial responsibility back to the insured. In addition to clean-up cost coverage, there is also the question of how the policy will respond to Action Over claims and completed operations. Depending on the carrier and form, these coverages might also be excluded.
In order to provide broader gradual Pollution coverage to these well-owners, the go-to method used to be having the insured’s General Liability carrier exclude Pollution and then write a stand-alone gradual Pollution policy to respond to pollution claims. This worked well because the General Liability carriers would apply premium credits for removing the Pollution coverage on their form, making it financially advantageous for the insured to use this approach. It seems that these days, however, General Liability carriers are less inclined to give a reduced premium for removing the Sudden and Accidental coverage. So, how do we get our insureds the coverage they really need without it costing more than it should? A difference in conditions (DIC) Pollution policy could be an appropriate solution.
With a difference in conditions pollution policy we can put a gradual pollution policy in place that will help to fill in those coverage gaps that the General Liability carrier may have in their form. The Pollution carrier will take into account the existence of the underlying Sudden and Accidental pollution form and wrap around it, allowing for a premium credit to be applied to the DIC policy. This structure can be more accommodating for the insured by making broad pollution coverage both affordable and attainable.
If you’re a coverage-minded individual or insurance agency with well-owners on your book, contact us to see how Beacon Hill can put together a more comprehensive pollution program for your insureds.