By Michael Tighe, Assistant Vice President
What are environmental liabilities and exposures?
Standard CGL policies define a “pollution event” in part as “arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants…” This very broad definition of a pollutant creates significant exposures for many businesses. These environmental liabilities are potential pollution-related problems that could result in a claim for a company or organization. Environmental insurance coverages are designed to respond to claims stemming from the release of pollutants into the environment. These policies are needed to fill a gap in coverage created by the pollution exclusion in the standard CGL policy.
Top 5 Coverages to Watch for in an Environmental Liability Insurance Policy
Insurance agents around the country understand the importance of including environmental liability insurance in their clients’ insurance programs, and many have become successful at identifying the coverages needed by the classes of business they work with most often. For these clients to receive the most appropriate coverage for their operations, they must work closely with their agents to analyze what is, and isn’t, included in their policies. All too often, gaps in coverage aren’t discovered until a claim is made. At that point it’s obviously too late to secure the correct coverage.
Here is a list of the top 5 coverages that can cause confusion in an environmental insurance related policy. These topics have been chosen because they are ones that are often misunderstood or require special attention.
Delimitation Dates are used by some Premises Pollution insurance policies. They allow the carrier additional flexibility in how they insure pre-existing vs. new pollution events. The delimitation date is usually the effective date of the earliest in-force policy. An example might be if there are current issues in the soil or groundwater, the underwriter may choose a higher deductible for new claims stemming from old conditions and will give them the flexibility of lower deductibles on new pollution events such as future indoor air quality/mold claims. A delimitation date also gives the carrier flexibility in offering a 1st party discover trigger on new events and limit prior conditions to a governmental mandate trigger. The delimitation date should remain the same on future renewal policies. It is important to review these ramifications when comparing between insurance carriers.
Mitigation/Rectification coverage – While most Contractor Professional/Pollution policies are for 3rd party liability, a select few insurance companies are offering 1st party Errors & Omission claim triggers for work in progress. Rectification, sometimes referred to as mitigation coverage, allows the named insured to put the carrier on notice of an error or omission that will result in a future third party claim. If the insurance company believes it’s warranted, they can rectify the issue now instead of allowing it to become a more costly event in the future. The coverage is usually claims made and sub limited.
Switching to occurrence mold – For over a decade Mold coverage was only offered on a claims made basis. Mold/microbial matter was often added as a claims made endorsement with a separate retroactive date and sublimit. Now occurrence-based coverage is readily available. Insureds will have legacy issues if they purchase occurrence coverage and do nothing to extend their ability to file claims for pending issues that have not been reported. Additionally, the coverage may no longer sublimited). Getting the next carrier to switch to occurrence and for the prior limit can be a challenge for agents.
Business Interruption – A Premises Pollution policy includes 3rd party Bodily Injury, Property Damage, and Defense for a covered loss. It may also include on and offsite clean-up. Remediation, decontamination, and restoration can take time and can shut down a location for many months. Business Interruption is an enhancement that will offset the additional costs of setting up shop elsewhere. The deductible is usually a time period before the policy will reimburse the insured for these expenses. The limit may be a time period or a dollar amount.
Notice of occurrence – This claim reporting provision is sometimes found on a claims made policy. It allows the insured to put the insurance company on notice that the insured is aware of an incident that may eventually turn into a 3rd party suit. This enhancement is a very cost effective way to extend the allowable time period for receiving a claim. Unlike an Extended Reporting Period (ERP), there is usually no additional cost to this benefit, however, unlike an ERP it’s specific to an incident the insured can identify and provide details of the occurrence to the insurance company.
For more information on these coverages and environmental lines Beacon Hill Associates can access for you, please contact us.