By Cy Lawson, Associate Broker
Emergency Cleanup Costs, Emergency Expenses, Emergency Remediation Costs… While it can go by many names, the concept is a common sight included among many different pollution policies. As common as it may be, however, there are many different definitions and variations throughout the marketplace that can have a significant impact on the value of this coverage to an insured. While the distinctions between each may seem small, they dictate when and how an insured must respond to emergency situations covered by their policy. Since there are just as many definitions as there are designations for this coverage, it is important to review and understand its stipulations on any given policy.
Before looking at the finer details, it’s important to know how a policy incorporates the coverage. While some carriers have it built into their base policy form, others must add it via endorsement. On certain policies, a sublimit may be applied while others use the full limits provided by the policy. However each carrier chooses to include Emergency Response Costs, the policy generally outlines what constitutes an emergency, what expenses are covered, and what steps need to be taken by the insured to utilize this coverage.
Defining an Emergency
Generally, many policies follow the notion that Emergency Response responds when a pollution condition, typically caused by the insured’s work, requires rapid response to mitigate further damages or loss. The specifics of its definition, however, can be far more restrictive. For certain carriers, Emergency Response is only applicable when facing “an imminent and substantial threat to human health or the environment.” The language used can be vague and subjective, making it difficult to define what an imminent and substantial threat is. Additionally, there are many pollution conditions that could occur that would not constitute an “imminent and substantial threat”; but these conditions could still be mitigated by taking immediate action, potentially vastly reducing costs that would have otherwise been incurred had the action not been taken. Others are far more lenient in their definitions, triggering Emergency Response for “all reasonable efforts to abate, stop, prevent, or reduce the damage emanating from any pollution condition…”; allowing the insured to take action to mitigate loss caused by less substantial emergencies.
The level of threat posed by the pollution condition is not the only restriction applied to how this coverage can be utilized. The location where the pollution condition occurs also determines whether coverage can be triggered. Many carriers also have stipulations on the timeframe in which Emergency Response Costs can be incurred. For some, only “reasonable and necessary” costs incurred within 72 hours of discovery of the pollution condition are covered. Others offer a 96-hour time frame, a 7-day time frame, or coverage until the pollution condition can be reasonably reported to the carrier.
Covered Costs & Insured Responsibilities
“Reasonable and necessary” are words often used to describe the costs covered, but further restrictions may apply. Coverage can be restricted to only costs incurred that prevent imminent bodily injury or property damage to a third party, or to those only incurred to prevent additional costs the insured would be held liable for, “pursuant to environmental law.” Certain carriers limit reimbursement only to “services rendered by another,” while others allow costs “incurred by or on behalf of the Named Insured.”
In addition to the discovery time restrictions previously mentioned, the insured is also obligated to notify the carrier. The expectation, usually, is that the insured must notify the carrier as soon as possible or practical, and the insured is typically given a maximum number of days from the date of discovery to notify the carrier. These can range from 7 to 14 days, depending on the carrier. Luckily, many carriers offer an Emergency Hotline, making it much easier report.
With the number and variety of possible restrictions that this coverage may be subject to, it is essential that there is a clear understanding of how the insured may be impacted. Depending on the insured’s operations and the potential exposures that they face, certain options can quickly become more or less appealing than others. Beacon Hill can assist in highlighting the differences and advantages between these coverages. For more information, please call (800) 596-2156 or email us.