Premises Pollution Liability also known as site Specific Pollution, EIL, and PLL, is designed to cover claims arising from pollution releases at, on, or emanating from a scheduled location. A “location” can be as broad as an entire piece of property or as narrow as a specified storage tank. Policies are almost always claims made and the pollution event and claim reporting must occur on or after the retroactive date. Coverage is triggered either by a claim for damages from a 3rd party, or by the discovery of contamination above “action levels” on the insured’s premises.
“Action Levels” are a very important concept and are set in every community on a federal, state or local level. They represent the allowable concentration of any contaminant for the area in which the contaminant is discovered. Policies clean up pollutants to the acceptable level dictated by the governing authority. In other words, if you have pristine land on which you spill diesel fuel, you will end up with whatever the allowable level of petroleum contaminants are for the area in which it was discovered.
Coverage terms are very flexible. They can be tailored to apply to only On Site Bodily Injury, Property Damage, and Clean up, or only off site, or both.
Who Buys This Coverage?
Landfills, agricultural, office buildings, dry cleaners, airports, storage facilities, warehouses, marinas, manufacturing, bulk storage, transfer station disposal sites, car dealerships, golf courses, water and wastewater facilities, recycling facilities, biofuel facilities, and medical facilities.
Additional concerns with indoor air quality issues, such as: Hospitals, nursing homes, rehabilitation facilities, other medical centers, college campuses, boarding schools, training centers, and other on-campus education facilities or meeting spaces.
Lenders Liability and property transfers
Commercial and residential properties, properties being purchased or sold, refinancing, donated properties, inherited properties. Where coverage is needed by lender, seller, or buyer. This is designed to cover claims arising from unknown pre-existing and known contamination below reportable levels. With this policy, the seller, buyer, and lender can all be named insureds. Real estate lenders have become more concerned with protecting themselves against environmental matters on their loan properties. This has become more prevalent as banks are increasingly finding themselves owners of foreclosed properties. Under the federal law CERCLA the current owner or operator of a property may be the responsible party for any found contamination, whether the current owners/operators caused the condition or not.
As a result, lenders may seek protection against future claims should they get dragged into litigation. Having a stable and reputable insurance company take that risk is often preferred over just having an indemnification agreement from the current owner. These insurance contracts can be used in conjunction with/excess of the seller’s indemnification agreement should their financial stability take a turn for the worse.
- Almost always claims made coverage. New condition/Retroactive inception coverage readily available as it only responds to pollution events that happen on/after the retroactive date.
- Coverage for unknown preexisting issues may be able with recent environmental reports (Phase I, II environmental survey assessments (ESAs))
- Covers both gradual/seepage issues as well as sudden/accidental issues.
- 3rd party claims for cleanup, for BI/PD & defense claims
- On- and Off-site refers to coverage for pollutants that are on Insured’s property and have migrated from the Insured’s property onto a nearby property.
- Natural Resources Damages- coverage for damages to natural resources.
- Mold coverage for claims brought by 3rd parties.
- A 1st party claims for property damage (cleanup required by regulators) may be available
- 1st party cleanup for government mandate
- Legal Defense costs
- Most policies include coverage for pollutants: located subsurface (soil or groundwater), on the surface and emitting into the air. As long as the source can be traced to the insured’s property offsite contamination issues could trigger the policy.
Site Pollution Exposures
- Water intrusion/moisture build-up and mold growth resulting from a variety of causes: landscaping errors; improperly positioned sprinkler systems; poor concrete work in basements; wallpaper that prevents the movement of air in the building and traps moisture, etc.
- Poor indoor air quality leading to “Sick Building Syndrome”; not only mold growth occurring in the building or ventilation system but also system releases of carbon monoxide or bacterial build up in the air conditioning or water systems.
- Air emissions from ammonia-based refrigeration systems that leak and create third party inhalation exposures.
- Existence of lead (paint and pipes) or asbestos (insulation and tiles) creating liability for third parties occupying or working in or around the property.
- Radon gas
- Other radioactive contaminants found on/in the soil
- Tenants leaving behind illegal methamphetamine labs and related chemicals that may not have been dispersed but have been abandoned. Clean-up costs for this exposure sometimes reach $100,000.
- Unknown contamination present in the soil or groundwater derived from petroleum products, dry cleaner solvents, oils, paints, cement, glues and VOCs (violate organic compounds).
- Unknown underground tanks.
- Surface water run-off, resulting in the spread of contamination to neighboring properties.
- Midnight dumping of drums or containers of waste at vacant land sites or unsecured facilities presents a very real scenario for a potential problem.
- Inadequate containment of loading/unloading areas that could result in the release of pollutants.
- “Attractive nuisance” exposure of waste containers that may contain improperly disposed of hazardous materials, potentially harming children at play.
- Release by Tenants from improper or inadequate storage/disposal of lubricant oils, primer and lab waste materials.
- Dust, fumes and noise pollution emanating from your property
- Electromagnetic radiation
Common Endorsements & Enhancements for Coverage
- Additional Insureds
- Asbestos, Lead, Mold
- Claim Trigger
- Covered Locations
- Diminution in Value
- Fines & Penalties
- Known Pollution Events
Things to Watch for in Site Pollution Policies:
- Governmental mandate trigger
- Definition of responsible insured
- Subsurface activity exclusions
- Reopener coverage with No Further Action letter
- Indoor air quality coverage only
- Notice of circumstance wording
- Claims made vs. claims made and reported
- Divested property limitations
- Hammer Clauses – On site loading/unloading limitations
- Illicit abandonment limitations
- Natural resource damages
- Radioactive matter exclusions
- Material change to property exclusions
- Naturally occurring substances exclusion
- Punitive damages exclusion
- In place asbestos/lead Exclusions
- mediation credits
- mental anguish terminology with the definition of bodily injury
- emergency response/mitigation coverage
- diminution of value
- ERP provisions
- self insured retentions
- per claim vs. per pollution condition deductibles
- loss of use expense
- disposal site issues
- temporary storage issues
- definition of responsible insureds
- phantom tank coverage
Common Client Objections to Purchasing Coverage
They don’t have a need.
They had a phase I or phase II inspection when they purchased the property and don’t see any exposure. Pollution condition may not be revealed by site assessment or may happen after taking possession of the premises. A pollution condition may be caused by a tenant.
They don’t see the benefit.
Transfer of risk vs. is a business decision that must be weighed. But the cost of cleanup for unforeseen events should be considered carefully.
They don’t have it in the budget.
The clean-up costs would put far more strain on the financials of the business than insurance costs. We have examples of a variety of claims scenarios for review.
A property owner had his drinking water well tested prior to selling his land. Testing revealed that the well contained an alarmingly high concentration of total petroleum hydrocarbons. Further investigation revealed that the source of contamination was several dozen drums of waste oil and maintenance fluids buried on a neighboring farm. Though the previous farm owner buried the drums, the current owner was nevertheless responsible for disposal of the drums, soil and groundwater cleanup, and bodily injury and property damage claims submitted by the neighboring property owner. Total costs exceeded $1,000,000 and caused the farmer’s bankruptcy.
A large college disposed of its science lab wastes in a 53-year-old, 20,000-gallon underground storage tank. The underground tank ruptured and contaminated the soil, the private wells and the groundwater that flowed into a nearby reservoir. Several third parties sued the university, with claims totaling $450,000. In addition, costs to clean up the reservoir amounted to $1.1 million.
A maintenance garage that used solvents for parts washing performed the work over a drain leading to an on-site septic system. Over time, the septic system leach fields migrated into the surrounding soils and groundwater. At the time of the septic system closure and conversion to a public sewer system, the contamination was discovered. Site remediation involved soil removal and the installation of a groundwater recovery system. The costs exceeded $720,000.
A strip mall owner upgraded the heating system for all of his tenants. While working in one of the stores, the contractor failed to vent the system properly, causing a release of carbon monoxide. Store employees and customers complaining of headaches and nausea were rushed to the local hospital. As a result, several bodily injury suits were filed against the strip mall owner.
A warehouse utilizing an on-site septic system experienced periodic chemical and contaminant spills when floors were hosed down and the washwater entered the system. After some time, samples from neighboring residential wells showed that contamination originated at the warehouse location. Soil and groundwater cleanup costs exceeded $365,000.
A manufacturer began expansion of a production line area. During excavation, oily soils with a petroleum odor were discovered. Further investigation uncovered an old, undocumented sludge drying pit, which the previous owner used back in the 1940’s. The manufacturer had to remove and remediate the soils at his expense. Cleanup costs exceeded $400,000.
An aerosol packaging plant located on a 17-acre site manufactured hair spray, spot remover and oven cleaner. The facility is near a river that runs through a neighboring town. The town discovered contamination in their municipal water supplies and was forced to close their wells. The town sued the packaging plant and settled for $780,000.
A fire started in a large landfill from decomposing waste. The fire burned and smoldered for several weeks, fueled by a variety of wastes and the lack of an adequate methane venting system at the landfill. Hot ashes, billowing clouds and a lingering haze of smoke and soot spoiled hundreds of acres of surrounding agricultural crops. The ensuring negligence claimed property damage and loss of income amounting to $1.7 million.
A dry cleaning operation dumped toxic chemicals into the soil and contaminated a shopping mall’s water supply. Even though the contamination happened over a period of time and filters were installed within the water supply system to remove contaminants, it was determined that the pollution continued to contaminate the water. Damages of $1.3 million were sought in a lawsuit to cover the cost of constructing and operating a permanent new water supply system to serve the affected area.
Employees of a California newspaper filed suit against the owner of their building seeking $10 million for illnesses resulting from exposure to several types of toxic mold.
Rising floodwaters in the Midwest USA mixed with over 75,000 gallons of crude oil from a nearby refinery, causing extensive damage to local businesses, farms and residents. The crude oil overflowed from a holding tank which has reached capacity. A class action lawsuit is currently pending.
A fire broke out in a medical office, which resulted in toxic fumes being emitted into the air. The insured was sued by nearby third parties and had no coverage nor defense via their General Liability policy. The lawsuit has not yet settled; meanwhile the insured has spent over $80,000 in defense costs.
At a brewery, an ammonia gas leak in the Refrigeration System occurred. Local Residents and employees who were evacuated sued for bodily injury. Local businesses that had to be evacuated sued for business interruption.
Toxic Fumes were released from a manufacturing plant when an accidental release from drums of acid and drums of caustic chemicals occurred. The fumes spread into the atmosphere and over a plant nursery, causing the plants to die. The nursery sued the plant for business interruption and loss of goods.
At a tire recycling facility, solvents that had been stored onsite leached into the ground and contaminated the water supply for a neighboring community. The community sued to recover costs for the design, construction and maintenance of a groundwater treatment plant to protect their water supply.
An off-site disposal facility for the batteries of golf carts was not in compliance with state and federal regulations. The golf course was held jointly liable for the pollution cleanup costs at the battery disposal site.
A large dairy farm’s generation of wastewater exceeded the farm’s permit requirements. Over a million gallons of wastewater, containing animal waste, was accidentally released into the surrounding area. Cleanup costs and fines exceeded $300,000, with third party claims still pending.
Two tenants of an apartment complex alleged toxic mold and fungi caused their asthma, bronchitis, cognitive deficits and impaired function of their immune systems. A Delaware jury awarded over $1 million in damages; however the award was reduced to $818, 390 after issues of comparative negligence were taken into account.
Several Maryland office workers filed a lawsuit seeking three million dollars for personal injuries arising out of exposure to toxic mold. The suit alleges that mold and fungi “were allowed to flourish” within the building’s 30 years old heating, ventilation and air conditioning system. Defendants are the current and former building owners, the current and former property managers and the on-site building supervisor.
In Delaware, two women were awarded $1.04 million after their landlord failed to fix leaks and mold problems in their apartment. Both women claimed the landlord’s negligence resulted in serious health problems in asthma attacks.
A financial institution was preparing a foreclosed site for re-sale. While the facility was unoccupied thieves broke into the structure in an attempt to steal wiring and copper piping. In the process the thieves damaged a transformer releasing PCB containing oil to the floor. The financial institution was responsible for the clean-up of the contaminated concrete and soils.
A residential community located one half of a mile from a landfill sued the landfill owner and operator for odor issues and devaluation of the property. The suit also alleged that truck traffic related to the site operations resulted in the release of contaminated dust to adjacent properties.
A self storage facility repossessed a locker from a renter who had missed several payments. Upon gaining control of the rental space they found 12 drums of hazardous material. The renter could not be found, so the owner of the storage facility was required to pay for the cost of disposal of the drums. In addition, soil and groundwater investigations were required due to staining on the floor of the unit which resulted in the need to excavate several tons of impacted soils.