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The Facts About Environmental Insurance

Which of the following commercial operations uses or may produce pollutants?

• A factory
• An apartment building
• A condominium building
• A school
• All of the above.

In fact, virtually any commercial enterprise has the capability of causing pollution. Factories use chemicals and produce hazardous waste. Schools have fuel storage for buses and chemicals in labs. Apartments and condos may produce mold and other types of bacteria. Older apartment buildings may also contain lead paint.

The potential for pollution damage is pervasive across industries and operations. Because of this, everyone in business should consider buying environmental insurance.

Environmental insurance has been around since the late 1970s and has evolved. Today, coverage is available from many insurance companies. However, choosing a policy may be daunting. Unlike with other types of commercial insurance, there are no standard environmental insurance policy forms. Consequently, there are more than 100 different products on the market today. None of them are exactly alike. The coverages provided by two policy forms may be very different.

In addition, unlicensed (or "excess line") insurance companies provide most of this insurance. It is legal for these companies to sell insurance. In fact, most of them are part of large insurance groups with familiar names. However, state insurance departments do not regulate their policy forms. Therefore, it is important to carefully review each policy's terms and conditions. This is the only way to determine whether it fits an organization's needs.

There are three basic types of environmental insurance policies:

• Environmental impairment liability, which covers pollution incidents at locations listed on the policy;
• Contractors environmental liability, which covers pollution incidents that arise out of the policyholder's operations;
• Professional liability, which covers the policyholder's accidental wrongful acts.

All environmental policies should cover the policyholder's legal liability for:

• Bodily injuries to others resulting from pollution incidents
• Damage to others' property
• The cost of cleaning up escaped pollutants
• The cost of legal defenses.

Some policies may also cover:

• The costs of damage to the policyholder's reputation;
• Losses resulting from fungi and bacteria;
• Lost rents;
• Loss of income from having to temporarily shut down; and
• Extra expenses incurred to keep from having to shut down.

Depending on the nature of the business, there are some important things environmental insurance buyers should watch for:

• Make sure the policy is the right fit. A policy designed for a manufacturer will not provide the coverage a hotel needs.
• Contractors should verify that the coverage applies to their completed operations.
• Make sure that the policy fills in the coverage gaps left by commercial general liability and property insurance.
• Ensure that it covers losses caused by fungi and bacteria.
• Make sure that it covers any contamination that the business may accidentally cause. Pollutants come in more forms than just hazardous waste.

Environmental insurance is complicated. Organizations should seek out insurance agents who have expertise in this area. The time it takes to review the coverages and options is well spent. 

Every organization has some vulnerability to contamination losses. The costs of these incidents can be catastrophic. With the proper insurance, they do not have to be.