Pollution Liability Insurance

Pollution Liability Insurance

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What Pollution Liability Insurance Is All About:

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Our increased awareness of how the environment has been affected by our use of hazardous materials has been good for both the environment and ourselves. As part of that, we have become aware that we use hazardous materials and pollutants as a part of our everyday lives.

Pollution Liability Insurance is designed to address damage claims and suits involving pollution alleged to have been caused by a business or individual. In addition to liability protection, this coverage can also insure business property and operations from losses caused by a pollution incident.

Read on to learn more about what Pollution Liability Insurance is all about.

What Is Pollution Liability Insurance?

Pollution Liability Insurance coverages are designed to handle related losses to the business carrying the insurance policy (1st Party) and/or losses caused by the business to others (3rd Party).

First party property losses are addressed by Premises Pollution Liability policies which are designed to protect insureds from pollution losses related to property that they own, rent or occupy. Environmental Liability Insurance is coverage for legal fees and judgments arising from third party claims of damage caused by pollution from the business.

Two types of policies cover third party liability pollution losses. Contractors Pollution Liability coverage provides both indemnity protection and defense of claims in which a pollution incident is alleged to be the fault of an entity engaged in building, developing and general contracting. Pollution coverage added to Errors and Omissions insurance for Architects and Engineers can protect them from allegations of a pollution related loss caused by their work. Pollution liability insurance for truckers is also important when taking into account the hazardous materials many truckers haul throughout the country.

Do I Need Pollution Liability Insurance?

Entities that have risks related to the handling of pollutants and hazardous materials, design profesionals who work with projects where there are environmental issues as well as those who own and occupy premises that have environmental issues need Pollution Liability Insurance. They include:

  • Property owners and tenants whose buildings and land have a history of having pollutants on the property or premises. An example of a risk that would need Environmental Liability Insurance is a building on land that had an underground storage tank that leaked fuel oil before it was removed, contaminating the soil.
  • Contractors such as roofers who handle pollutants like tar as a part of their operations need Contractors Pollution Liability Insurance to manage the risk of their causing damage resulting from a pollution incident.
  • Architects and Engineers who are involved in projects which have issues related to pollutants need to add Pollution Liability to their Errors and Omissions Insurance to manage the risk of making a mistake regarding the presence or absence of pollution issues as they plan and execute a project.

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What Does Pollution Liability Insurance Cover?

At a High Level...

Pollution Liability Insurance provides the coverages needed by insureds with respect to pollution risks that are excluded in standard Property and Liability Insurance policies.

Getting Into the Details

The specific coverages for the policies are as follows:

Type of Coverage Coverage Afforded
Premises Pollution Liability Premises Pollution Liability covers First party claims associated with a pollution condition on the premises of the insured (example: It is discovered that instead of clean soil, contaminated soil was used to fill a space formerly occupied by an underground storage tank that leaked. The cost of remediation would be covered.) It also covers third party claims associated with the pollution condition (example: a person who is injured from breathing air contaminated as a result of the fumes from the soil mentioned above.)
Contractors Pollution Liability Contractors Pollution Liability covers the bodily injury, property damage and remediation costs for which a contractor who causes a pollution condition is liable (example: tar used by a roofer spills onto surfaces other than the roof and damages property in the process.) These policies can be issued to the contractor or can be part of an Owner Controlled Insurance Program or Contractor Controlled Insurance Program for a specific project.
Errors and Omissions Liability Losses that result from wrongful acts performed in the rendering of professional services (Example: A soil engineer renders an opinion that there are no underground storage tanks on the property. It is discovered that there is in fact a decrepit fuel oil storage tank leaking oil into the ground. Costs are incurred in properly addressing damage resulting from the error.)

The policies themselves provide two components of coverage. They are:

  • Indemnification to make the claimant whole after the claim for the pollution incident is made, and
  • Claims defense for allegations made by others of a pollution injury caused by the business. Even if there is no truth to the allegations made, the insurer is obligated to hire and pay for the legal representation required by the insured to defend against the accusations.

What Should I Know About Pollution Liability Insurance Coverage?

Although the losses can be covered on an occurrence basis, that is the policy that is in effect when the loss occurs covers the loss; policies are generally issued on a claims made basis. This means that the policy that was in effect at the time the loss was discovered and reported during the policy period covers the loss. These policies also contain a 60 day extended reporting period, and a longer one can be purchased for an additional premium.

In addition, as part of the insurer's defense obligation, the policy affords coverage for reasonable expenses to defend the insured in the event allegations of a loss are presented to the insured. Unlike General Liability policies, these costs reduce the limits of insurance available to pay for losses. For example, a claim is made against a policy with a Two Million Dollar Limit involving a lawsuit alleging a pollution incident was the fault of the insured. The case was tried to a defense verdict, and the legal expenses paid by the insurer were Five Hundred Thousand Dollars. The amount left to pay claims and defense expenses under the policy would be $1,500,000.

What Does Pollution Liability Insurance Not Cover?

Insurance policies do not cover everything. Pollution Liability Insurance does not cover the following:

  • Asbestos (in some circumstances the policy can be endorsed to provide coverage.
  • Contractual Liability (If the insured has a contractual obligation to provide coverage, it is not covered. However if there is liability absent the contract, or the contract is an, “insured contract,” such as a lease of a premises, the loss is covered)
  • Employers Liability (Covered by Worker Compensation, Employer Liability, Employment Practices Liability or Employee Benefits Liability depending on the facts and circumstances.)
  • Failure to Maintain Insurance (Example: The contract specifies a minimum limit of insurance the contractor must maintain, but the contractor fails to procure sufficient limits.
  • Fines and Penalties (These sums are intended to punish an insured rather than indemnify an injured party.)
  • Internal Expenses of the Insureds (Example: The salary of an insured's employee who is being deposed.)
  • Intentional Acts
  • Known conditions (Example: It is known at the time of application for coverage that a building has several roofs, some of which contain hazardous materials.)
  • Named Insured vs Named Insured (Example: One contractor named under a policy sues another contractor covered by the same policy.)
  • Non-owned storage facilities (Example: An insured is sued for contamination of a storage facility it does not own where it disposed of hazardous materials.)
  • Product Liability
  • Vehicles (Because an auto operates using pollutants, there is coverage for pollutant clean-up and removal of these pollutants)
  • War and Terrorism
  • Worker Compensation (An employee's injuries are covered by the employer's worker compensation policy.)

What Are the Limits of Pollution Liability Insurance?

Limits on Pollution Liability Insurance policies are generally greater than limits afforded on General Liability Policies. This is because instead of defense costs being in addition to the limits of a policy (like a General Liability or Auto Liability policy) these costs are included in the limit of a policy. There can be both a per occurrence and an aggregate limit in the policy (Example: a Policy can have a $2 Million per occurrence limit and a $4 Million aggregate limit.)

These policies also contain a self insured retention. This means that before the policy affords coverage, the insured is responsible for a set amount of defense and indemnity costs. For example, unfounded allegations that a contractor was responsible for a pollution event that resulted in contamination resulted in $25,000 in defense costs being incurred The policy has a self insured retention of $10,000. The insured will pay the first $10,000 of defense costs and the insurance company will pay the remaining $15,000.

How Much Does Pollution Liability Insurance Cost?

There are multiple cost drivers behind Environmental Impairment Insurance. For Premises Liability Policies, these factors include;

  • How the building is constructed
  • The history of the building's occupancy
  • How any existing pollution issues have been addressed.
  • The environment of the location being insured.

For Contractors as well as Errors and Omissions policies, these factors include;

  • The type of entity being insured
  • The entity's history
  • The volume of business
  • The pollutants that are on the property or being used by the insured.
  • The types of work the business performs.

In both cases, the prior history of insurance coverage and the claims history will also be used as factors to determine the premium charged.

Finally, in the case of Contractors along with Errors and Omissions policies, the premium itself is an estimate based on the information provided at the time of application. The actual premium is determined at the end of the policy term when the figures used to determine the premium are known and submitted to the insurer.

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