Pollution exposures may vary from one type of business or industry to another, but one thing they all have in common is that they won’t be properly covered under an insured’s standard lines of insurance. Pollution exclusions, whether they are a total exclusion or provide some form of limited giveback, leave insureds with critical coverage gaps that can place them on the hook for costly claims for cleanup, third-party bodily injury and property damage and can harm their reputation.

Since the late 1970s - early 1980s, exclusions to standard commercial general liability policies have been in effect, with clear intentions that these policies are not designed to cover losses resulting from pollutants.

Environmental liability has been driven by the enactment of two critical laws, Resource Conservation and Recovery Act (RCRA) and the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), and by the nature of environmental laws being strict and joint and several, meaning the Potentially Responsible Party can be held liable for more than their contribution and that they don’t have to be negligent to be held liable.

A pollutant, in reference to insurance coverage, is a broad term that can include any solid, liquid, gaseous or thermal, material matter, irritant or contaminant. Liability is triggered when a pollution condition occurs, typically through discharge, dispersal, release, escape, migration or seepage of a pollutant. It is important for an insured to be aware of the scope of risk their business faces, and that a pollution condition can be caused by a material that does not appear to be hazardous. Naturally occurring elements such as silt/sediment, mold and silica dust, food products such as milk, alcohol and food oils, as well as hazardous materials such as industrial chemicals, are just a few examples of materials that can result in claims for cleanup, tort liability and natural resource damage for which a business could be financially liable to address.

Environmental insurance policies are available to address several coverage gaps faced by a wide range of businesses. Here are some examples of commonly purchased coverage by businesses, their coverage gaps and environmental insurance solutions to close those gaps:

Commercial General Liability Policy (CGL) – Broadly stated, the CGL policy is intended to pay for damages the insured is legally obligated for bodily injury (BI) or property damage (PD) under the Premises & Operations and Products & Completed Operations coverage sections of the policy. The standard CGL policy includes a pollution exclusion that virtually eliminates all coverage for pollution incidents. The policy can be amended to provide some limited coverage; however, there still remains significant coverage gaps for damages resulting from BI or PD arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants. The pollution exclusion also eliminates coverage for any loss, cost or expense arising out of any request, demand, order or regulatory requirement to test, monitor, clean-up or in any way respond to the effects of pollutants. The pollution exclusion impacts both the Premises & Operations and Products & Completed Operations sections of the policy.

Depending on the operations of a business, there are several different environmental coverages that can eliminate most if not all of the coverage gaps created by the pollution exclusion. Coverage forms that should be considered include:

• Contractors Pollution Liability – primarily addresses Operations and Completed Operations
• Site Pollution Liability – primarily addresses Premises and Products
• Products Pollution Liability – addresses Products and Completed Operations

Commercial Property Policy (CPP) – The CPP pays for direct physical loss or damage to covered property caused by or resulting from a covered cause of loss. Whereas the CGL has a pollution exclusion, the CPP typically includes coverage for pollutant clean-up and removal under the additional coverages section of the policy. Although the policy may respond by paying expenses to extract pollutants from land or water at the covered premises, there are limitations in this coverage that create pollution coverage gaps. First, in order for coverage to apply, the discharge or release of pollutants must be caused by or a result from a covered cause of loss. Second, the amount of coverage, if available, is limited to $10,000 for all such covered expenses occurring during the policy period.

• Site Pollution Liability can eliminate most if not all of the coverage gaps for pollution that are found in the CPP.

Commercial Auto Policy (CA) – The CA policy pays damages for which an insured is legally obligated because of bodily injury or property damage caused by an accident involving the use of a covered auto. However, the CA contains a pollution exclusion which states in part the coverage does not apply to BI or PD arising out of the actual, alleged, or threatened discharge, dispersal, seepage, migration, release or escape of pollutants contained in any property being transported or towed by or handled for movement into, onto or from a covered auto. This is a significant gap in coverage for anyone hauling cargo that can be considered a pollutant.

There are several ways in which the CA pollution coverage gap can be addressed; these are:

• Commercial Auto broadened pollution endorsement, CA 99 48 – an endorsement to the CA policy which adds back some of the coverage removed by the CA policy pollution exclusion
• Transportation Pollution Liability (TPL) – this is a separate policy that address most of the coverage gap created by the pollution exclusion and is broader in scope than the CA 99 48
• Carrying both the CA 99 48 and TPL

Here are some considerations for environmental insurance policies to address pollution coverage gaps:

Contractors Pollution Liability - Contractors are more often being required to show evidence of pollution coverage for project contracts, and assume liability through contractual risk transfer and indemnification agreements, regardless if insurance is in place to cover the costs. It is important for contractors to have adequate pollution coverage to transfer their risk for pollution liability.

Relying on limited giveback endorsements on their CGL policy leaves significant coverage gaps, as these endorsements fail to address critical exposures or provide meaningful coverage for pollution exposures such as cleanup costs, work performed at a jobsite, non-owned disposal liability, natural resource damage, and pollutants such as mold, legionella, asbestos and lead. These endorsements also typically include a time-element restriction and don’t address gradual releases of pollutants.

Site Pollution Liability - Business of all types can be at risk for pollution incidents that occur at, under or migrate from their property. Pollution exclusions in Commercial General Liability and Property policies can leave businesses uncovered for claims from contamination onsite (building structure, soil and groundwater), contaminants that harm third-parties at the premise and contaminants that migrate offsite and result in third-party property damage, bodily injury and natural resource damage. Additionally, pollution claims can result from wastes generated at the facility and disposed of at non-owned disposal sites, and from any materials or wastes that are transported by or on-behalf of the business.

Due to the nature of environmental laws, businesses can also become liable for contamination that migrates to their property from a third-party source. This can also include materials that are dumped at the property by a third-party, often referred to as midnight dumping or illicit abandonment. If that source does not have the means to cover the costs or can not be found, the property owner can be left with the costs of cleanup and disposal even though they were not negligent in creating the pollution condition.

Products Pollution Liability - Entities that can have a products pollution exposure include manufacturers and distributors of products, and businesses that install, service, recycle, or recondition goods.

Products Pollution Liability insurance is designed to protect an insured against bodily injury and property damage liability resulting from pollution exposures from product use, failure, or defect. Products can include any goods manufactured, sold, handled, distributed, altered, or repaired by an insured. It can be available on a monoline basis, or purchased with a Site Pollution policy or a combined Environmental Facility package.

Transportation Pollution Liability - While entities can obtain the CA 99 48 endorsement under the Business Auto Coverage, Motor Carrier Coverage, and Truckers Coverage forms to cover cleanup costs, the coverage trigger is limited to an accident, upset or overturn of a covered auto. There are also additional coverage gaps that leave an insured at risk for pollution liability, such as emergency response costs and natural resource damage.

Transportation Pollution Liability (TPL) insurance can fill these gaps, and when added in conjunction with the CA 99 48 endorsement, maximizes the insured’s financial risk transfer. It can be purchased on a monoline basis, or can be included with Site Pollution and Contractors Pollution Liability policies, typically by endorsement.

UCPM has been a specialist in placing environmental insurance for almost 30 years. We have solutions to help you address the pollution needs of a wide range of businesses and industries. Visit us online at www.ucpm.com for more information.