Environmental Insurance 101

By: Mary S. Busby, J.D., Assistant Vice President, Technical Environmental Leader
Gallagher Environmental Risk & Insurance

Unfortunately, because potential severity of most environmental liabilities facing organizations is so high, and the writing of this sort of insurance is such a specialty, environmental risk and insurance issues need to become a priority.

This article approaches the subject of Environmental Liability Insurance and Risk Management in a way that is as simple. We have endeavored to answer the most common questions in plain English. Because we talk with many clients on a routine basis we know you are thinking of this subject consciously, conscientiously and routinely when it comes to the well being of your organization. However, there are a lot more of you out there that do not give environmental risks and insurance enough attention.

We hope that our efforts here allow the subject to enter your thoughts and, in turn, reduce the overall costs of environmental risks to your organization.

"Is environmental insurance real? Does it really provide protection?”

It does not take a leap of faith to believe in Environmental Liability Insurance and Risk Management mechanisms. There is plenty of concrete evidence to consider regarding environmental liability insurance.

Underwriting of insurance designed to specifically cover environmental liabilities began over 20 years ago. We are NOT writing about litigation over old "Comprehensive General Liability" (CGL) insurance policies or the removal of or the numerous redrafting of the pollution exclusion by the Insurance Services Office (ISO). We ARE writing about insurance contracts that have the purpose of indemnifying the insured against environmental liabilities in the policy's Insuring Agreement.

Insurable environmental risks can include, but are not limited to the following:

1 The Comprehensive Environmental Response, Compensation and Liability Act (CERCLA, a.k.a. Superfund) which has as its purpose one thing - to act as an enforcement tool to make polluters and owners and operators of polluted property responsible for the cost to clean up that property,

2. The Resource Conservation and Recovery Act (RCRA) which has as one of its purposes making those responsible for generation, storage and disposal of hazardous materials and waste liable for the harm caused by the substances (including the need for cleanup) from the point of generation until the end of time,

3 . The Clean Water and Clean Air Acts,

4. Third party plaintiffs who claim to have been injured (whether property damage or bodily injury) by pollution.

These policies have specific and express insuring agreements that come right out and say "we will indemnify you for pollution events or incidents." They can be designed to cover the insured for cleanup at their owned/operated sites, whether that cleanup is on or under the site or it has migrated from or through the site. Since liability for cleanup of pollution is "Strict" (attaches without regard to fault), an insured may be liable for the entire cost to cleanup a site, even if they had nothing whatsoever to do with polluting the site.

This type of liability makes pollution liability coverage invaluable.

The coverage can also be designed to cover an insured for bodily injury or property damage that is caused by the pollution. Further, coverage is available for those non-owned disposal sites where the hazardous materials generated (stored or transported) by the insured are eventually disposed. This is where a truly bottom line, crippling, liability can hit your client, and they often don't know it. The policies may also cover the pollution incident that occurs along the route from A to B (e.g. the transport of the hazardous material to its disposal site, or the transport of product over the road or air or water or in a pipeline). Coverage is also available for MOLD, ASBESTOS and LEAD.

These policies are specifically designed to indemnify the insured from environmental liability. They don't just say "pollution" somewhere on the page.

"Do environmental insurance carriers pay claims? I've heard that they don't pay, or you have to sue them to get paid."

Once upon a time, there was a rumor - that environmental insurers do not pay claims. Oh, the power of the rumor. It simply is not true.

You can believe us, or you can believe the evidence we have in our files. Environmental claims are probably the least litigated claims in the entire insurance industry. Less than 1% of environmental claims are litigated. They are usually paid outright or settled within a reasonable time.

Who do you call for environmental claims assistance?

We always advise you to call coverage counsel within the state to which any choice of law provision in the policy applies. In addition, competent environmental insurance brokerage assistance must be used. As environmental insurance brokers, we act as advocates in claims discussions with carriers and often make progress in the right direction.

"I think I can do this myself. I don't need you, do I?"

As environmental insurance brokers, we hear this a great deal from our colleagues and, often from counsel and traditional risk management clients. Our advice is simple, if you focus all of your time on identifying and analyzing environmental risks in terms of potential frequency and severity, and then designing and negotiating environmental insurance coverage terms and conditions with the appropriate environmental underwriters, then, by all means, proceed.

These policies are routinely manuscripted to meet specific needs of the risk and the situation (e.g. transactions, operations, mergers & acquisitions, etc.). The answer is "No, it is not safe to go it alone."

Gallagher Environmental Risk & Insurance (GERI) specializes in providing environmental risk management and insurance services. Our role as an industry leader in this area is to identify potential environmental risks facing our clients and recommend risk control and financing program mechanisms available to address these risks. For more information contact Mary Busby at 440-338-3259 or Mary_Busby@ajg.com .