Environmental Insurance Frequently Asked Questions

What is environmental liability insurance?

General liability, automobile, property and other commercial insurance policies contain pollution exclusions that leave coverage gaps in insurance and risk management programs. Environmental liability insurance fills the gap left by pollution exclusions.

 

What is the legal basis for environmental liabilities?

The basis for environmental liabilities can come from torts, contractual obligations or violations of environmental statutes (i.e. Clean Air Act, Superfund, RCRA).

Regarding torts, liability for pollution can be based on negligence, nuisance, trespass or strict liability.

Contractors through the contracting process agree to hold harmless and indemnify the project owner for claims arising during the course of the project. Environmental claims can arise during the project or after the project is completed.

Environmental laws and regulations are the most complicating factors in the management of environmental risks. The cost recovery provisions for clean-up expenses and the proof of financial responsibility requirements have the most significant risk management implications.

  

What type of environmental insurance exists?

The environmental insurance market has created various types of environmental insurance products to address the needs of the insurance buyer. Environmental insurance can be broken down into these basic coverage forms. These are the basic building blocks:

1. Site specific environmental impairment liability - Often called Pollution Legal Liability (PLL) or Environmental Impairment Liability (EIL) provides coverage for bodily injury, property damage, cleanup costs and defense expenses for pollutants emanating from the insured site.

Over the years the site specific policies have been modified to apply to specific risks. For example, Underground Storage Tank (UST) insurance is a modified version of the site specific policy. The UST policy was created to address the financial responsibility requirements that owners and operators of UST are required to meet under the Resource Conservation and Recovery Act. This policy covers third-party claims for bodily injury, property damage, clean-up costs and defense costs caused by contamination emanating from the UST.

Another variety of the site specific policy are the real estate transaction insurance policies. Various insurance forms exists that protects real estate investors, property owners, banks and others involved in buying, selling, or managing property that protects their interest in the event of a pollution claim.

2. Contractors Pollution Legal Liability - The Contractors Pollution Liability (CPL) policy provides coverage for bodily injury, property damage, cleanup costs and defense expenses arising from the operations and completed operations of the contractor.

3. Environmental professional errors and omissions liability insurance - Environmental E&O provides coverage for personal injury, property damage, cleanup costs, and defense expenses resulting from negligence in the performance of the contractor's professional services.

4. Remediation Stop Loss - Remediation Stop Loss, also known as Cost Cap Coverage, is designed to insure that the remediation costs to the insured do not exceed the anticipated cost. The coverage pays remediation expenses when the costs overrun the estimates and the deductible of the policy.

 

Does environmental policies pay environmental claims?

Yes. There is a lot of press about unpaid and litigated environmental claims. These claims are made against general liability or some other type of commercial policy that contains a pollution exclusion. Environmental policies pay environmental claims that are within the contractual agreement of the policy.

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