Why pollution is insured separately

For decades, pollution claims were handled under general liability policies. That changed in stages. According to the Insurance Information Institute (Triple-I), the standard general liability policy first introduced a pollution exclusion in 1973, and in 1986 insurers excluded almost all pollution losses from GL policies. Today, standard business liability policies provide little coverage for pollution damage, and most companies that store or handle potentially toxic materials buy a separate environmental liability policy to cover the exposure the GL policy excludes.

If your business owns property, stores fuel or chemicals, transports hazardous materials, or performs construction or remediation work, assume your general liability policy will not pay for a cleanup.

CERCLA: why environmental liability is so severe in the US

The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), known as Superfund, was enacted on December 11, 1980 and amended by the Superfund Amendments and Reauthorization Act on October 17, 1986, according to the US Environmental Protection Agency. The EPA describes Superfund liability as:

  • Retroactive: parties may be liable for acts that happened before the law was enacted in 1980.
  • Strict: a responsible party cannot defend itself simply by showing it was not negligent or followed industry standards.
  • Joint and several: when harm cannot be divided, any one potentially responsible party may be held liable for the entire cleanup of a site.

The EPA lists four classes of potentially responsible parties: current owners and operators of a facility; past owners and operators at the time hazardous wastes were disposed of; generators and parties that arranged for disposal or transport; and transporters who selected the site. In practice, that means buying contaminated land, or having sent waste to a site decades ago, can create liability long after the fact. State laws add their own cleanup regimes.

Types of environmental insurance

  • Pollution legal liability (PLL) / environmental impairment liability covers a specific site or portfolio of sites. Triple-I notes that it typically pays for statutory cleanup requirements, third-party bodily injury and property damage, legal expenses and business interruption, for both sudden and gradual incidents.
  • Contractors pollution liability (CPL) covers pollution caused by a contractor's operations at job sites, such as disturbing asbestos, mold or contaminated soil.
  • Environmental professional liability covers consultants, engineers and testing laboratories for errors in assessments and designs.
  • Storage tank liability helps owners of underground storage tanks meet federal financial responsibility rules.
  • Transportation pollution covers spills during the carriage of goods by motor carriers.
  • Lender and transaction policies protect buyers, sellers and lenders in deals involving potentially contaminated property.

Underground storage tanks: a federal financial responsibility rule

Owners and operators of petroleum underground storage tanks must show they can pay for cleanups and third-party damages. Under 40 CFR 280.93, the required per-occurrence amount is $1 million for petroleum marketing facilities or tanks handling an average of more than 10,000 gallons per month, and $500,000 for other owners and operators. The annual aggregate is $1 million for owners of 1 to 100 tanks and $2 million for 101 or more. Insurance is one of the accepted ways to meet the rule; some states also run tank funds with their own requirements.

How environmental policies are written

Most site policies are written on a claims-made basis, which, as Triple-I explains, limits insurers' exposure to unknown future liabilities. Watch these terms:

  • Known conditions: pre-existing contamination identified in site reports is usually excluded unless specifically scheduled.
  • Retroactive date and policy term: site policies are often available for multi-year terms, which suits property transactions.
  • Self-insured retention and sublimits for mold, legionella or business interruption.
  • Covered locations: only scheduled sites are covered, so add new properties promptly.

What underwriters will ask

Expect requests for environmental site assessment reports, tank inventories and testing records, regulatory notices, waste disposal contracts, spill history and a description of operations. Clean, recent site reports usually improve terms and reduce exclusions.

Who should consider environmental coverage

Manufacturers, fuel distributors and gas stations, real estate owners and developers, contractors (especially demolition, excavation and remediation), waste haulers, healthcare and laboratory operators, and energy companies all have material exposure. Related guides: energy insurance and builder's risk insurance.

How Polis Re can help

Environmental insurance is a specialist market, and wordings vary between insurers. Polis Re helps businesses organize site information and request quotes; policies are issued by licensed insurers and placed through licensed producers in your state. Request a quote or see energy and construction coverage.