3 Reasons Your Insured Needs Environmental Insurance
Pollution…the environment…toxic waste spills…trash…these and many other words are heard, whispered, discussed each and every day in present times. “That will never happen at my business!” But what if there’s an earthquake or flood, and walls and fixtures break and come tumbling down, cracking open ducts or pipes—is your insured ready? Unfortunately, things can happen even with all the proper precautions, and is why it’s so important that your insured has environmental insurance in place with adequate coverage.
Before talking about three of the main reasons for having this coverage, we’ll quickly understand what environmental insurance is exactly.
Also known as pollution insurance or pollution coverage, it provides coverage for loss or damages resulting from unexpected releases of pollutants (typically excluded in general liability and property insurance policies), and protects against any allegations that a pollutant from your facility has been released and/or adversely affected others. These losses or damages can include claims for bodily injury, property damage, and cleanup costs.
When we think about pollution, the first thing that comes to mind is the air, and images of billowing smoke out of towers or chimneys, skies filled with orange smoke from car exhausts, etc. However, pollution can take place in many different forms: oil and chemical spills, gas leaks, drinking water contamination, release of toxic fumes due to a fire; the list is endless. Even floods and earthquakes can be the catalyst for pollutant release. Ensuring proper coverage is in place is imperative. Let’s examine why.
The risk is there even if something doesn’t happen at your insured’s premises; environmental risks on adjoining properties can have an affect, leading to major third-party losses. For example, there might be a gas or other vapor leak in a neighboring property foundation that seeps over to your insured’s, leading to endangerment of tenants. There have recently been a spate of large catastrophic losses and claims, leading to an increase of regulatory scrutiny of exposures and environmental risks.
Bottom line: Exposure can beget exposure. If something were to happen, the standard business, general liability, and property insurance policies will not cover losses and exposures, which can lead to a catastrophic business loss, including closure.
Because of their very nature, the costs associated with environmental claims are often significant. It is rare that a claim will involve something as “simple” as a minor leak or crack; they can include bodily injury claims, facility remediation costs, clean up itself, loss/closure of business, and all the way to legal defense costs. This is why the costs associated with this type of claim are so incredibly high: there are just so many aspects to environmental/pollution exposure. Clean up may not only involve your insured’s facility, and can extend to neighboring buildings and homes. All of those costs fall on your insured.
Bottom line: With environmental and pollution aspects being too numerous to even list them all, the fallout and clean up alone can wipe out a business, as responsibility can include massive legal and court costs.
Environmental and pollution conditions exist in nearly all industries. When it comes to real estate, an investor may require the business to have environmental liability coverage in place, putting your insured at greater probability to win a contract, for example. Due to space constraints in major cities, many businesses are looking to urban areas in which to build; land there is older and could be covering up an old landfill. This necessarily presents a greater risk for environmental/pollution contaminants. We’ve all seen the media photos of the large amount of decaying items remaining in landfill grounds, just waiting to wreak havoc on the environment and, as a matter of course, your insured’s business and livelihood.
Bottom line: Every business is at risk. Because real estate owners and operators can be—and often are—held responsible for environmental and pollutant contamination on their property, having dedicated insurance coverage in place is becoming the norm. Not only can it help win contracts, more sellers, buyers, tenants and investors will believe in your present and future business, which in turn maximizes profitability.
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If you’re questioning whether you should advise your insureds to purchase environmental insurance coverage, remember that it not only protects their financial assets, but provides the specialized technical and legal expertise required to respond to environmental events and resulting legal actions. An insurance company specializing in this coverage will have the professional advisors available to guide your insured—advice not typically available through their insurance advisors.
Commercial real estate is a billion dollar industry; open land, old structures or old landfills are being built upon or turned into apartment buildings, strip malls, and other profitable centers. With the large number of people and contractors/businesses involved in this development (not to mention post-build owners and managers), having a solid environmental/pollution policy in place which covers any business and property loss (genuine environmental insurance) is a crucial part of responsibly operating a business, and can mean the difference between profitability and success, and catastrophic loss in the event of environmental exposure, including third-party legal claims.
For an interesting rundown of the numerous aspects to environmental insurance, have a look at IRMI’s article on their website, Environmental Insurance: Just the Facts.
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