Apples to Apples: Comparing Pollution Legal Liability Policies

With the exception of a few bells and whistles, commercial insurance policies are “all the same, just a commodity,” right?  “Once you have read one business owners’ policy, you have read them all,” right?   Not so when it comes to environmental liability insurance.  The coverage grants, terms, and conditions in environmental liability policies can vary widely and careful review is required to find the policy that best meets the specific needs of the policyholder and property.  Indeed, environmental insurance policies literally can be constructed uniquely for the situation at hand, whether for a real estate transaction, a brownfield re-development project, or a corporate “M&A” transaction.   When looking for environmental insurance, find a broker with demonstrated experience with environmental risk solutions and keep the following points in mind.

Environmental liability insurance has been on the market since at least the early 1980s.  Early policies were written specifically to cover contingent RCRA closure obligations or were intended to fill the gap in coverage created by the qualified pollution exclusion.  Today, many insurance companies offer some form of environmental insurance to cover a wide variety of specific risks.  For purposes of this article, however, we have compared several comparable policy forms offered by Great American Insurance Group, The Chubb Group, and Zurich for insuring against environmental risk arising out of real estate, or premises, owned by the insured.

Premises environmental liability insurance, also known as pollution legal liability insurance, is almost always written on a claim made and reported basis, as opposed to an occurrence basis.  This generally means that the “pollution condition” must have been discovered during the policy period, or the claim made against the policyholder during the policy period, and the claim must be reported to the insurer during the policy period.  Some companies do offer coverage for some risks on an occurrence basis, however.  For example, the Great American policy includes occurrence-based coverage for pollution conditions arising out of contracting services performed by the insured and for pollution conditions arising out of the transportation of products or wastes by a carrier to or from a job site or covered location.  These occurrence-based coverage grants offer extended protection to policyholders that can be particularly valuable depending on the nature of the policyholder’s operations.

Premises environmental liability insurance policies typically contain a “menu” of coverage grants which the policyholder selects.  At a minimum, these include third-party liability and first-party coverage for newly discovered pollution conditions “on, at, under or emanating from” the policyholder’s scheduled premises.  There, the obvious similarities end.  Some policies, but not all, include specific coverage for transportation of materials, business interruption, non-owned disposal sites, and crisis management expense.

Premises environmental liability policies generally exclude coverage for environmental conditions “known” to a “responsible insured” prior to the inception date of the policy.  Each policy spells out in detail what  is meant by “known” and who is included within the terms “responsible insured” or “responsible person.”

Other significant differences in these policies are found in the definitions sections as well.  In particular, the definition of “Pollution Condition” is constantly being updated to address topical environmental themes such as illicit abandonment and mold.  Great American now includes methamphetamines or associated chemicals with the general definition and adds biological hazards as the direct result of suicide, homicide or other violent crime for Coverage F.  And, definitions of “Loss” can significantly alter the scope of coverage, particularly when it comes to covering fines and penalties.  “Emergency Response Cost” may mean “first party remediation costs incurred within seven days following the discovery” (Chubb), “costs . . . incurred by the insured on an emergency basis” (Great American), or “costs . . . incurred to avoid an actual imminent and substantial endangerment to the public health or environment” (Zurich).  Such subtle differences can be outcome determinative in an actual claim situation.

Finally, each policy will have its own list of exclusions, and these vary from policy to policy.  Exclusions relating to contractual liability, transportation, products, biological hazards and others may significantly restrict coverage for some policyholders depending on the nature of their business.

An experienced broker, working with the policyholder, will give careful consideration to the nature of the risk being insured, the stakeholders’ varying interests, the policy terms and conditions, as well as price and the acceptability of the insurer.  Having a qualified and experienced team of professionals is necessary to successfully navigate the waters of environmental insurance.

*The content of this post was used with permission from Brouse-McDowell.