MUST READ FOR INSURANCE PROFESSIONALS THAT SELL COMMERCIAL FIRE INSURANCE POLICIES

By: Chris Bunbury, eS
Environmental Risk Managers, Inc.

Why has environmental risk management and insurance become part of “Best Practices” for commercial insurance professionals? The simple answer, every business is impacted by environmental exposures.

The reality, in today’s transparent business environment, managing and transferring environmental exposures has become a critical risk management component that can drive a business’s growth and profits. In the process, those insurance professionals making environmental risk management and insurance part of “Best Practices” become a trusted advisor and team member with insureds.

So how do fire insurance policies fit in? First we need to ask, why do commercial insurance professionals sell fire insurance policies to clients?

  • The financial institution holding the note on their property requires it?
  • The property owner can’t afford to self-insure against the peril of fire so the economies of scale make business sense to purchase a fire policy?
  • It’s included in their BOP?
  • It’s what you have always done as an insurance professional?…

Does the fire policy help the insured? Yes, but what happens when a fire occurs?

A fire occurs and the fire department puts out the fire. Now in the aftermath the water and chemicals used by the fire department and the burned contents of the building mix together and creates a pollution liability. The fire department is immune from prosecution but under Federal law the property owner is ultimately responsible for the environmental condition of their property.

So any business with a fire policy, that experiences a fire, has an excellent chance of being impacted by environmental liabilities.

Example: Auto parts dealers store caught on fire. After the fire was extinguished the basement of the building contained tens of thousands of gallons of a hazardous goo. It cost the owner of the store in excess of $80,000 to dispose of the goo which was not covered by insurance. The store owner sued their insurance professionals E&O policy for coverage.

With risk management you walk a fine line between being proactive and creating unexpected consequences such as increased exposure to a new risk. Take sprinklers systems in buildings. While sprinklers suppress fires they also spread pollutants.

Let me give you another example: Aboveground Storage Tanks (AST’s) as a means to reduce risk versus Underground Storage Tanks (UST’s)? Initial reactions generally are AST’s make sense versus UST’s.

However:

  • Are the AST’s equipped with secondary containment? If not then a leak can spread contamination faster and further than a UST.
  • Is the integrity of the secondary containment tested on a regular basis? This is what happened in a West Virginia chemical spill. The secondary containment failed causing a pollution event that deprived over 300,000 residents in nine counties access to fresh drinking water for days along with businesses, schools, municipalities…. I read one report that said local hotels were losing $1,000,000 a day. Freedom Industries the business that caused the spill in West Virginia filed for bankruptcy days after the spill.
  • Are the AST’s located where natural disasters (tornados, floods, hurricanes, earthquakes…) occur? Natural disasters can destroy the integrity of the tank releasing its contents?

I could go on and on but hopefully you now have a better understanding why environmental risk management and insurance are part of “Best Practices” for commercial insurance professionals.

Environmental Risk Management Tip: Don’t get fooled by the “limited” pollution policies offered by standard property and casualty insurance carriers. The reason insurance carriers offer “limited” pollution coverage is because it “limits” the insurance carriers exposure to environmental liabilities. “Limited” pollution policies offer “limited” benefits to the insured.