What is a Pollutant?
Any material, substance, liquid, product, etc… which is introduced into an environment for other than its intended use / purpose. Fresh water, cheese, and milk have all been classified as pollutants by Insurance Carriers under various circumstances.
Most commercial insureds assume that claims arising from their operations are covered by the general liability policy. However, claims resulting from a “pollution incident” are excluded from most general liability policies, which leaves commercial insureds with gaps in coverage. What pollutants are impacting your business?
Environmental Exposures Impacting Distilleries
May include, but are not limited to; Disposal of liquid wastes in septic or leach systems; Pollutants from neighboring properties migrating onto your; Mold; Asbestos; Lead; Storage and transportation of raw materials and product; Leaking above and/or underground storage tanks; Air emissions from distilling process; Storm water runoff; Vapor intrusion; Spills from loading and unloading product and materials; Faulty refrigeration units; Faulty on-site disposal of trash, garbage and other waste materials; Historical contamination of property due to prior property uses; Natural resource damages; Vandalism; Easements on the property (pipelines, power lines, waterways) with potential environmental implications; Uncontained floor drains; In-ground sumps and pits; Inadequate or no auditing of hazardous and non-hazardous waste handlers; Spills and air emissions from emergency power generator systems; Adverse reactions and interactions of chemical compounds that accidentally commingle during a fire; Cleanup of toxic sludge that develops after a fire; Devaluation of property to do known or perceived environmental conditions; and more…
Environmental Claim Scenarios
- A Wild Turkey distillery caught on fire. Inside the warehouse were 17,262 barrels of bourbon, each containing 53 gallons of 107 to 112 proof bourbon. Much of the alcohol escaping measured 50 percent by volume. Some of the bourbon had aged 15 years already. The liquid had to go somewhere since it couldn’t all burn at the same time, and ended up in the Kentucky River. No one was killed from the fire, but the damage had just begun. This accident forced schools and businesses in a town of 8,000 to close for 2-days. People from Frankfort called to say that they could smell the bourbon from the water. A few dead fish had also floated to the surface. As a few more days passed, the number of dead fish had reached into the tens of thousands. The ultimate cause of the fish kill was not from alcohol poisoning, but to the depletion of oxygen. The alcohol was shown to be the accelerator food source causing a major bacteria outbreak that consumed the oxygen in the river and created a dead zone some 9-12 miles long. Wild Turkey distillery was liable for the cleanup, 3rd party property damage and business interruption, and natural resource damages….
- The concrete secondary containment of a 10,000-gallon diesel aboveground storage tank was cracked. A release from the tank spilled 8,000 gallons into the containment, which seeped into the underlying soils and required costly remediation. The total cost for investigation, removal and disposal exceeded $320,000.
- A waste hauler was hired to transport manifested waste materials to a 3rd party disposal site. During transportation the hauler got into an accident, causing the truck to overturn and spills its load. Under CERCLA, the distillery must contribute for their apportionment of the load for cleanup cost since federal law states that you own your waste from cradle to grave. Cost to settle the claim was $700,000.
- As the result of a fire, a distillery was subject to clean up cost in excess of $400,000. While the fire department was extinguishing the fire, burning and melting inventory comingled creating a hazardous contaminant that went into the local storm water system. The storm water system emptied directly into a stream. In addition to cleanup costs, the distillery also had to pay an additional $150,000 for natural resource damages to the streams ecosystem. NOTE: fire departments are immune to pollution claims arising from their work while putting out fires.
- A distillery was sued when contamination was discovered in the drinking water at a new residential development. After further investigation, it was determined that the pollutants were not used as part of the distillery’s operation, and that the processing facility was not the source of the contamination. The distillery was eventually released from the lawsuit. However, they had already expensed over $50,000 in legal defense costs.
- During expansion of a production line, excavators came across oily soils with a petroleum odor. Further investigation uncovered an old, undocumented sludge-drying pit, which the previous owner had used. The distillery had to remove and remediate the soils. Cleanup costs exceeded $400,000.
Overlooked Benefits of Environmental Liability Insurance
Because pollution losses are a severity risk, versus a frequency risk, most distilleries lack the financial strength to self-insure their environmental liabilities. Since every distillery is impacted by environmental liabilities, consideration needs to be given to the economies of scale afforded with environmental liability insurance as part of your risk transfer strategy, versus self-insurance.
The Three Main Benefits environmental liability insurance offers:
- Defense Costs: Environmental liabilities are relatively new and very litigious. Even if you do nothing wrong you can still get named in a suit and have to expense defense costs i.e. legal fees, environmental investigations, etc.
- Claim Management: All policies come with specialists to assist you in handling a claim. Who is in charge of communications, public relations, emergency response, government compliance, financial management, third party claims for bodily injury, property damage, natural resource damages….?
- Third Party Liability: The majority of the time the cost to clean up the environmental problem/s is far less than the associated claims that come in from third parties for bodily injury, property damage and business interruption. You need to look at your client’s and neighbors that can be impacted if you or a sub-contractor/vendor cause an environmental loss.
Environmental Liability Insurance Products
Environmental Impairment Liability (EIL)
EIL is for distilleries susceptible to economic loss caused by pollution that actually or allegedly originated from their properties. Sometimes referred to as pollution legal liability this coverage is for those who own, operate, lease, or have any other insurable interest in real property and/or the operations. Coverage can be written in a variety of ways addressing unknown preexisting conditions or new conditions. Coverage can include third party bodily injury and property damage along with business interruption and extra expense, on and off site cleanup costs, legal defense expenses, non-owned disposal sites, transportation and more. EIL can be offered on multiyear terms. Most EIL policies cover above ground storage tanks. You can cover multiple locations on a single policy.
Transportation pollution Liability
Generally, Business Auto or Truckers policies will exclude pollution losses arising from spills or releases of transported cargo. Transportation pollution liability affords coverage during the loading, unloading and transportation, for a spill, release or sudden upset and over turn of transported cargo. You need to strategize on your exposure to transportation. How are goods received? FOB point of Shipment or FOB point of delivery? Do not be confused by thinking the MCS-90 endorsement is auto pollution liability coverage.
Underground Storage Tanks
Storage tank financial responsibility requirements ensure that owners/operators of underground storage tank systems can financially handle a release from the tank system. The responsibility encompasses the ability to pay funds for corrective action and third party bodily injury and property damage from non-sudden and sudden and accidental releases from a regulated underground tank system.
Real estate developers/owners with a financial responsibility strategy dependent upon state UST funds need to regularly confirm fund solvency and length of time it will take to get reimbursed. If part of your business strategy depends upon the state fund, this means just that, you are putting the future success of your business in the hands of the state. You need to strategize on “just how strong is your business” if you are putting its future in the hands of your state government.
Property Transfer Coverage
Note: This coverage is designed for buyers or sellers of real properties.
When buying or selling property there can be unknown preexisting environmental conditions. Since environmental due diligence (All Appropriate Inquiry (AAI), a Phase I or Phase II survey, Baseline Environmental Assessment (BEA)….), cannot guarantee uncovering all potential environmental liabilities, insurance companies have created property transfer insurance. This coverage protects the new owner or any party with an insurable interest, against unknown environmental conditions that may be discovered during the policy period, that were not caused by the new owner.
This coverage not only helps to keep the property at its maximum value, it will assist the purchaser in being able to secure the necessary financing to complete their transaction. You can cover multiple locations on a single policy.