What is a Pollutant?
Any material, substance, liquid, product, etc… which is introduced into an environment for other than its intended use / purpose. In other words, something that ends up where it doesn’t belong. Fresh water, cheese, and milk have all been classified as pollutants by Insurance Carriers under various circumstances.
Many 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 Integrated Sheet Metal Companies
Include, but are not limited to: Spills from underground and/or aboveground storage tanks; Leaks from hydraulic fluid and lubricant storage tanks; Waste storage/handling practices; Transporting materials; Causing a pollution event while performing installation work at customer locations; Raw materials stored and utilized in large quantities; Wastewaters generated from cooling water; Unsealed truck ramps; Uncertainties about the historical use and conditions of property; Inadequate or no auditing of hazardous and non-hazardous waste handlers, transporter and disposal companies; Nuisance odors; Adverse reactions and interactions of chemical compounds that accidentally commingle during a fire; No emergency response training for employees; Halon releases from fire suppression equipment; Old septic systems; Utilities that cross property; Natural resource damages; Asbestos / lead containing materials; Silica; Mold; Vapor intrusion; Products cleaning and chemical treatments (wastewaters generally contain heavy metals, oil, grease and organic compounds); Uncontained floor drains around the plant; Obsolete and remote equipment storage (bone) yards where contaminants percolate into the soil/groundwater; Devaluation of property value to known or perceived pollution conditions; Illegal disposal of waste on your property by unknown 3rd parties (midnight dumping); and more…
Environmental Claim Scenarios
Premise Pollution Liability (PPL)
- During the night, an unknown party illegally placed drums of hazardous waste into a dumpster behind a sheet metal fabrication facility. The containers were not leaking, but the cost to properly dispose of the illegally dumped waste cost the property owner over $50,000.
- A sheet metal company operated a machine to cut sheet metal, a portion of which was located beneath the floor. For more than 20 years, lubricating oil from the machines moving parts seeped into the surrounding soils. When a nearby homeowner’s down gradient well used for potable water was tested, it contained total petroleum hydrocarbons. After further investigation, it was found the sheet metal company property was the source of the pollutant. Cost of remediation and 3rd party bodily injury claims exceeded $5,000,000.
- A sheet metal company was sued when contamination was discovered in the drinking water at a nearby residential development. After further investigation, it was determined that the pollutants did not originate from the sheet metal company’s property, removing them from the suite. However, the sheet metal company had already expensed over $50,000 fighting the claim.
- A sheet metal fabrication facility caught on fire. The fire department’s high-pressure hoses forced melting plastics, metals, insulation, roofing, drywall, chemicals, and other materials to build up inside the building’s foundation, creating a toxic “sludge”. Some of the “sludge” escaped the building and migrated onto to neighboring properties. The property owner was responsible for clean-up, 3rd party property damage & business interruption, and natural resource damages, which totaled over $3,500,000. NOTE: fire departments are immune to pollution claims arising from their work while putting out fires.
Contractors Pollution Liability (CPL)
- While working at a customer’s location, a contractor unknowingly drilled through a water pipe located beneath the floor. Over time, a substantial amount of mold developed within the building. The mold was discovered after a number of employees complained of rashes and wheezing. The contractor was held liable for the clean-up, 3rd party bodily injury and business interruption. Total cost of the loss exceeded $1M.
- While moving a large metal coil at a jobsite, the forklift operator hit a hydrofluoric acid aboveground storage tank releasing dangerous fumes into the neighboring community. Area residents and businesses were evacuated and several people were treated at the local hospital for fume inhalation. Claims for bodily injury and business interruption topped $400,000.
Transportation Pollution Liability (TPL)
- A sheet metal company hired a waste hauler to transport their 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 into a nearby stream. Under CERCLA, the commercial insured 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 for the insured was over $300,000.
- A contractor got into an accident while transporting raw materials to a jobsite, causing the fluids being hauled to spill. Costs for remediation and natural resource damages exceeded $90,000.
Benefits of Environmental Liability Insurance
Unlike most liability exposures impacting sheet metal companies, pollution losses are not a frequency risk, but rather a severity risk. Since every sheet metal company has numerous 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.
Furthermore, most commercial insureds only consider the remediation costs associated with a pollution event. However, often times the clean-up costs are far less than other costs that can arise from the loss.
Overlooked Benefits of Environmental Liability Insurance:
- 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 Coverages
Premise Pollution Liability (PPL)
PPL is for insureds susceptible to economic loss caused by pollution that actually or allegedly originated from their operating locations. This coverage protects insured’s for environmental conditions that arise as a result of the operations on their property, or migrate onto their property from a neighbor. 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 clean-up costs, legal defense expenses, non-owned disposal sites, transportation and more. PPL can be offered on multi-year terms, and multiple properties can be packages together on a single policy. Most PPL policies cover above ground storage tanks.
Contractors Pollution Liability (CPL)
CPL Coverage protects insureds for pollution conditions they may cause or exacerbate while performing work at a 3rd party locations, weather the work is performed by the insured, or on their behalf. For sheet metal fabricators, CPL would cover them while performing installation and maintenance at customer locations, should they cause or exacerbate a pollution event while working.
Products Pollution Liability
Products Pollution Liability is for insureds that make and/or distribute a product, that if faulty, could cause a pollution incident. This coverage can be written on a stand-alone policy, or included on an environmental impairment liability policy. For Environmental Insurance markets to consider offering this coverage, they typically prefer products be intended for commercial use, as opposed to mass distribution to the general public.
Transportation Pollution Liability (TPL)
Generally, Business Auto or Truckers policies will exclude pollution losses arising from spills or other releases of their cargo. Broadened auto pollution liability (typically Form CA 9948) affords coverage during the loading, unloading and transportation, for a spill, release or sudden upset and over turn of transported cargo.
Underground Storage Tanks
Financial responsibility requirements ensure that owners and operators of underground storage tank systems have the ability to financially handle a release from an underground storage tank. 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 system.