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.
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 Auto Dealers & Service Garages
Nationwide, car and truck dealerships, service stations, and garages take care of the maintenance and repair of millions of vehicles every year. In every area of vehicle servicing, repair, and body shop operations there is potential for environmental risk. Dealerships and garages are responsible for proper storage and disposal of their hazardous waste on site and at off-site treatment, storage or disposal facilities. Environmental Insurance provides the financial assurance needed for sustainability in today’s social/business environment.
Environmental exposures impacting car dealerships may include, but are not limited to; Leaking underground fuel and waste oil storage tanks; Untested underground fuel & waste oil/solvent tanks and pipes; Underground tanks which were removed/abandoned; Lack of information on existing and former underground tanks (e.g. age, contents, size, construction, cathodic protection, etc.); Poor housekeeping resulting in oil, fuel, parts cleaning solvents, and paint being spilled on unpaved areas; Leaking grease traps or oil/water separators that seriously pollute the soils and/or groundwater; Leaks from elevator hydraulic fluid storage tanks; Accumulated old batteries which contain leached acidic liquids; Wastewaters flowing from service bays into the sanitary sewers; Electrical equipment containing PCBs; Paint residues from the body shop washed into storm drains; Wash waters from a car wash discharged into a storm sewer; No auditing of waste handling and disposal companies; Poor information on the possible adverse reactions and interactions of chemical compounds that accidentally commingle during a fire. Some of the pollutants these operations are impacted by include asbestos, lead, mercury, cadmium, oil, diesel, etc.; and more…
Environmental Claim Scenarios
- An auto dealership had a wash bay’s piping system that released a substantial amount of cleaning solvents into soil and ground water. The cost to remediate the cleaning solvents, soil and ground water cost $250,000.
- While working on renovations at an auto dealership, an excavation contractor was subject to cleanup costs and business interruption expenses in excess of $500,000 when they ruptured and unmarked natural gas pipeline. The contractor was forced out of business, leaving the property owner with the bill.
- During the night, an unknown party illegally placed drums of hazardous waste into a dumpster behind at an auto dealership. The containers were not leaking, but the cost to properly dispose of the illegally dumped waste cost the auto dealer roughly $50,000.
- 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, 3,000 gallons of which entered the surrounding soils. The total cost of investigation and remediation exceeded $200,000.
- An auto dealer was expanding their showroom. During excavation, petroleum hydrocarbon contamination was discovered in the soil. Cleanup costs exceeded $200,000.
- A service garage had a waste hauler that was transporting its used motor oil overturn and spills its load into a nearby stream. Under CERCLA, the service station 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 service station was $600,000.
- During the night, a fire broke out at an auto dealership. As the fire department put out the fire, their high-pressure hoses forced melting plastics, metals, insulation, roofing, drywall, chemicals, oils, and other materials to build up inside the building’s foundation, creating a toxic “sludge”. Some of the toxic “sludge” escaped the building and migrated onto to neighboring properties. The auto dealer was responsible for all clean-up costs, 3rd party property damage, 3rd party business interruption, and natural resource damages, which totaled over $5,000,000. NOTE: fire departments are immune to pollution claims arising from their work while putting out fires.
- An auto dealership 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 auto dealer’s operations, so the auto dealership was not the source of the contamination, releasing them from the lawsuit. However, the auto dealership had already expensed over $75,000 in legal defense fighting the claim.
Overlooked Benefits of Environmental Liability Insurance
Unlike most liability exposures impacting auto dealers, pollution losses are not a frequency risk, but rather a severity risk. Because all auto dealers have notable environmental exposures, 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.
Three 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 Products
Environmental Impairment Liability (EIL)
EIL is for businesses that are susceptible to economic loss caused by pollution that actually or allegedly originated from their operations. 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 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 multi year terms. Most EIL policies cover above ground storage tanks.
Transportation Pollution Liability (TPL)
Generally, Business Auto or Truckers policies will exclude pollution losses arising from spills or other releases of their 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.
Underground Storage Tanks (UST)
Financial responsibility requirements ensure that owners and operators of underground storage tank systems can 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.
Contractors Pollution Liability (CPL)
Contractors Pollution Liability (CPL) insurance protects the insured should they cause or exacerbate an environmental condition while performing their contractor services. CPL protects the insured for covered operations performed by or on behalf of the insured, while operating away from any premises they own, rent, lease or occupy.
Auto dealers and service garages have potential indirect environmental exposures from the service vendors & contractors they hire to perform work on their behalf. CPL insurance protects real estate owners / developers should their vendors cause or exacerbate an environmental condition.