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? This Environmental Risk Assessment (eRA) offers a partial list of environmental exposures impacting the aviation industry.
Environmental Exposures Impacting the Aviation Industry
Include, but are not limited to: PFAS chemicals; Underground and above ground storage tanks; Vapor intrusion; Storm water runoff; Releases or spills during fueling operations; De-icing operations; Environmental cleanup and liabilities that occur after a fire is extinguished; Historical contamination from past operations; Natural resource damages; Easements that cross the property which may leak or spill hazardous materials; Impacting sensitive areas such as wetlands or endangered species; Corroded wastewater and storm water sewers; Old and/or unknown leaking underground storage tanks; Leaks from elevator hydraulic fluid storage tanks; No auditing of waste handling and disposal companies; Tenants using or storing environmentally sensitive materials, chemicals, waste….; Spill of oils/fuels/chemicals brought onsite; Vandalism; Sick building syndrome; Mold / Legionella; Asbestos; Lead; loading and unloading products/materials from tucks, rail road, barges, aircraft over unsealed ground; Dust & vehicles emissions; Adverse reactions and interactions of chemical compounds that accidentally commingle during a fire; Wastewaters generated from human septage; Janitorial cleaning compounds; No emergency and spill control plans; nuisance odors; Storm water drains near the aircraft fueling locations; Inadequate spill control materials and emergency response contractor agreements; Landscaping operations using chemicals such as Roundup; Silica; Vapor intrusion….
Environmental Loss Examples
- American Airlines, under threat of indictment, pleaded guilty to illegally storing hazardous waste at the Miami airport and transporting hazardous and poisonous material improperly on its passenger jet for the last five years. The company will pay $8 million in fines along with making changes to ensure its passengers are safe. They will also apologize in a full-page ad in the Miami Herald. An investigation of the company began after an illegally marked, undocumented bag of pesticide broke open in the cargo hold on a flight to Ecuador, releasing fumes that forced the evacuation of 53 passengers and crewmembers.
- A federal Express cargo plane carrying hazardous materials crashed at the Newark International Airport. The airport, one of the nation’s busiest, was closed after the crash as authorities tried to clear the tarmac and put out the flames on the aircraft. After seven hours the airport was reopened but only for departures.
- 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. The diesel seeped into the underlying soils and required costly excavation and removal. The total cost for investigation, removal and disposal exceeded $320,000.
- A contractor was hired to remove two underground storage tanks and associated contaminated soil. During storage tank removal, the contractor’s backhoe hit a natural gas pipeline causing an explosion. Third parties filed bodily injury claims against the contractor, as well as the property owner whose building was destroyed in the explosion. Total claims came to $2,500,000.
- An environmental study performed as part of a regional airport expansion project uncovered two areas of contamination. Leakage was discovered at the airport fueling system. In addition, containment areas for de-icing fluid were found to be inadequate, thereby allowing contaminants to enter a lake adjacent to the airport property. Costly remediation for soils and groundwater was required. Also, the state environmental agency fined the airport for natural resource damages due to the impact on several pairs of bald eagles at the lake.
- A waste hauler was hired to transport its waste engine oil. During transport the vehicle got into an accident and overturned. The waste oil went into a nearby storm sewer that emptied into a stream. Federal law states you own your waste from cradle to grave so the waste generator must contribute for their apportionment of the load for cleanup cost. Cost to settle the claim was $300,000.
- During an airport expansion project, a contractor came across oily smelling soils. An environmental investigation revealed that an FBO that leased space from the airport caused the contamination. The airport exercised the environmental indemnification as outlined in the lease agreement between the Airport and FBO. The FBO was self-insuring their environmental liabilities and the claim caused for their bankruptcy. Since the airport owns the land, under federal law they are ultimately responsible for the environmental condition of the property and the airport paid in excess of $1,000,000 for cleanup costs.
Benefits of Environmental Liability Insurance
Because pollution losses tend to be a severity, versus a frequency issue, most aviation operations lack the financial strength to self-insure their environmental liabilities. Since every aviation business 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 must 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 oversees 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 aviation businesses 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 clean up costs, legal defense expenses, non-owned disposal sites, transportation and more. EIL can be offered on multi year terms. Sewer lines and pump/lift stations can be covered by EIL. Most EIL policies cover above ground storage tanks up to a certain size. You can cover multiple locations on a single policy.
PROPERTY TRANSFER COVERAGE
When buying or selling property their 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. Real estate owners and developers who use this product as part of their risk transfer strategy often find they can negotiate with the seller to share the cost and negotiate a better mortgage rate than if they did not have property transfer coverage. 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. Whether it’s fuel or other materials common in the aviation business 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 GROUND 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.
Who are you doing business with? An aviation business is legally liable when environmental contamination originates from site or activity-related business operations on owned property. Hiring licensed third-party vendors to identify, remediate, transport, store, treat, dispose of pollutants does not automatically transfer the associated environmental liabilities to the third-party vendor. General contractors, subcontractors, vendors hired to work at a facility or provide a service present environmental and financial risk, as well.
To minimize your environmental exposure, carefully verify each vendor’s qualifications and, when appropriate, compliance with state and federal licensing and regulations. Utilizing contracts that legally transfer liability to the vendor can further reduce exposure. Confirm proper insurance is in place to meet contractual requirements. Should an environmental accident happen, and the vendor is unable to cover the resulting clean-up and third-party compensation costs, the property owner can be held responsible for the uncovered costs, it is critical to know “who you are doing business with.”
CONTRACTORS POLLUTION LIABILITY (CPL)
Note: For aviation operations you have potential indirect environmental exposures from the service vendors you hire. Should your vendors cause an environmental problem or exacerbate an existing environmental issue their general liability insurance policy probably will have either an absolute or total pollution exclusion.
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.
CPL can be offered on a claims made or occurrence basis. Coverage can be written on a job specific basis, or on a blanket basis to cover all the work performed by the insured. Most policies can be endorsed to cover transportation pollution liability, mold, lead, asbestos, defense outside the limits, off-site disposal coverage, emergency response cost….
PROFESSIONAL LIABILITY (E&O)
E&O insurance protects an aviation business should an environmental engineer/consultant make and error or omission in performing their professional services. The standard commercial general liability policy excludes coverage for professional services performed by engineers/consultants/surveyors….