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 Beverage Distributors
May include, but are not limited to; Pollution liabilities that occur while transporting cargo; Spills from underground and/or aboveground storage tanks; No secondary containment for above ground storage tanks; Vapor intrusion; Pollution cleanup costs after a fire; Spills or leaks from the storage and handling (loading/unloading) of material containers such as drums, totes or bags from vehicles; Parking equipment over unsealed surfaces allowing contaminants such as oil, fuel, anti-freeze, hydraulic fluids, asbestos… to pollute the ground; No emergency response training for employees; Accumulated old tires, batteries, equipment…; Raw materials stored; Inadequate or no auditing of hazardous and non-hazardous waste handlers, transporter and disposal companies; Adverse reactions of materials that commingle during a fire; Stormwater runoff; Utilities that cross your property; Corroded wastewater and storm water sewers; Natural resource damages; Asbestos; Lead; Silica; Mold / Legionella; Illegal dumping of waste on your property by unknown 3rd parties; Pollutants from neighboring properties migrating onto yours and more…
Environmental Claims Scenarios
- A fire ignited at a wine distribution facility. Water used by the fire department to extinguish the flames became contaminated by a toxic slurry like mixture from the melting materials inside the building. The high-pressure hoses forced the contaminants to flow off the property, which included a local stream. Emergency remediation contractors began investigating and found that the pollutants had entered the stream and had flowed downriver into a lake. The distributor was held liable for the claim, which included natural resource damages (including loss of aquatic life), investigation, remediation, 3rd party bodily injury from toxic fumes, and 3rd party business interruption claims as local businesses were forced to shut down during the cleanup. Total cost of the loss exceeded $6M. NOTE: fire departments are immune to pollution claims arising from their work while putting out fires.
- Loading/unloading of products and material over unsealed truck ramps, over a period of several years, ground water became contaminated from pollutants that were released from idling trucks and storm water runoff. Since the ground water was the only source of drinking water for surrounding residents and the state environmental regulatory agency designated the distributor as the responsible party, the distributor had to pay over $1,400,000 in cleanup costs and supply drinking water until the local municipality could extend water services out to the surrounding residents.
- The concrete secondary containment of a 10,000-gallon diesel aboveground storage tank used for a trucking fleet 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.
- An employee at a beverage distribution facility discovered several totes of unidentified waste that had been illegally dumped into the facilities dumpster. The owner had the contents tested, at a cost of several thousand dollars. The totes were determined to contain hazardous waste, which were placed in the dumpster by an unknown 3rd party. The distributor’s cost to properly dispose of the waste exceeded $100,000.
- A 1,000-gallon diesel aboveground storage tank used for the backup power generator for a liquor and wine distribution facility was in a concrete secondary containment that was cracked. A rupture of the tank spilled 700 gallons into the containment that seeped into the ground causing excavation and disposal of the contaminated soils along with engineering and legal fees exceeding $90,000.
- A delivery truck got into an accident and caught on fire. The burning cargo created toxic fumes and when the fire department put out the fire it created contaminant runoff that flowed into a nearby stream. Cost to remediate the site and claims from third parties for bodily injury and property damage due to exposure to toxic fumes exceeded $800,000.
- While transporting products over the road, the driver got into an accident and overturned. The products being hauled escaped the trailer and ended up in a nearby stream. Costs for remediation and natural resource damages exceeded $85,000.
Overlooked Benefits of Environmental Liability Insurance
Unlike most liability exposures impacting beverage distributors, pollution losses are not a frequency risk, but rather a severity risk. Since every beverage distributor 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-insuring.
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 often 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
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.
Environmental Impairment Liability (EIL)
EIL is for food distributors 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.
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.