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.
Commercial farmers should be aware that pollutants (such as pesticides, herbicides, fertilizer, etc.) are excluded from coverage on most GL policies. And GL policies that do provide pollution coverage typically do so on a limited basis, with inadequate limits and/or strict discovery and reporting requirements for there to be coverage. In the event of a pollution loss at one of your properties, does your insurance provide adequate coverage?
Environmental Exposures Impacting Commercial Farmers
Include, but are not limited to; Storage, use and disposal of fertilizers, pesticides, and herbicides; animal waste management; disposal of liquid wastes in septic or leach systems; storage of fuels, antifreeze, oil and hydraulic fluids; leaking above and/or underground storage tanks; air emissions from chemical applications and animal waste; storm water runoff; vapor intrusion; spills from loading and unloading of farm equipment and supplies; faulty refrigeration units; overuse of irrigation; on-site disposal of trash, garbage and other waste materials; old equipment storage yards; on-site compost piles, wastewater lagoons or injection wells; historical contamination; natural resource damages; old or abandoned wells not properly closed allowing contamination into the soil and ground water; improper management of protected or sensitive areas like wetlands; vandalism; easements on the property (rail/roadways, 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; Siltation of nearby streams from improper erosion control management; Silica and more…
Environmental Claim Scenarios
- During an unusually heavy rainstorm, the wall of a farms on site lagoon used to treat pig wastes collapsed. More than 150,000 gallons of fecal waste flowed offsite, onto neighbouring properties and into a river. Waste clean-up costs exceeded $350,000, while third party damage claims exceeded $75,000.
- Sudden wind gusts picked up while a farmer was applying concentrated glyphosate to one of his fields. The wind carried the glyphosate onto a neighboring property, killing a large portion of their NON-RoundUp Ready “organic” crop. Claims for 3rd party damages were in excess of $75,000.
- A commercial farm regularly worked on equipment in one of their barns, which had a graded floor and drain. The drain was connected to a storm sewer drain that led directly to a nearby stream. A fish kill occurred as a result of high biological oxygen demand in the stream. A local environmental group filed suit for loss of the stream under the Clean Water Act (CWA). The farm spent $750,000 remediating the problem.
- A farmer was using treated waste water as a fertilizer in a land application process. He did not comply with permitting regulations nor did he have the wastewater tested prior to application. After several months of application, heavy metals and high counts of e-coli were found in the soils. The farmer was required to pay remediation costs in excess of $265,000.
- Over a period of several years, storm water runoff flowed down grade over a farmer’s outdoor storage area and into a nearby stream and lake. Due to excessive algae and bacteria in the lake, residents and businesses filed claims that exceeded $2,000,000 for property damage, loss of enjoyment, and perceived bodily injury.
- While transporting a large quantity of fertilizer to one of their crop fields, a farmer got into an accident, causing the load spill from the into a nearby stream. Costs for investigation, remediation, and natural resource damages was in excess of $150,000.
- A property owner had his drinking water well tested prior to selling his land. Testing revealed that the well contained an alarmingly high concentration of total petroleum hydrocarbons, further investigation revealed that the source of the contamination were several dozen drums of waste oil and maintenance fluids buried on a neighboring farm. Though the drums were buried by the previous farm owner, the current owner was nevertheless responsible for disposal of the drums, soil and groundwater cleanup, and bodily injury and property damage claims submitted by the neighboring property owner. Total cost exceeded $1,000,000.
- 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. The diesel seeped into the underlying soils and required costly excavation and removal. Total cost for investigation & remediation exceeded $320,000.
- Over the weekend vandals climbed the fence at a chemical / fertilizer distribution facility. Besides breaking a few windows; they also damaged a valve on a 10,000-gallon tank of chemicals. The damaged valve leaked until Monday morning when it was discovered by facility employees. While most of the contents of the tank just needed to be removed and disposed of from the containment area, local environmental officials required subsurface testing of soil and groundwater so that total costs reached $90,000.
- A soybean producer sustained a large ammonia release when the piping on their above ground tanks failed causing a release of roughly 5,000 lbs. of liquid ammonia and additional ammonia vapor. As a result, cleanup costs were incurred and several people at a neighboring facility complained of respiratory issues as a result of the release. Claims were made for the cleanup costs and bodily injury.
- A farm co-op was recently sued by a local citizens organization when it was discovered that their fertilizer storage tank had leaked and contaminated several local drinking water wells.
Overlooked Benefits of Environmental Liability Insurance
Unlike most liability exposures impacting commercial farmers, pollution losses are not a frequency risk, but rather a severity risk. Because all commercials farmers face 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 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 agricultural operations 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 multiyear terms. Most EIL policies cover above ground storage tanks. You can cover multiple locations on a single policy.
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.
Transportation Pollution Liability (TPL)
Generally, Business Auto or Truckers policies will exclude pollution losses arising from spills or releases of transported cargo. Broadened 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.
Contractors Pollution Liability (CPL)
Note: Agricultural operations have potential pollution exposures from the vendors they hire to perform services. Should your vendors cause a pollution problem or exacerbate an existing environmental issue their general liability insurance policy typically will have either an absolute or total pollution exclusion. In order to be protected you should make sure your vendors have this insurance coverage before they begin doing work.
CPL coverage can be purchased to meet two specific exposures. First, contractors that perform remedial activities (asbestos, lead, mold, soil or ground water remediation) there is the standard contractor’s pollution liability (CPL) insurance coverage. This protects the insured for pollution conditions they may cause or exacerbate while performing remedial services. This is for covered operations performed by or on behalf of the insured. The loss must occur away from any premises the insured owns, rents, leases or occupies, in other words while they are performing remedial services in the field.
Secondly, standard contractors (i.e. general contractors, HVAC, plumbing, electrical, mechanical, janitorial, demolition, drilling, excavation, highway, street and paving contractors, rigging, utility, millwrights, artisan, etc.), agricultural harvesting/handling vendors, co-op services, in performing their operations may cause an environmental liability that is generally excluded from their general liability coverage. For these contractors there is contingent contractor’s pollution liability (CCPL) coverage. Basically they are afforded the same coverage as remedial contractors but the cost to purchase this insurance is substantially less.