What is a Pollutant?
Any material, substance, liquid, product… 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 and courts under various circumstances.
Commercial livestock operations should be aware that pollutants (such as manure, 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?
This Environmental Risk Assessment (eRA) offers a partial list of environmental exposures livestock operations may face.
Environmental Exposures Impacting Dairy & Cattle Operations
Include, but are not limited to; Storage, use and disposal of fertilizers, pesticides (Glyphosate), 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 / or 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; Pollution cleanup and liabilities that occur after a fire is put out….
Environmental Loss Examples
- During an unusually heavy rainstorm, the wall of a farms on site lagoon used to treat cattle wastes collapsed. More than 150,000 gallons of fecal waste flowed offsite, onto neighboring properties and into a river. Waste cleanup costs exceeded $350,000, while third party damage claims exceeded $75,000.
- 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 and caused the farmers bankruptcy.
- A dairy farmer was using treated wastewater 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 from a livestock operation entered a nearby stream and lake. Due to excessive algae and bacteria in the lake, nearby residents and businesses filed claims that exceeded $2,000,000 for property damage, loss of enjoyment and perceived bodily injury.
- Phase I and Phase II environmental assessments involve limited sampling of a property and cannot guarantee that the property is clean. For example, a real estate limited partnership, acquired property previously used for farming on which they planned to build a mall. The firm hired a consultant to conduct a Phase I Environmental Assessment. The property was determined to be “clean.” However, when excavation for the mall began, 100 drums of buried pesticides and herbicides were unearthed. The chemicals contaminated the soil and had to be removed at the firm’s expense. Remediation and drum disposal costs exceeded $750,000
- 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. The total cost for investigation, removal and disposal exceeded $320,000.
Overlooked Benefits of Environmental Liability Insurance
Since pollution losses tend to be a severity risk, versus a frequency risk, most cattle and dairy operations lack the financial strength to self-insure their environmental liabilities. Since every Cattle & Dairy operation 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.
- 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 livestock 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 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.
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 overturn 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.
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.
Contractors Pollution Liability (CPL)
Note: livestock operations have potential environmental exposures from the vendors they hire to perform services, i.e. co-op services, mechanical, plumbing, HVAC, electrical, refrigeration, animal waste land application, herbicide / pesticide application, harvesting…). Should your vendors cause an environmental 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 Contractors Pollution Liability (CPL) coverage before they begin doing work.
CPL provides coverage should an insured, while performing their covered operations, cause or exacerbate a pollution liability while working at a 3rd party location. For these contractors there is contractor’s pollution liability (CPL) coverage.
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.