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.
Environmental Exposures Impacting Food Processors
May include, but are not limited to; 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 materials; faulty refrigeration units; on-site disposal of trash, garbage and other waste materials; old equipment storage yards; historical contamination; natural resource damages; 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 ….
Environmental Loss Examples
- A slaughterhouse disposed of all its waste down a floor 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. Under the Clean Water Act (CWA), a local environmental group filed suit for loss of the stream. The slaughterhouse spent $750,000 remediating the problem.
- Over a period of several years’ storm water from a chicken processing plant 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.
- Pilgrim’s Pride Corp., and three business associates were fined $500,000 by the Texas Natural Resource Conservation Commission for alleged violations of the state’s air, water and waste standards. TNRCC found at least four alleged instances of unauthorized wastewater discharges and three alleged nuisance orders instances at two processing plants owned by the Pittsburgh, Texas based Food Company.
- 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 spill at a food processors facility allowed high levels of Alimet to enter the local wastewater treatment system. The Alimet killed the bacteria that process wastewater effluent in the system, causing almost undiluted ammonia to flow into the creek. Local authorities fined the food processor more than $550,000 for the spill, which killed over one thousand fish and other aquatic life in the creek.
- A waste hauler was hired to transport waste materials to a 3rd party disposal site. During transportation the hauler got into an accident, causing the truck to overturn and spills its load into a nearby stream. Under CERCLA, the food processor 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 $700,000.
- A food processor was sued when contamination was discovered in the drinking water at a new nearby residential development. After further investigation, it was determined that the pollutants were not used as part of the food processor’s operation, and that the processing facility was not the source of the contamination. The food processor was eventually released from the lawsuit. However, they had already expensed over $200,000 in legal defense and investigation costs.
Benefits of Environmental Liability Insurance
Because pollution losses are a severity risk, versus a frequency risk, most food processing operations lack the financial strength to self-insure their environmental liabilities. Since every food processing 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.
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 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 food processing 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 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.
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)
CPL provides coverage for the insured, should they cause a pollution event while working at a 3rd party location. Livestock contract workers, 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.
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.