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.
Every agricultural business is impacted by a variety of environmental issues/liabilities. This Competitive environmental Intelligence (CeI) offers a partial list of environmental exposures agricultural business may face.
Environmental Exposures Impacting Fruit Farmers
Include, but are not limited to; Storage, use and disposal of fertilizers, pesticides, and herbicides; 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 ….
Environmental Loss Examples
- Over a period of several years, water used to cool fruit down prior to shipping on the cooling pads at a Cherry farm seeped into the surrounding grounds causing ground water contamination impacting local residents water wells. Total costs for investigation, 3rd party property damage claims, remediation, and legal fees exceeded $400,000.
- 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.
- Shortly after spraying, a fruit farmer received a 3rd party claim from a neighboring farmer accusing them of over application resulting in a chemical drift which impacted the neighboring farmer’s crop, contaminating it. The cost to clean up and settle the claim totaled $550,000.
- 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.
Benefits of Environmental Liability Insurance
Agricultural operations generally lack the financial strength to self-insure their environmental liabilities. Since every agricultural 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 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 multi year terms. Most EIL policies cover above ground storage tanks. 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 auto pollution liability (typically Form CA 9948) 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 have the ability to 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: Agricultural operations have potential pollution exposures from the vendors they hire to perform services. Should your vendors cause an environmental problem or exacerbate an existing environmental issue their general liability insurance policy typically will have 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 contractors 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 contractors 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 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. You can cover multiple locations on a single policy.