What is a Pollutant?
Any material, substance, liquid, product, etc… which is introduced into an environment for other than its intended use / purpose. In other words, something that ends up where it doesn’t belong. 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 Hotels & Resorts
May include, but are not limited to: Storm water runoff; Natural resource damages; Pollution from neighboring properties migrating onto yours; Vapor intrusion; Meth labs; Pollution cleanup and third party liabilities that occur after a fire; Wastewater treatment plants/pumping stations, exposures from nuisance odor; Raw sewage backup or rupture; Sick building syndrome; Asbestos; Lead; Mold / Legionella; Historic site conditions; Chemicals stored and used for pool and spa facilities; Aboveground and/or underground storage tanks; Leaks from elevator hydraulic fluid storage tanks; Storage and use of pesticides (Glyphosate) and herbicides; Spills/releases during loading/unloading operations from trucks or other delivery devices; Waste handling and disposal operations; No auditing of waste handling and disposal companies; Possible adverse reactions and interactions of chemical compounds that accidentally commingle during a fire; Maintenance/Service garages; Generators for backup power; Language barriers with employees; Easements that cross the property which may leak or spill hazardous materials; Impacting underground utilities during construction; Release of pollutants during a convention or special event; Janitorial cleaning compounds; No emergency and spill control plans; Brownfields….
Environmental Claim Scenarios
- A chlorine release from a wastewater treatment plant at a resort resulted in toxic air emissions. Resort guests, area residents and businesses were evacuated, and several people were hospitalized for inhalation of fumes. Bodily injury claims amounted to $70,000 and business interruption claims totaled $120,000.
- Several hotel guest complained of air in the hotel that was making them nauseous. Hotel security discovered a meth lab operating in one of the hotel rooms. Emergency responders were called in to properly handle and dispose of hazardous materials. Clean up costs, remodeling, third party bodily injury claims exceeded $100,000- and first-party business income was in excess of $60,000.
- A new hotel had construction halted after the discovery of an abandoned unknown surface lagoon used by a past property owner as part of their manufacturing operations. As a result of haphazard business practices by the former owner, there were a wide array of waste materials disposed at the site. An investigation revealed that the waste materials covered about two acres. The cost to remediate the site exceeded $2 million.
- Maintenance workers were unloading a tote holding 400 gallons of muriatic acid which is used as a pool chemical. The tote was dropped releasing 150 gallons of the acid which ran into a nearby storm sewer. The acid caused an aquatic life die and other natural resource damages. Remediation costs and natural resource damages exceeded $400,000.
- A major fire breakout and the fire department’s high-pressure hoses forced melting plastics, metals, insulation, roofing, drywall, chemicals, and other materials to build up inside the building’s foundation, creating a toxic “sludge”. Some of the “sludge” escaped the building and migrated onto to neighboring properties. The hotel owner was responsible for clean-up, 3rd party property damage & business interruption, and natural resource damages, which totaled over $3,500,000. NOTE: fire departments are immune to pollution claims arising from their work while putting out fires.
- During a medical convention, one of the vendors with a booth that supplied medical gasses had a faulty valve release anesthesia. Attendees had to be evacuated and the convention shut down while emergency responders cleared the air. Several people needed medical attention. Cost for emergency responders, bodily injury claims and business interruption for the convention exceeded $125,000.
- A dairy farm had a pipe break on their manure lagoon releasing in excess of 250,000 gallons of raw manure into a nearby stream. The stream went through a resort where it then emptied into the ocean. The smell from the manure in the stream caused the hotel to relocate guests. Business income for the hotel was in excess of $2,500,000.
- Legionella was discovered in the water supply of a resort. The resort hotel had to be vacated while their water system went through treatment for the Legionella. In addition to the remediation costs, several guests sued the resort claiming bodily injury from exposure to Legionella.
- 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 maintenance employee could speak English but they could not read English. The employee accidentally mixed a hazardous chemical with a cleaning solvent which created a hazardous vapor cloud. The building had to be evacuated and several people were treated for inhalation of the toxic fumes. Remediation and bodily injury claims exceeded $1,000,000.
- The presence of Legionella was detected in the hot water system of a resort. The state health department got involved and a consultant was hired to investigate and remediate the property. A claim was made immediately for the remediation and what could have been an extensive and lengthy remediation process was completed efficiently – significantly reducing the length of business interruption for the resort owners.
Benefits of Environmental Liability Insurance
Unlike most liability exposures impacting Hotels & Resorts, pollution losses are not a frequency risk, but rather a severity risk. Since every Hotel & Resort has numerous 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.
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.
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 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 Hotels & Resorts susceptible to economic loss caused by pollution that actually or allegedly originated from their operations. 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 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 multi year terms. Sewer lines and pump/lift stations can be covered by EIL. Most EIL policies cover above ground storage tanks.
Property Transfer Coverage
When buying or selling property there can be unknown preexisting environmental conditions. Since a Phase I or Phase II survey 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.
Transportation Pollution Liability
Generally, business auto or trucker’s policies will exclude pollution losses arising from spills or other releases of their cargo. Transportation pollution liability affords coverage during the loading, unloading and transportation, for a spill, release or sudden upset and overturn of transported cargo. Note: An MCS-90 endorsement is not pollution coverage.
Underground and Aboveground Storage Tanks
Financial responsibility requirements ensure that owners and operators of underground storage tank systems have the ability to financially handle a release from an underground storage tank. 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 system.
Contractors Pollution Liability (CPL)
Hotels and Resorts have potential indirect environmental exposures from the service vendors & contractors they hire to perform work on their behalf. CPL insurance protects Hotels and Resorts should their vendors cause or exacerbate an environmental condition.