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.
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 Marinas & Shipyards
May include, but are not limited to: Chemicals used for aquatic weed control; Fertilizers and pesticides used for landscaping; Spills/releases during loading/unloading process; Illegal / midnight dumping of pollutants, fuels, waste from tenants, ships, and other 3rd parties, Spills of fuels and hazardous materials stored in above ground or underground storage tanks; Pollution from neighboring properties migrating onto Marina/Shipyard property (Vapor Intrusion); Storm water runoff; Loading and unloading of pollutants over unsealed areas; Natural resource damages; Dust & vehicles emissions; Equipment maintenance services; Corroded wastewater and storm water sewers; Sick building syndrome; Impacting underground utilities on Marina or Shipyard property; No auditing of waste handling and disposal companies; Equipment storage (bone) yards where contaminants percolate into the soil/groundwater; Releases from refrigeration systems; Wastewater treatment plants/ lift stations/ pumping stations; Vandalism; Mold; Asbestos; Lead; Past/present use of septic systems; Adverse reactions and interactions of chemical compounds that accidentally commingle during a fire; Janitorial cleaning compounds; No emergency and spill control plans; nuisance odors; Transfer and recycling facilities; Fumes and wastes from Fiberglass work, Painting and sanding; Brownfields….and more
Environmental Claim Scenarios
- A Marina’s chemical storage area sparked a fire that forced the evacuation of neighboring businesses. Businesses and residents within a two-mile radius had to evacuate because of fumes from the chemical fire. Residents from miles away could hear the ‘popping sound’ of the 55-gallon chemical drums as they exploded. The hazardous nature of the chemicals, and the fumes created by the fire, necessitated the evacuation of more than 20 businesses. Businesses remained barred from their facilities for several days while the fire was extinguished and chemicals were cleaned-up. The Marina was sued by several businesses and third parties for business interruption as well as property damage, cleanup costs and third-party bodily injury. Costs to settle the claims exceeded $10,000,000.
- During the night, a fire broke out at a Marina’s storage facility. As the fire department put out the fire, their high-pressure hoses forced melting plastics, metals, insulation, roofing, chemicals, oils, and other materials to commingle within the building, creating a toxic “sludge”. Some of the toxic “sludge” escaped the building and migrated onto to neighboring properties. The Marina was held liable for all clean-up costs, 3rd party property damage, 3rd party business interruption, and natural resource damages, which totaled over $5,000,000. NOTE: fire departments are immune to pollution claims arising from their work while putting out fires.
- A Marina placed a new building on the site of a former equipment storage area. During excavation, petroleum hydrocarbon contamination was discovered. Cleanup costs exceeded $400,000.
- 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 of the claim exceeded $320,000.
- At a Port’s wastewater treatment plant pumping station, a faulty valve malfunctioned. Thus, a ruptured pipe released 2.8 million gallons of raw sewage into a local river. The river was used by local fisherman, recreational boaters and marinas. Numerous boats were damaged by the sewage and marinas were forced to close temporarily while cleanup of the raw sewage took place. The total cost of property damage and loss of income claims totaled $400,000.
- A Shipyard 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 shipyard’s operations, and the shipyard property was not the source of the contamination, releasing them from the lawsuit. However, they had already expensed over $75,000 in legal defense fighting the claim.
- After performing routine engine maintenance on a tug boat used to move ships for a shipyard, the boat mechanic accidentally attached the automatic bilge pump to the fuel line. By the time the problem was detected more than 500 gallons of diesel fuel had been pumped into the bay. Cost to the shipyard for cleanup and third party property damage claims exceeded $100,000.
- During the night, an unknown party illegally placed drums of hazardous waste into a dumpster at a boat storage and maintenance facility. The containers were not leaking, but the cost to properly dispose of the illegally dumped waste cost the auto dealer roughly $50,000.
- A Marina hired a waste hauler to transport their used oils & chemicals to a 3rd party disposal facility. During transportation, the hauler’s truck got into an accident and overturned, spilling its load. Under CERCLA, the marina 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 marina was roughly $600,000.
Benefits of Environmental Liability Insurance
Unlike most liability exposures impacting Marinas and Shipyards, pollution losses are not a frequency risk, but rather a severity risk. Because all Marinas and Shipyards have 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.
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 (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: Most 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 businesses that are 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 multiyear terms. Most EIL policies cover above ground storage tanks.
Transportation Pollution Liability (TPL)
Generally, Business Auto or Truckers policies will exclude pollution losses arising from spills or other releases of their 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.
Underground & Aboveground Storage Tanks (UST)
Financial responsibility requirements ensure that owners and operators of underground & aboveground storage tank systems can 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)
Contractors Pollution Liability (CPL) insurance protects the insured should they cause or exacerbate an environmental condition while performing their contractor services while operating away from any premises they own, rent, lease or occupy. For Marina’s and Shipyards, this would include services such as servicing boats at 3rd party locations.
Coverage can be written on a job specific basis, or on a blanket basis to cover all the work performed by the insured. Most policies can be endorsed to cover Transportation Pollution Liability, mold, lead, asbestos, defense outside the limits, off-site disposal coverage, etc. Contractors incorporating CPL coverage as part of their risk transfer strategy drive their growth and profits by marketing the benefits CPL coverage affords in reducing job interruption due to environmental issues.