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 Pallet Manufacturers & Distributors
May include, but are not limited to: Pollutants left behind on pallets from the materials being hauled, such as oils, greases, and other lubricants; Pollution liabilities as a result of a fire; Waste storage/handling practices; Air emissions; Hazardous waste materials (i.e. drums of spent solvents, acids, caustics, paint, etc.); Products pollution liability from a pollution incident caused due to product failure; Products cleaning treatments; Uncontained floor drains around the plant; Unknown abandoned underground storage tanks; In-ground sumps and pits; Unsealed truck ramps; Uncertainties about the historical use and conditions of property; Inadequate or no auditing of hazardous and non-hazardous waste handlers, transporter and disposal companies; Outdoor equipment storage (bone) yards where contaminants percolate into the soil/groundwater; Nuisance odors; Pollution liabilities as a result of a fire; No emergency response training for employees; Halon releases from fire suppression equipment; Old septic systems; Spills and leaks during the storage and handling (loading/unloading) of material containers such as drums, totes or bags from vehicles; Utilities that cross property; Corroded wastewater and storm water sewers; Improper characterization of hazardous waste; Natural resource damages; Asbestos or lead containing materials; Spills from underground and/or aboveground storage tanks; Legal defense costs for 3rd party nuisance claims; Leaks from hydraulic fluid storage tanks and hoses; Silica; Mold; Vapor intrusion; And more…
Environmental Claim Scenarios
Environmental Impairment Liability (EIL)
- During the night, an unknown party illegally placed drums of hazardous waste into a dumpster behind a pallet manufacturer’s facility. The containers were not leaking, but the cost to properly dispose of the illegally dumped waste cost the manufacturer roughly $50,000.
- While moving a large stack of pallets, the forklift operator hit and ruptured an above ground fuel line, causing a high-pressure release. `Investigation and cleanup costs exceeded $200,000.
- A pallet distribution facility caught on fire. 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 property 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.
- A pallet manufacturer performed loading/unloading of products and material over unsealed truck ramps. Over a period of several decades, ground water became contaminated from pollutants that were released from idling trucks and storm water runoff. The manufacturer had to pay over $1,400,000 in cleanup costs, 3rd party property damage, and 3rd party bodily injury claims.
Transportation Pollution Liability (TPL)
- A pallet manufacturer hired a waste hauler to transport their used 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 commercial insured 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 insured was $70,000.
Products Pollution Liability
- A pallet manufacturer was sued after a customer experienced a pollution loss while transporting their materials. The customer claims that it was a faulty pallet, which allowed large amounts of their products to fall of their truck and into a nearby steam. Total cost for legal defense, investigation, remediation, and natural resource damages was over $450,000.
Defense Costs for Nuisance Claims
- A pallet manufacture was sued when contamination was discovered in the drinking water at a new residential development. After further investigation, it was determined that the pollutants were not used as part of the pelleting process, nor was the pallet manufacturer’s property the source of the contamination. The manufacturer was eventually released from the lawsuit. However, they had already expensed over $100,000 in legal defense costs.
Benefits of Environmental Liability Insurance
Unlike most liability exposures impacting Pallet Manufacturers & Distributors, pollution losses are not a frequency risk, but rather a severity risk. Since every Pallet Manufacturer & Distributor 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 times the clean-up costs are far less than other costs that can arise from the loss.
Three 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 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 pallet manufacturers and distributors 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 clean-up 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, Phase II, All Appropriate Inquiry (AAI) 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. Property buyers have negotiated lower interest rates by blending property transfer coverage with their mortgage.
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.
Note: Manufacturers have potential indirect environmental exposures from the service vendors they hire and products they purchase. Should your vendors cause an environmental problem or exacerbate an existing environmental issue their general liability insurance policy probably will have either an, absolute or total pollution exclusion.
How do you receive your raw materials? Do you purchase the materials FOB point of shipment? If you do, when your raw materials leave the shipping dock you are the owner. What is your strategy if there is an accident while in transit and your raw materials cause a pollution loss?
Products Pollution Liability
Products Pollution Liability is for insureds that make and/or distribute a product that if faulty could cause a pollution incident. This coverage can be written on a stand-alone policy, or included on an environmental impairment liability policy. For Environmental Insurance markets to consider offering this coverage, they typically prefer products be intended for commercial use, as opposed to mass distribution to the general public.
Underground 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.