Pharmaceutical Companies

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. What pollutants are impacting your business? 

Environmental Exposures Impacting Pharmaceutical Companies  

May include, but are not limited to; Air emissions;  Storm water runoff;  PFAS chemicals;  Pollution from neighboring property migrating onto yours;  Vapor intrusion;  mold, Legionella, bacteria… in air conditioning and heating systems, cooling towers…;  Sick building syndrome;  Spills or leaks from underground and/or above ground storage tanks;  Pollution cleanup and liabilities that occur after a fire;  Easements that cross the property that may leak or spill hazardous materials; Acidic laboratory and maintenance chemicals;  Natural resource damages;  Unsealed truck ramps;  Improper maintenance of laboratory hood filters;  Insufficient pretreatment of wastewater discharge to wastewater treatment plant;  Corroded wastewater and storm water sewers;  No auditing of waste handling and disposal companies;  Janitorial cleaning compounds;  Adverse reactions and interactions of chemical compounds that accidentally commingle during a fire;  Halon release from fire suppression equipment;  Spills and leaks from the storage and handling (loading/unloading) of material containers such as, drums, totes, bags from vehicles or rail cars;  Onsite storage of hazardous materials;  Historical disposal practices for hazardous, infectious, medical and radioactive waste…. 

Environmental Loss Examples

1. A pharmaceutical company disposed of its science lab wastes in a 40-year-old, 20,000-gallon underground storage tank. The underground tank ruptured and contaminated the soil including private wells and the groundwater that flowed into a nearby reservoir. Several third parties sued the pharmaceutical company, with claims totaling $450,000. In addition, costs to clean up the reservoir amounted to $1.1 million. 
2. In the lab of at a pharmaceutical company, experiments were being conducted in an area with a faulty ventilation system. When the system failed, toxic fumes were released outside the building. As a precaution, nearby businesses were evacuated. The pharmaceutical company was sued for several third party claims, along with a $215,000 in business interruption claims from nearby businesses that were evacuated.  
3. A pharmaceutical company was discharging liquid lab waste into a wastewater treatment plant on the property, which was hooked-up the local municipal treatment system. When the plant failed, toxic liquids contaminated the publicly owned treatment works (POTW), forcing its temporary closure. The pharmaceutical company was charged with $2,500,000 for environmental cleanup and contingent business loss that resulted from the contamination of the POTW. 
4. A company decided to expand their building onto the site of a former parking lot. During excavation, petroleum hydrocarbon contamination was discovered. The pharmaceutical company had no idea of the historical use of the area. Investigation and sampling pinpointed the source and extent of contamination. On-site treatment and/or cleanup costs exceeded $800,000. 
5. A plumbing was hired to work on a lab. While dismantling laboratory piping, the contractor discovered an existing mercury spill that resulted in mercury contamination throughout the building. Costs to clean up the contamination and restore the building to its original condition were $350,000. 
6. The concrete secondary containment of a 10,000-gallon aboveground storage tank was cracked. A release from the tank spilled 8,000 gallons of hazardous liquid into the tank containment area. The liquid seeped into the underlying soils. Total cost for investigation, removal and disposal exceeded $320,000. 
7. During the night, an unknown party illegally placed drums of hazardous waste into a dumpster.  The containers were not leaking, but the cost to properly dispose of the illegally dumped waste cost the company roughly $75,000. 
8. A waste hauler was hired to transport manifested 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, commercial insureds 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 was $700,000. 
9. While transferring products from one truck to another, a forklift operator cut a corner to tight causing the load to shift and spill.  Cost to clean up exceeded $100,000. 
10. A fire ignited at a pharmaceutical manufacturing facility, sending hazardous vapors into the atmosphere, and hazardous liquids into the soil. A class action lawsuit was filed in the community for health problems, property damage from firewater runoff, and 3rd party business interruption. The pharmaceutical company also had to pay for the remediation of the toxic sludge that pooled in the building’s foundation as a result of the fire. The total cost of the claim exceeded $3,000,000. 

Benefits of Environmental Liability Insurance

Because environmental accidents/conditions are a severity risk, rather than a frequency risk, most pharmaceutical companies lack the financial strength to self-insure their environmental liabilities.  Since every pharmaceutical company is impacted by environmental liabilities, consideration needs to be given to the economies of scale afforded with environmental liability insurance as part of their risk transfer.

Three Overlooked Benefits of environmental liability insurance: 

1. 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 
2. 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….?
3. 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 create an environmental loss.

Environmental Liability Coverages 

Environmental Impairment Liability (EIL) 

EIL is for pharmaceutical companies 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.  

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 Truckers 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 over turn of transported cargo.  

Underground & Aboveground Storage Tanks 

Financial responsibility requirements ensure that owners and operators of underground 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)

Pharmaceutical companies have potential indirect environmental exposures from the vendors you 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 CPL insurance coverage before they begin doing work.

As the owner of the property you have 2 options 

• Option #1: Require all contractors performing work on your property to carry Contractors Pollution Liability insurance. Most policies will contain language that includes blanket additional insureds. 
• Option #2: Buy an Owner Controlled CPL policy for your project. This works the same as option #1, except you are the named insured and control the policy. Unfortunately, it’s common for a contractor to purchase CPL coverage to close the contract, only the cancel the policy shortly thereafter. By purchasing an owner controlled CPL policy, you