If you have insureds in the automotive business space (i.e. auto dealers, collision repair, general auto repair, auto salvage, retail auto parts / tire store…) it’s important they understand the vast array of environmental exposures impacting their operations.
The goal of this environmental Risk Assessment (eRA) “Auto Dealers & Repair Shops” is to educate your insured, so they can make the best decisions for their business. If your insured sees value and elects to further pursue investing in environmental insurance coverage, ERMI is here to make your job easier by utilizing our network of environmental insurance carriers to supply you with the best coverage options.
The eRA’s come in three parts:
- Review of environmental exposure impacting your automotive insured.
- Environmental loss examples
- Environmental insurance coverage’s appropriate for the automotive insured to consider.
ENVIRONMENTAL RISK ASSESSMENT
Auto Dealer & Repair Shops
What is a Pollutant?
Any material, substance, product, etc… which is introduced into an environment for other than its intended use / purpose. In other words, something that ends up where is does not belong. Fresh water, cheese, and milk have all been classified as pollutants by Insurance Carriers under various circumstances. What pollutants are impacting your automotive business?
Environmental Exposures Impacting Auto Dealers & Repair Shops
Common environmental exposures encountered at car dealerships, gasoline/service stations, garages, retail parts and tires… include: Historical contamination; Easements that cross the property; Leaking underground fuel and waste oil storage tanks; Above ground storage tanks; Underground tanks which were removed/abandoned; Sick building syndrome; Vapor intrusion; Storm water runoff; Poor housekeeping resulting in oil, fuel, parts cleaning solvents, and paint being spilled on unpaved areas; Leaking grease traps or oil/water separators that pollute the soils and/or groundwater; Leaks from car hoists hydraulic fluid storage tanks; Loading & unloading of raw materials / inventory; Accumulated old batteries which contain leached acidic liquids, cadmium; Wastewaters flowing from service bays into the sanitary sewers; Electrical equipment containing PCBs; Paint residues from the body shop washed into storm drains; Wash waters from a car wash discharged into a storm sewer; No auditing of waste handling and disposal companies; Poor information on the possible adverse reactions and interactions of chemical compounds that accidentally commingle during a fire causing a pollution liability; Releases of pollutants from vehicle inventory parked on property which can include asbestos, lead, mercury, cadmium, oil, fuel / diesel, etc. which are in autos and trucks.
Environmental Loss Examples
- An automobile dealership had a wash bay’s piping system that released a substantial amount of cleaning solvents into soil and ground water. The cost to remediate the cleaning solvents, soil and ground water exceeded $250,000.
- While working on renovations at an auto dealership, an excavation contractor was subject to cleanup costs and business interruption expenses in excess of $500,000 when they ruptured and unmarked natural gas pipeline. The contractor was forced out of business, leaving the property owner with the bill.
- A service station had a waste hauler that was transporting its used motor oil overturn and spills its load into a nearby stream. Under CERCLA, the service station must contribute for their apportionment of the load for cleanup cost since federal law states that you own your manifested waste from cradle to grave. Cost to settle the claim for the service station was $600,000.
- A waste facility for an auto body shop released contaminates into a nearby neighborhood’s drinking water. The local regulatory agency designated the body shop as a responsible party. The contribution to settle the claim was $340,000.
- 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.
- 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.
- An Auto Salvage 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.
- Hydraulic fluid from a vehicle lift escaped and seeped into the ground. The property site had to be remediated. Because lifts can be below ground as well as above ground, hydraulic fluid leaks could easily go undiscovered until they cause major issues.
- A body shop used a solvent recycler whose facility was identified as the source of contamination to a downgradient potable aquifer. As the generator of the waste, the body shop is designated a responsible party by environmental regulators and their portion to settle the claim was $340,000.
The Need for Environmental Insurance: Nationwide, car and truck dealerships, service stations, and garages take care of the maintenance and repair of millions of vehicles every year. In every area of vehicle servicing, repair, and body shop operations there is potential for environmental risk. Automotive businesses are responsible for proper storage and disposal of their industrial & hazardous waste on site and at off-site treatment, storage or disposal facilities. Environmental Insurance provides the financial assurance needed for sustainability in today’s social/business environment.
Benefits of Environmental Liability Insurance
Businesses in the automotive space generally lack the financial strength to self-insure their environmental liabilities. Since every auto dealer and repair service provider 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 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) Site Pollution Coverage
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 and / 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. Most EIL policies cover above ground storage tanks. Some carriers can cover underground storage tanks on EIL policies.
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) can afford coverage during the loading, unloading and transportation, for a spill, release or sudden upset and over turn of transported cargo.
Underground Storage Tanks (UST)
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.
Property Transfer Coverage
When buying or selling property there 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. Automotive businesses utilizing this product as part of their risk transfer strategy often find they can negotiate with the seller to share the cost and negotiate a better mortgage rate than if they did not have property transfer coverage. You can cover multiple locations on a single policy.
Minimum premiums start at $2,000 for $1/$1 limits.
For more information or questions please contact:
Angie Marsman Phone: 269-792-1070