Restaurants

What is a Pollutant? 

Any material, substance, liquid, product… 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 Restaurants 

May include, but are not limited to:  Waste grease, fat or used cooking oil;  Pollution cleanup after a fire is extinguished;  Agricultural chemicals on / in food;  Cooking oil fumes (COFs);  Air emissions from cooking operations such as with Curry or open flames;  Products used for pest management;  Cleaning Chemicals;  Storm water runoff;   Pollution from neighboring properties migrating onto yours;  Vapor intrusion;  Contaminated well water;  Raw sewage backup or rupture;  Sick building syndrome;  Asbestos;  Lead;  Mold / Legionella;  Historic site conditions;  Aboveground and/or underground storage tanks;  Leaks from elevator hydraulic fluid storage tanks; Storage and use of landscaping chemicals (Glyphosate);  Natural resource damages;  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;  Language barriers with employees;  Easements that cross the property which may leak or spill hazardous materials;  Impacting underground utilities during construction;  Use of polystyrene foam products;  No emergency and spill control plans;  Waste Water from operations;  Release of refrigerants;  Contractors hired to perform services on your owned property (HVAC, refrigeration, landscaping, plumbing, etc.), and more… 

Environmental Claim Scenarios 

1. As the result of a fire, a restaurant was subject to clean up cost more than $400,000.  While the fire department was extinguishing the fire that started in the storage room, inventory commingled creating a hazardous contaminant that went into the local storm water system.  The contaminants also migrated onto neighboring properties.  Claims were for cleanup, third party bodily injury / property damage / business income.    
2. A restaurant located in a food court, had an English speaking but not English reading employee accidentally mixed non-compatible chemicals for cleaning.  The fumes from the chemicals forced the evacuation of all the building tenants while clean up took place.  Third party bodily injury, property damage and business interruption claims exceeded $1M.
3. A grease trap tank failed but it was not discovered until the restaurant was putting on an addition.  Excavators digging the foundation came across oily type soils.  Environmental engineers concluded the problem to be coming from the failed grease trap tank.  Cost to clean up the site and delays in construction cost the restaurant in excess of $400,000.
4. Several chemicals comingled when an employee accidentally knocked them over in the storage room.  The chemicals created a toxic vapor cloud in the restaurant.  Guests were evacuated but several were hospitalized for inhalation of fumes.  Attorneys filed suit for third party bodily injuries.   
5. A 1,000-gallon diesel aboveground storage tank used for the backup power generator for a restaurant was in a concrete secondary containment that was cracked. A rupture of the tank spilled 700 gallons into the containment that seeped into the ground causing excavation and disposal of the contaminated soils along with engineering and legal fees exceeding $110,000.  
6. Legionella was discovered in the water supply of a restaurant.  The restaurant had to be vacated while their water system went through treatment for the Legionella.  Several guests sued for bodily injury from exposure to Legionella.  
7. A restaurant was subject to cleanup costs and business interruption expenses when a contractor they hired for an addition ruptured an unmarked petroleum pipeline.  The contractor did not have Contractors Pollution Liability insurance so as the property owner the restaurant was responsible.  Total costs exceeded $700,000.  Lawsuits filed against the contractor caused for the contractor’s bankruptcy.
8. An Indian restaurant shared an air conditioning duct with a retail fur store.  The air emissions from the curry soiled the furs and a claim was filed against the restaurant for damage to the furs.  The carrier denied coverage saying the curry was a pollutant and the court agreed and held the Indian restaurant responsible for the environmental liabilities created by the curry fumes.
9. A Buffalo Wild Wings employee died and 10 others we hospitalized after being exposed to a cleaner (Super 8) inside the restaurant.  Authorities said Super 8 is a common cleaner used in the restaurant industry and is relatively safe when used correctly.  But, if it gets mixed with Ammonia, the solution emits a harmful gas call Chloramine.  The medical director for the National Capital Poison Center said Super 8 becomes dangerous when mixed with other chemicals.  

Benefits of Environmental Liability Insurance

Because environmental losses are a severity risk, rather than a frequency risk, most restaurants lack the financial strength to self-insure their potential environmental liabilities. For this reason, restaurants should consider to the economies of scale afforded with environmental liability insurance as part of their risk transfer strategy, versus self-insuring. 

Additionally, 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 often associated with a pollution event. 

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, etc.  
2. 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….?
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 cause an environmental loss.        

Environmental Liability Insurance Products

Environmental Impairment Liability (EIL) 

EIL is for restaurants 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.  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 (TPL)

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.  Note:  An MCS-90 endorsement is not pollution coverage.  

Underground Storage Tanks

Financial responsibility requirements ensure that owners and operators of regulated 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.  

Note:  For Restaurants you 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 generally will have either an absolute or total pollution exclusion.  In order to be protected you should make sure your vendors have the proper environment insurance coverage before they do any work on your behalf.  Typically, Contractors Pollution Liability (CPL) insurance.