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 Scrap Metal Recyclers
Include, but are not limited to: PFAS Chemicals; Storm water runoff; Asbestos or lead containing materials; Pollution events as a result of a fire; Halon releases from fire suppression equipment; Spills and leaks from the storage and handling of material containers, drums…from vehicles; Metals with radioactive contamination; Illegal placement of waste on your property by an unknown 3rd party (Midnight Dumping); Air emissions; Vapor Intrusion; Above and underground storage tanks; Pollutants on neighboring properties migrating onto yours; Waste storage/handling practices; Water and waste water treatment operations; On site storage of raw materials; Lubricant oils; Product cleaning and chemical treatments; Unsealed truck ramps and work yards; Uncertainties about the historical use and conditions of property and neighboring properties; Inadequate or no auditing of hazardous and non-hazardous waste handlers, transporter and disposal companies; Nuisance odors; Utilities that cross property; Natural resource damages; Silica; Mold; Tenants causing a pollution event at one of your leased locations; and more…
Quick Facts
- There are upwards of 2,000 different contaminants associated with the plastics industry. Examples of some of these contaminants are; antioxidants, asbestos, fillers and reinforces, formaldehyde, heat stabilizers, lubricants, peroxides, preservatives, ammonia, crude oil, flammable retardants, solvents, styrene.
- Per the EPA, five of the top six chemicals that are regulated as hazardous waste are commonly produced during the manufacturing and recycling of plastics and electronics.
Environmental Claim Scenarios – Operating Locations
- A recycling facility caught on fire. While fighting the fire, the fire department’s high-pressure hoses forced melting plastics, metals, insulation, roofing, drywall, chemicals, and other materials onsite to comingle, creating a toxic “sludge”. Some of the “sludge” flowed onto neighboring properties. The recycler was responsible for clean-up, 3rd party property damage & business interruption, and natural resource damages, which totaled over $4,000,000. NOTE: fire departments are immune from liabilities that may arise from their services.
- A scrap metal recycling facility was sued when contamination was discovered in the drinking water at a neighboring property. After further investigation, it was determined that the recycler’s property was not the source of the contamination. The recycler was eventually released from the lawsuit. However, they had to expense more than $40,000 in legal defense fighting the suit.
- A scrap metal recycler had a load contaminated with radioactive cesium get past their detectors and contaminated their line and bag house. Cost to package, ship and store the waste exceeded $10,000,000
- During the night, an unknown party illegally placed drums of hazardous waste at a scrap metal recycling facility. The containers were not leaking, but had to be tested and properly disposed of at the property owner’s expense. Total cost of the claim for the recycling facility was roughly $50,000.
- Over a period of several decades, a scrap metal recycling facility performed outdoor crushing operations on an unpaved area of the property. Every time it rained or snowed, small amounts of oils and other pollutants washed off the materials / machinery and into the soil. During re-development at a neighboring property, pollutants were discovered and traced back to the recycler’s property. After further investigation, additional neighboring properties we’re found to be impacted as well. Investigation, remediation, legal defense, and 3rd party business interruption cost the recycling facility over $4,000,000.
Environmental Claim Scenarios – Transportation
- A scrap metal recycler hired a waste hauler transport its waste materials to a 3rd party disposal site. During transportation, the hauler got into an accident, causing the truck to overturn and spill its load into a nearby stream. Under CERCLA, the recycler 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 recycler was $100,000.
- While picking up a vehicle to tow back to their facility, the driver for the scrap metal company backed into an aboveground fuel storage tank. The fuel escaped the tank’s secondary containment, and released into the surrounding area. Total cost of investigation and remediation was over $150,000.
Overlooked Benefits of Environmental Liability Insurance
Unlike most liability exposures impacting scrap metal recyclers, pollution losses are not a frequency risk, but rather a severity risk. Since all scrap metal recyclers have 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 the clean-up costs are far less than other costs that can arise from the loss. Such as;
- Defense Costs: Environmental liabilities are relatively new & very litigious. Even if you do nothing wrong you can still get named in a suit & have to expense defense costs i.e. legal fees & environmental investigations.
- 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: Often, the cost to clean up the environmental condition is far less than the associated claims 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 cause an environmental condition.
Environmental Liability Insurance Products
Premise Pollution Liability (PPL)
PPL provides coverage for economic loss caused by pollution that actually or allegedly originate from an owned or leased location. Sometimes referred to as Environmental Impairment Liability (EIL), this coverage is for those who own, operate, lease, or have any other insurable interest in real property / the operations taking place at that property.
Policies typically include coverage for on/off-site cleanup, legal defense, 3rd party bodily injury and property damage, 3rd party business interruption, legal defense, Non-Owned Disposal Site Liability (NODS), Transportation Pollution Liability (TPL), and aboveground storage tanks. PPL policies can also cover underground storage tanks, 1st party business interruption (lost revenues incurred by the named insured should a pollution event cause their operations to be suspended).
PPL policies can be written to address both unknown preexisting conditions, and new conditions. However, to cover unknown pre-existing conditions, insured’s must provide copies of a recently performed environmental site assessment report for the scheduled property(s).
PPL policies can be written with term lengths of 1-year to 5-years, and multiple properties can be scheduled on a single policy, providing a per location premium saving when compared to individual locations on separate 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) affords coverage during the loading, unloading and transportation, for a spill, release or sudden upset and over turn of transported cargo.
Note: You have potential indirect environmental exposures from the vendors you hire and products you purchase. Should one of your vendors cause or exacerbate an environmental condition during the loading, unloading, and transporting of your product, your ownership of that product creates liability. It is important to require your trucking contractors to carry Transportation Pollution Liability.
Contractors Pollution Liability (CPL)
CPL coverage protects you from liability for pollution conditions you cause or exacerbate while performing work away from your scheduled properties, whether being performed by you, or on your behalf by a 3rd party. For recyclers, CPL would cover work you perform in the field, such as breaking down materials at a customer’s / supplier’s location prior to shipment to your processing facility.
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.