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.
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 most all commercial insureds exposed to potentially uncovered claims. What pollutants are impacting your business?
Environmental Exposures Impacting Tire Sale & Service Companies
May include, but are not limited to; Leaking underground fuel and waste oil storage tanks; Untested underground fuel & waste oil/solvent tanks and pipes; Underground tanks which were removed/abandoned; Lack of information on existing and former underground tanks (e.g. age, contents, size, construction, cathodic protection, etc.); Poor housekeeping resulting in oil, fuel, and cleaning solvents being spilled; Leaking grease traps or oil/water separators that seriously pollute the soils and/or groundwater; Leaks from hydraulic fluid storage tanks; Accumulated old batteries which contain leached acidic liquids; Wastewaters flowing from service bays into the sanitary sewers; Electrical equipment containing PCBs; Wash waters from a car wash discharged into a storm sewer; No auditing of waste handling & disposal companies; Poor information on the possible adverse reactions and interactions of chemical compounds that accidentally commingle during a fire; Devaluation of property due to known or perceived pollution conditions; Other pollutants include asbestos, lead, mercury, cadmium, oil, diesel, etc.
Environmental Claim Scenarios
- During the night, a fire broke out at an auto service garage. As the fire department put out the fire, their high-pressure hoses forced melting plastics, metals, insulation, roofing, drywall, chemicals, oils, and other materials to build up inside the building’s foundation, creating a toxic “sludge”. Some of the toxic “sludge” escaped the building and migrated onto to neighboring properties. The auto garage was responsible for all clean-up costs, 3rd party property damage, 3rd party business interruption, and natural resource damages, which totaled over $5,000,000. NOTE: fire departments are immune to pollution claims arising from their work while putting out fires.
- A tire service station hired a waste hauler to transport their used materials, such as oils and lubricants, to a 3rd party disposal site. While in transport, the carrier got into an accident, causing the materials being hauled to spill. Under CERCLA, the tire service station 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 tire service station was $100,000.
- A tire service and car wash garage 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 soil and ground water cost $250,000.
- A tire service company 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 tire service company’s operations, not was their property the source of the contamination. The tire service garage was released from the lawsuit. However, they had already expensed over $60,000 in legal defense fighting the claim.
- 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 of the claim exceeded $320,000.
- At a tire service station, hydraulic fluid from a vehicle lifts escaped and seeped into the ground. Because lifts can be below ground as well as above ground, hydraulic fluid leaks could easily go undiscovered for long periods of time. Fortunately for this insured, the leak was quickly detected. Total cost for environmental testing and cleanup was only $75,000.
- An unknown party illegally placed drums containing liquid waste into a dumpster at a behind an auto repair & service garage. The drums were not leaking, but the waste had to be properly disposed of. Cost to properly dispose of the waste was around $40,000.
- While moving a shipment of tires, a forklift operator accidentally hit an anti-freeze fluid line. Cost to properly cleanup the antifreeze was roughly $25,000.
Benefits of Environmental Liability Insurance
Unlike most liability exposures impacting tire sales and service companies, pollution losses are not a frequency risk, but a severity risk. Because all tire sales and service companies face notable environmental exposures, 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, many insureds only consider the cleanup costs associated with a pollution event. However, often the cleanup costs are far less than other costs that can arise from the loss.
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 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
Premise Pollution Liability (PPL)
PPL is for businesses that are susceptible to economic loss caused by pollution that actually or allegedly originated from their operations. 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. PPL can be offered on multiyear terms. Most PPL policies cover above ground storage tanks.
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.
Contractors Pollution Liability (CPL)
Contractors Pollution Liability (CPL) insurance protects the insured while performing contracting services in the field should they cause or exacerbate an environmental condition. This coverage would be applicable for auto / equipment repair & service operations that provide “in the field” services at their customer’s locations.
CPL can be offered on a claims made or occurrence basis. Coverage can be written on a job specific basis, or on a blanket basis to cover all the work performed by the insured. Most policies can be endorsed to cover transportation pollution liability, mold, lead, asbestos, defense outside the limits, off-site disposal coverage, and more. Contractors incorporating CPL coverage as part of their risk transfer strategy, drive their growth and profits by marketing the benefits CPL coverage affords in reducing job interruption due to environmental issues. A major environmental liability exposure faced by all contactors lies in who they are doing business with. If there is an environmental loss at a job site, innocent contractors can and do get named in lawsuits. Do your subs/vendors have CPL insurance if they cause an environmental loss?
Underground Storage Tanks (UST)
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.