I was interviewed for a good story appearing in Law360 (subscription or free trial required) about environmental insurance coverage for businesses. The emphasis of the story were recent lawsuits where businesses were denied coverage under for environmental claims even though the companies thought they had purchased coverage. As reported in the story:
- Headwaters Inc., a company that re purposes coal combustion and other energy byproducts, was denied coverage by Ace American Insurance Co. for nuisance suits against Headwaters over coal byproduct-based fill material used for a golf course, citing pollution provisions and other exclusions
- Changing World Technologies Inc., converts agricultural waste into biodiesel, have been hit with legal claims associated with a class action suit related to odors from a biodiesel production facility. Their insurer denied coverage for the claims.
Companies still don't realize most general liability insurance policies will not provide coverage for environmental claims even if they do, the coverage will be limited. Companies must either negotiate special endorsements on those policies or buy special pollution liability insurance policies to cover these types of claims.
As reported in the story in Law 360, companies either fail to purchase coverage or don't pay close attention to the language in their policies to make sure it will cover the risks associated with their product or operations.
“We would argue that generally it’s an underinsured marketplace,” Anderson said, adding that environmental liability coverage makes up just half of one percent of the roughly $450 billion in commercial property and casualty premium volume each year...Sometimes the problem stems from companies failing to conduct enough upfront risk analysis, including evaluating whether indemnification agreements from other companies are secure, or whether they are buying adequate insurance, attorneys and brokers said...
“I believe a lot of times insureds don't see the big picture with regard to their exposures,” said Stephanie Story, senior vice president in the environmental practice at insurance brokerage Marsh. “What they should probably focus on first is sitting down and being honest with themselves, and having discussions internally with their real state folks, or their legal counsel, or their operations teams.”
Remember, Insurance companies have attorneys as well who are paid to think of ways exclusions will apply to prevent paying out claims. Spending time up-front to analyze your risks is prudent.
Example: Suppose you own a business that recycles wastes into a new product that is distributed to multiple sites. Perhaps the product is used as fill, insulation or ground cover. What happens if you are sued by people who claim your product has released chemicals at sites where your product was used.
Even if you purchase pollution liability insurance, you must make sure coverage will extend to locations where your product has been utilized. Policies can often be limited to the production facility.
Also, if you are going to purchase pollution liability insurance make sure you review the actual language of the policy. Just because its special environmental insurance coverage does not mean it will cover all environmental claims.