I interviewed Rob Snyder of the Fedeli Group. (click link to Rob's contact information) Rob has more than 20 years of experience as a broker of environmental insurance. He has obtained everything from standard pollution liability insurance to brownfield insurance on highly complex cleanups. He has familiarity with all of the major carriers that provide environmental insurance coverage in today's market. I have worked with Rob for years and he truly is an expert in this highly specialized area.
I interviewed Rob to get his thoughts on key aspects and considerations for businesses that may benefit from environmental insurance.
1. What are the general categories of environmental insurance (e-insurance) you deal in?
The term environmental is very broad. Insurance coverage can mitigate risks associated with releases to the air, ground, surface water or ground water. Coverage can be obtained for new releases and spills. Or, in the brownfield context, coverage can be obtained for historical releases to the environment. The most standard coverage is called "Pollution Legal Liability Insurance" or (PLL coverage). The typical PLL coverage protects against new releases and third party lawsuits. However, there is a wide range of possible coverage that can be obtained in the market.
2. When does securing environmental insurance make sense?
There are some common situations when securing e-insurance makes sense:
- Contractors- When an owner or general contractor requires coverage;
- Consultants- Professional liability insurance is standard coverage needed for engineers and environmental consultants;
- Real Estate- Acquisition or use of property can pose significant financial risk (real or perceived) to capital, lender and developer interests. E-insurance can mitigate risk from historical contamination, new regulatory standards or third party lawsuits.
- Transactions- Reps and warranties insurance typically doesn't include e-insurance. E-insurance can be a very cost effective tool to bridge the gap between Seller and Buyer in allocating environmental liability risk. Small deals or major multi-national deals may both benefit from e-insurance.
3. What are some key considerations when choosing a carrier?
The financial clearing house for insurance companies is the AM Best Company. This independent source grades companies by size and performance. A school like grading system is utilized, with grades of A+ (Excellent) to F (Failing). Balance sheet size is ranked from I to XV with XV being the strongest. In this grading format a carrier of A IX or better is considered acceptable. Most financial markets will require a size and performance ranking of this or better for financial underwriting. In addition to size and performance, it is important that the carrier has a positive track record in underwriting, claims management and coverage offerings.
4. How does a business or individual decide on limits of coverage?
Liability limits are one way in which a policy holder can control premium. Higher limits add more cost to the program. Often times coverage limits are set by stakeholder interests relative to financial risk. Limits may be set by regulatory laws, corporate risk management standards, loan value, cleanup assessment or defense costs and other costs associated with the environmental risk. In deciding what liability limits to procure, keep in mind that environmental exposure is more likely catastrophic than frequent in nature.
5. What are some key things to look for in the policy terms and conditions?
Most third party liability coverage includes bodily injury, property damage and legal defense costs. E-insurance may include all of these plus cleanup costs. Understanding the conditions and limits on coverage as set forth in the policy is very important. Policy terms can often be negotiated. Therefore, it is important to not just accept the standard language in the policy. Other considerations include whether coverage is for known and/or unknown conditions. Is it for only new or does it include pre-existing conditions. Coverage may be extended to include transportation and offsite disposal of materials from the site. Because environmental law makes liability for generators both retroactive and continual, coverage may be critical for off-site transportation and disposal of materials.
6. What are some common mistakes an insured makes when filing a claim?
The most common mistake is not reporting an incident quickly enough. It is well known in the environmental consulting world that the cost of cleanup is directly related to the amount of time it take to clean something up. Early reporting is the first and most critical mistake commonly made. Another common reporting mistake is failing to report the claim within the same policy period in which the loss occurred. Many e-insurance policies are claims made and reported forms of coverage. Obtaining coverage becomes useless if you fail to report a claim within the limits specified in your policy. Another common mistake is lack of documentation as to the what, where, when and how regarding a release.
7. What are some key trends you see with regards to environmental insurance?
The insurance market place is maturing. There are more carriers to approach with a risk. Coverage terms and conditions continue to be all over the map. No two carriers or policies are the same. Professional consulting services are still required to properly identify risk, match risk to market coverage and obtain competitive pricing.