Whether you are redeveloping a former manufacturing site or you operate a business on a contaminated site, the liability risks associated with releases of hazardous substances are significant. With the unknowns and surprises associated with environmental clean up the future of your business could be at risk without proper protections. There are a range of insurance products that can be essential to businesses looking to minimize such risks.
Insurance products can provide coverage against neighbors claims that contamination has migrated onto their property. Products can provide protection against cost overruns on clean up projects. They can also protect service providers against liability for negligence or mistakes in providing services on clean up projects.
This post provides a basic overview of various environmental insurance products. In purchasing such products close attention should be paid to the specific terms of the policy offered. In other words, know and understand the limits of your coverage so there are no surprises should an issue arise in the future.
Pollution Liability Policies
These are the most widely used brownfield insurance products. They provide a range of protections typically triggered after you have successfully cleaned up a property (signified by regulatory agency signoff on you clean up). The potential protections in such policies include:
- Third party bodily injury and property damage tor liability claims that arise post clean up as a result of remaining contamination
- Potential tort claims brought by neighboring property owners who claim could damages based upon bodily injury, property damage, diminution in property value or business interruption based upon pollution from your property migrating off-site
- Tort claims for on-site property or bodily injury caused by pollution remaining at the site
- Pollution released during transport of clean up related soils and materials
- Costs of additional clean up and other related expenses in the event there is a finding of new contamination or a regulator later decides they want more clean up
- additional clean up of known contamination which regulators had believed did not require remediation
- clean up of previously unknown contamination
- Legal defense costs associated with the first two types of coverage
When seeking pollution liability insurance careful review of the proposed policy terms is essential. What items are excluded from coverage? What risks are so remote they could be excluded and bring down the cost of the policy? Typically, there is a "base policy" that provides some level of standard coverage. The base coverage is then modified through addition or exclusion of specific coverages (referred to as "endorsements").
Different insurance products will offer varying standard terms, those that must be added (special endorsements) and those that are simply not offered. Some possible special endorsements or exclusions may include:
- lead-based paint in buildings
- asbestos in soil or buildings
- mold in buildings
- low level radioactive materials
- natural radioactive materials (ex: radon)
- unknown underground storage tanks
It is important to understand the limits of a policy to make sure you are receiving coverage for the most important and largest risks attributable to your site.
Coverage can typically range from anywhere from $1 million to $50 million in protection. Common policy limits can range between $5 million to $10 million in coverage. Deductibles can be as low as $10,000 or as high as $1 million or more depending on the coverage sought.
Cost Cap Policies
Cost cap insurance is purchased to protect against the event that the clean up of the site becomes far more costly that initial estimates. Cost cap insurance is typically expensive and for that reason its less common. Typical types of events that can be covered include:
- Clean up involved either higher volume or higher concentrations of known pollutants that was anticipated when developing the clean up plan
- Newly found pollutants that were not known during development of the clean up plan
- Additional investigation required as a result of newly found contamination
- Increase costs due to changes in regulatory requirements or standards
- Failure of the proposed remedy for the site
There are even less standard terms in cost cap policies that pollution liability policies. Business must carefully review the terms to understand their limits of coverage.
For example, often the clean up plan can be incorporated into the policy. Coverage may be limited to only those activities set forth in the plan. If some other activity is required that was not discussed in the clean up plan, there may be no coverage for increases costs associated with that activity.
As noted, the premiums for cost cap insurance can be expensive. One study of brownfield insurance products found that premiums ranged anywhere from 10% to 25% of the estimated cost of clean up or the limit of coverage.
Other Brownfield Insurance Products
- Pre-funded Programs- these products involve prefunding expenses at a clean up site. Depending on the type of policy, the insured pays the premium and expected clean up costs upfront. If clean up is less than anticipated, depending on terms, the insured may get a portion of the prefunded expenses back. If costs are higher than anticipated, the insurer will pay the cost overruns pursuant to the terms of the policy.
- Secured Lender Policies- These policies protect against loses due to pollution on a property that is subject to secure a loan. The coverage that could be provided includes: a) reimbursement of principal left on the loan due to borrower’s default; and b) third party tort claims for bodily injury or property damage after foreclosure on the property. The purpose of this coverage is to give your lender comfort by minimizing their risk in financing your project.
- Contractor’s Pollution Liability- policies issued to general contractors and others who handle remediation, transportation of hazardous substances, or other aspects of the clean up. The product will protect against property damage, bodily injury and environmental clean up claims that could arise from working on a clean up sites.
- Professional Liability Insurance- purchased to protect against mistakes or negligence of engineers, consultants, labs or other professionals providing services or advice on clean up sites.
Ohio Voluntary Action Program- Insurance Discount
Ohio EPA’s Voluntary Action Program (VAP) is the state clean up program addressing brownfield and other voluntary clean ups. VAP has developed a new component of their program that provides discounts on environmental insurance products. The Environmental Insurance Program (EIP) began on July 20, 2009 and allows VAP volunteers (and others with an interest in the brownfield property) the ability to obtain Pollution Liability Insurance at a 10% discount off the standard premium rate.
More Information on Brownfield Insurance Products
BrownfieldsInsurance.org is a site that was developed with funding from the US Environmental Protection Agency (EPA) to assist those seeking information and assistance with insurance products that mitigate environmental liabilities associated with brownfield properties. The site contains papers and studies discussing various environmental insurance products. It also has information regarding professional services. It is a good basic resource to educate yourself on environmental insurance products.