With the massive oil slick containing hundreds of thousands of gallons of oil bearing down on the gulf coast I thought it was a good time to talk about Environmental Liability coverage. Now, I know that most small businesses are not faced with the possibility a of multi-billion dollar environmental disaster like this one; however, the level of the disaster is in the eye of the beholder and how relative it is to them.
Most businesses fail to recognize their own potential for some type of environmental mishap due to their operations. Environmental exposures are perceived to be exclusive to specific types of business, such as contractors, oil companies or automobile service operations. Any business that has large equipment/machinery (i.e. processing machines, refrigeration units, vehicles), storage tanks, chemicals etc has a potential for a pollution loss that should not be underestimated. Hotels, schools, manufacturers, hospitals, retail stores and restaurants all have the potential for an environmental mishap that could not only involve expensive clean up costs, but also expenses to restore the reputation of the business.
All businesses need to evaluate thier potential risk for some type of environmental liability loss and what they should do to manage it. Some of the critical questions to ask are:
What are its exposures?
What will the response be should an event occur?
How will we pay for the clean up & and any claims that may result?
The cost of an event can not be understated. Management should understand when it comes to paying for any losses that their Commercial General Liability(CGL) coverage, in almost all cases, specifically excludes Environmental related claims and can not be relied upon as a financing source. The CGL policy was never intended, nor priced, to provide coverage for these types of losses. Fortunately there is insurance coverage available for these risks.
Known as Environmental Impairment Liability Coverage, it is designed specifically by insurance companies to handle the unique exposures and losses related to environmental issues. Key areas of coverage include:
- Remediation Expense includes actual clean up costs, compensatory costs for cleanup costs incurred by others and related legal and defense expense.
- Coverage for losses arising out of contamination due to the insured’s waste or products at Non-Owned Locations
- Coverage available for loss arising out of contamination due to transport of the insured’s waste or product by the insured or a third party carrier
- Underground Storage Tank coverage available
- Coverage available for loss arising out of contamination due to the insured’s contracting operations
- Coverage available for Business Interruption and Extra Expense due to contamination at an insured location
- Image Restoration Coverage to assist the insured in restoring their reputation in the event of a claim or remediation expenses
- Disciplinary proceeding defense cost
- Coverage for the ‘midnight dumping’ at project sites or owned and leased locations – Contaminants illegally disposed of or abandoned by a third party
- Coverage for the insured’s Emergency Expenses, to protect third parties or the environment from an imminent endangerment due to contamination
- Coverage due to mold, legionella and low level radioactive matter or waste
- Property Damage includes coverage for Natural Resource Damages
- Bodily Injury includes medical and environmental monitoring
- Remediation Expense includes both clean-up to the extent required by law and in absence of such laws to the extent recommended by an Environmental Professional
This coverage, though not inexpensive, is readily available from many insurance carriers for a wide variety of operations and situations. A true risk manager or responsible business owner will recognize having the insurance is does not preclude responsibility. Each business needs to set up a proactive strategy to deal with an event in a fast, yet effective manner should the need arise. The insurance should not be thought of as the exclusive remedy, but merely as the financing tool that allows them to be aggressive and timely in their response. A business should want their neighbors, customers, regulators and the public in general to know they care about what happens, and are acting quickly to mitigate the effects of the loss, thus limiting the harm.
Talk to an independent insurance agent who understands this type of coverage and can help provide you with the tools to evaluate your potential exposure. Stay ahead of any potential problems so they do not blind side your business. After all, the real potential damage from these types of losses is to the business environment you operate in