A Brief Look at How it Came to Be and Who Needs it
By Dana Hartwell, Socius Insurance Services
While the General Liability coverage endorsement CG0001 does aord a slight amount of insurance for Pollution coverage, it is standard for most companies to add on an Absolute Pollution Exclusion endorsement, thereby eliminating even the minor coverage afforded by the form. This leaves a gap in coverage for claims caused by Pollution. Standalone Pollution coverage can be purchased to ll that coverage gap. Here is a quick overview on how Pollution coverage came about, who needs it and why.
A brief history on how this coverage/need came about:
- The evolution of Pollution coverage and the CG0001 exclusions began in the 1980’s. The triggers of these changes were two new laws put into place which made companies liable for the waste they outputted and its cleanup. 1
- In 1976, The Resource Conservation and Recovery Act (RCRA) was enacted. It was the first law governing the disposal of solid and hazardous waste in the United States. And it was strengthened by Congress in 1984 with the passing of the Federal Hazardous and Solid Waste Amendments (HSWA) 2
- The second law was in 1980, the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) or “Superfund”, which forced just about anyone involved in the contamination to clean up or pay for the cleanup of such wastes, designated by the RCRA. 3
- With these two laws, the government was able to act on holding a company liable for pollution and its cleanup. At this point, federal and state environmental authorities began notifying companies as to their legal obligations to clean up pollution at the companies’ hands.
- It was at this point that Pollution claims began to be handed into General Liability insurers. Most companies attempted to deny the claims under the pollution exclusion in the policy. But “initially many courts found CGL coverage still applied as ‘sudden and accidental’ was ambiguous and really meant ‘unexpected or unintended.’ Insurers were ordered by courts to pay hundreds of millions in remediation costs.” 1
- So in reaction to the claims paid, in 1985, the “Absolute Pollution Exclusion” was born into a policy endorsement. This has been amended over the years, but has opened the way for the modern day Pollution policy
Pollution Coverage: Contractors
In 2006, CPL [Contractors Pollution Liability] comprised approximately 30 to 40 percent of the entire environmental insurance marketplace which is estimated at $2 billion in annual premiums.4 This large market share of Pollution coverage is taken up by general and artisan contractors whose work does not appear to have environmental impact, but if done incorrectly, or without the necessary research, could cause pollution damages.
Some examples of potential Contractors Pollution claims include 5 :
- Roofing contractor fails to properly connect a dryer exhaust vent which leads to elevated moister levels, which leads to illness in the homeowner. This results in mold remediation costs and third party bodily injury, including associated legal defense expenses.
- A restoration contractor is hired to dry out a house from water damage. The contractor, without testing for asbestos, starts and finishes the dry out process, inadvertently disturbing asbestos which releases asbestos bers into the air. After the job is complete, an industrial hygienist, hired by the homeowner, tests for asbestos and nds that it has spread throughout the house due to the dry out process. This results in cleanup costs and allegations of bodily injury resulting from asbestos inhalation, including associated legal defense expenses.
- A contractor is responsible for painting a water tank at a farm. The farm later discovers that their produce is polluted with paint flakes, due to overspray, causing damage to their product. Consequently this results in losses sustained by the farm including extensive clean-up efforts.
Pollution Coverage: Who Else Needs It
There are many high hazard types of businesses that require Pollution coverage. Those who definitely make the list are any insureds whose primary exposure is to set up, bury, distribute, spray or clean up chemicals of any kind or work directly with chemicals and pollutants. This includes, but is not limited to, any manufacturing facilities, environmental contractors, insureds who work with remediation and abatement, anyone who installs storage tanks underground or even owns and operates those storage tanks, like a gasoline station. And above and beyond the high hazard classes and the contractors, there are the insureds who commonly work with large amounts of chemicals for cleaning, like those in the janitorial services and restaurants.
The Pollution Policy: A Simple Explanation of Coverage Denitions
- First-party coverage: This coverage is for immediate cleanup at the insured’s own facilities. If a there is an accidental chemical leak at a manufacturing or processing plant, this coverage would provide funds to facilitate clean up.
- Third-party coverage: This coverage is for others than the insured. If the insured pollutes the area surrounding their facility, this coverage would be enacted to pay costs and lawsuit suit damages to x damages caused by the insured.
Two environmental laws in the 1980’s brought about a need for specialized Pollution coverage after they caused changes in the General Liability form. Over the years, the coverage had evolved to be specialized for the market segment that the insured falls in to. There are many types of insureds who need this coverage, even if they are not high hazard. Pollution coverage would be a great way to round out coverage, and leave no gaps for the insured. Socius has access to great company partners who can assist in the placement of this business. Please contact your Socius underwriter for more information, and we can help you place your business.
1 Stanovich, C. (2003, March 1). The CGL Pollution Exclusion. Retrieved December 14, 2015, from https://www.irmi.com/articles/expert-commentary/the-cgl-pollution-exclusion
2 History of the Resource Conservation and Recovery Act (RCRA). (2015, October 21). Retrieved December 14, 2015, from http://www.epa.gov/rcra/history-resource-conservation-and-recovery-act-rcra
3 Summary of the Comprehensive Environmental Response, Compensation, and Liability Act (Superfund). (2015, October 13). Retrieved December 14, 2015, from http://www.epa.gov/laws-regulations/summary-comprehensive-environmental-response-compensation-and-liability-act
4 Slivka, J. (2007, October 1). Contractors Pollution Liability Update. Retrieved December 14, 2015, from https://www.irmi.com/articles/expert-commentary/contractors-pollution-liability-update
5 Contractors’s Pollution Exposures. (2014, April 1). Retrieved December 14, 2015, from http://www.acegroup.com/us-en/assets/contractor-pollution-exposure_2014.pdf
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