As a familiar saying goes, "there is no use crying over spilled milk." But waste firms may feel like crying when they are responsible for spilling fuel oil, hydraulic fluid, stored chemicals or other hazardous substances.
Environmental incidents can be expensive. Five- or six-figure cleanup costs are not uncommon. The cost is especially shocking to companies that don't realize that their standard general liability (GL) policy offers little or no protection in covering environmental cleanups as a result of pollution exclusions in GL policies.
In light of this gap, pollution coverages have become more common in business insurance portfolios and a staple for environmental insurance providers, especially those catering to waste management firms. But companies worldwide are not purchasing pollution coverage solely because of regulatory requirements or because they fear fallout from a potential spill. Pollution coverage offers a range of benefits:
- Helps close coverage gaps in GL and property policies
- Provides a financial cushion for potential cleanup expenses
- Protects shareholders' investments in a publicly held company
- Protects the value of real estate investments
- Secures more attractive financing terms from lenders
- Aids in the acquisition or divestiture of a property
Considered a niche market when it was introduced in the 1980s, environmental insurance has since gone mainstream. Nevertheless, throughout its 25-year history, the environmental insurance industry has seen many providers enter the market and, due to the complicated risks inherent in the sector, exit just as quickly. Only a few providers have enjoyed long-term success.
Environmental expertise is critically important in successfully underwriting pollution coverages as well as successfully managing a client's claims. It is important to understand that environmental insurance is an engineered product. In other words, a substantial amount of upfront, hands-on work and evaluation go into assessing a potential buyer's environmental exposure before a policy is actually underwritten. Many of the market's top environmental insurance providers employ underwriters with prior industry-specific experience gleaned through work as environmental consultants, engineers, geologists, industrial hygienists and environmental attorneys.
Likewise, should a loss occur, a firm grasp of environmental law, remediation techniques, and negotiations with local and government agencies are key to an insurance provider's ability to manage the claim.
If your firm is seeking an environmental insurance provider, determine the provider's level of environmental expertise and how it is used in underwriting, providing loss control services and managing claims. This should be a guiding principle when deciding upon the right provider and appropriate coverages. With many new entrants to the market, buyers are also advised to take a look at a company's track record handling environmental claims. This not only means looking at what the provider paid for the clean up, but also at how its claims management helped minimize losses, satisfied environmental contracts or addressed issues with regulatory agencies.
The most widely purchased environmental insurance is the Pollution and Remediation Legal Liability (PARLL) policy. The PARLL policy provides coverage for pre-existing and new pollution conditions including on-site and off-site clean up expenses, third-party coverage for on-site and off-site bodily injury and property damage, and legal defense expense coverage. In addition to the PARLL policy, there are policies available that respond to government-mandated cleanup costs as well as the cost of first- and third-party bodily injury, property damage and legal defense. Typically, such policies are designed to cover either locations or operations.
With pollution coverage and the right loss prevention and claims management assistance to go with it, there is little reason to cry over your next spill.
Matt Gartner works for XL Specialty Insurance Company.