INSURANCE: Does Your Coverage Add Up?

ABC Waste Co. contracted with several independent haulers to transport waste to its disposal site. Independent contractor B suffered a highway accident while hauling ABC's waste, scattering hazardous waste onto a roadway and contaminating the area's soil and nearby stream. What portion of the $50,000 in cleanup expenses, $10,000 in fines and $25,000 in third-party claims is ABC Waste expected to pay? Furthermore, will its insurance cover the spill?

The answers depend on the litigation that often arises following environmental incidents. However, much of the litigation's outcome hinges on the comprehensiveness of ABC's insurance coverage.

Many businesses don't realize that insurance policy coverage gaps can cost time and money, especially when fighting over coverage in court. Choosing from the many insurance coverages being offered - especially when considering what specific environmental exposures are insured and under which scenarios they are covered - can be a challenge.

An environmental facility's typical pollution insurance policy covers pollution conditions that occur on a fixed site or on facility grounds. But typical insurance protection does not cover the contingent liability posed by contractors, such as transporters hired to carry waste. Often, it is assumed that contractors have enough insurance coverage to meet their exposures during their operations, such as waste transportation.

Also, a facility's typical insurance policy is not likely to cover the risks posed by the materials off-site, such as those being transported to a disposal site. In the example, waste hauled by contractor B still belongs to ABC Waste, who is responsible for it while en route.

Coverage gaps can be filled by adding special endorsements to an existing pollution insurance program. Auto pollution endorsements can cover incidents that arise from transportation performed by and on behalf of the insured facility. In the example, an auto pollution endorsement would protect ABC against the contingent transportation liability.

Another endorsement covers non-owned disposal sites (NODs) declared U.S. Environmental Protection Agency Superfund sites. A NODs endorsement protects those who may have used, but don't own, a Superfund site from the expense of being named a potentially responsible party (PRP).

Adding endorsements to cover contingent transporter liability or the risks posed by dumping at a non-owned disposal site has become more affordable.

This is because the current property and casualty insurance market is competitive, which allows waste facilities to redirect money that would have been spent on typical pollution insurance coverages to buy additional insurance against additional liabilities.

Environmental facilities have emergency response plans for a variety of environmental incidents. Making sure their insurance coverage will respond properly to all potential pollution risks is an important part of an effective risk management plan, too.