If you're having trouble buying insurance, you're not alone. As recently as three years ago, the property and casualty insurance industries avoided writing most pollution insurance coverages.
Insurers, stung by a tort liability system that looked for the deepest pockets when a pollution incident occurred, preferred to lump waste processing facilities together with oil spillers and illegal waste dumpers. Consequently, public and private owners of recycling centers and waste incinerators had few markets to approach.
But since insurers began to see the potential for profit, the market has become competitive. Still, legal advisors to the hazardous and solid waste industries are warning that, although new insurance products are becoming available, these products can be so fact-driven and site-specific that buyers should be careful that they are getting the necessary coverage.
New Offerings "The environmental liability insurance market is growing, not only in the amounts of available capacity but also in the number of sophisticated, diverse insurance policies being made available," said Jim Cox, vice president and environmental specialist for Construction Group, a subsidiary of the international insurance brokerage firm of Johnson & Higgins.
Cox maintains that there are new players in this exotic insurance arena and that ECS Underwriting Inc. and Commerce and Industry Insurance Co. are being challenged by new participants willing to write various types of environmental liability insurance.
Active players in the market, according to Cox, are Chubb Group, Great American Insurance Company, the ERIC Group, Lloyd's of London, Gulf, Enaston, United Coastal, The Home, Aetna, Cigna and CNA. He notes that Zurich is a prime market mover.
"Zurich is a company to watch during the next couple of years," said Cox. "They have committed substantial financial and human resources to developing a top-notch environmental insurance program and are aggressively seeking business. Zurich could become one of the top insurers of environmental risks over the next couple of years."
A number of new coverages exist in the marketplace, including pollution legal liability insurance, contractors' pollution liability insurance and abatement liability insurance policies.
"A new policy for contractors and their advisors to consider was recently developed by ECS," Cox said. "Contractors' contingent pollution liability insurance covers sudden and gradual pollution conditions from covered operations that were performed by the named insured and for pollution liability imposed on the named insured arising out of subcontracted operations."
He maintains that this policy covers a variety of general contracting projects because it allows contractors to assume responsibility for environmental work performed by subcontractors. Contractors' contingent pollution liability insurance is available at a lower cost than normal contractors' pollution liability coverage and offers complete operations coverage (see chart on this page and sidebar on page 44).
Cox also said that the insurance industry is considering two new policies. The first, owners' spill pollution liability insurance, provides contingent coverage for transport operations, kicks in after the subcontractor's protection is tapped out and is aimed at businesses that generate waste. The second policy currently being developed, which is temporarily named remediation capo coverage, will help insured manage cleanup cost overruns and will impose a retention of approximately 20 percent of the estimated cleanup costs, according to Cox.
Kenneth B. Cornell, vice president of Commerce and Industry, also predicts an expanding environmental liability insurance arena. His firm offers several types of coverage: * An environmental protection program for large corporations with multiple property holdings with limits of up to $40 million. This is a claims-made program which provides on-site and off-site third party liability and property damage coverage.
* Environmental umbrella casualty insurance for industries with environmentally sensitive operations such as hazardous waste transportation, treatment, storage and disposal; limits are up to $10 million; and Preferred risk pollution liability insurance for light manufacturing operations, textiles and apparel manufacturing, food industries, warehousing and distribution fa-cilities, printing, publishing and photographic industries, automotive, hardware and home supply wholesalers and retainers.
The Home, another environmental insurance company, also offers specific coverage and calls for significant loss control measures. "We will consider only those non-hazardous landfill sites whose operations are no less than state-of-the-art," said Robert Spiro, senior vice president of The Home.
"One of our growing concerns in sanitary landfills is groundwater or surface water leachate contamination. Careful location, engineering and daily operation help prevent leachate contamination. Where the natural drainage of surface waters would run into the fill area, a drainage system must be designed and installed to divert the water around the site. Where the level of groundwater is high, we require an impermeable liner in each cell," Spiro said.
Methane and carbon dioxide production is another factor that insurance companies consider. Measurable concentrations of hydrogen sulfide and similar gases may also be found. Carbon dioxide and hydrogen sulfide combine with water to form acids. Several methods of dealing with landfill gases may be used to handle these exposures. The most sophisticated methods collect and burn gases.
Another technique uses the cover to remove malodorous components before the gases escape into the atmosphere. "When the cover material is impermeable, the gases will migrate laterally until they find an exit route. This situation is as dangerous as methane is explosive in contractions as low as 5 percent in the air. Thus we must determine whether the site has adequate venting," said Spiro.
Topography, hydrology, climatology, geology and soil, state regulations for the site in question and the litigious climate for the site in question are also important to insurance companies, Spiro said.
Legal Perspective While new products and services are becoming more available to public and private owners of solid and hazardous waste sites, Stephen L. Gordon, partner in the national environmental law firm of Beveridge & Diamond, warns those seeking insurance to be cautious.
"From my experience, the market is still extremely tight in terms of what the buyer needs. Getting commercial insurance can be difficult, if not still impossible. We're still seeing public and private entities satisfying state and governmental regulations with letters of credit and pledging non-encumbered financial assets in designated accounts in lieu of insurance," Gordon said.
"In fact, the government has become so aware of problems with obtaining necessary insurance that regulators have become more cooperative in accepting these alternatives," he said.
Gordon warns that intelligent decisions about buying insurance can be made only with professional guidance. "Owners of waste facilities must examine the insurance market thoroughly and then seek the advice of independent environmental consultants who are aware of court decisions that affect their operations," he said.
Cleaning up the nation's known hazardous waste sites, including nuclear weapons plants owned by the federal government, will cost $752 billion over the next 30 years, according to a recent two-year study by the University of Tennessee Waste Management Research and Education Institute.
However, according to the Insurance Information Institute, this figure does not include litigation costs. The Institute notes that, if the policy were changed to leave the waste in place, with restrictions on groundwater use, the cost could be reduced by 35 percent to $484 billion. Under a new, more stringent set of standards, the bill could rise to $1.18 trillion.
There are 1,276 sites on the National Priorities List (NPL) and cleanup costs average about $25 million for each site. As of May 1993, the cleanup process had been completed at 161 sites. The number of sites being considered for the Superfund list, now more than 32,000, could more than double to 75,000.
The insurance industry feels that the cleanup of hazardous waste sites is society's responsibility. The industry is opposed to provisions of the Superfund law that impose almost absolute liability on defendants; to the law's retroactive nature; and to the application of the joint and several liability rule to defendants only minimally at fault.
In the latest developments regarding alternatives to Superfund, the industry has recommended a "trust" approach to force all societal actors in environmental pollution - such as insurers, manufacturers and public entities - to assume a greater tax burden to be put into a fund. Chemical manufacturers, on the other hand, would prefer a fair-share approach, which would force those involved in pollution incidents to pay according to the amount of pollution for which they are responsible. The two factions are attempting to work out a hybrid of the approaches to present to the Clinton administration.
Whatever the solution, the industry will face a heavy burden. According to the Institute's "Cleaning Up Hazardous Waste: Is There A Better Way?" written by Orin Kramer, president of the consulting firm Kramer Associates, and Richard Briffault, a law professor at the Columbia University School of Law, generalizations about the economic effects of Super-fund legislation on potentially responsible parties (PRPs) in pollution incidents are difficult.
Under Superfund, PRPs may include an individual or company potentially responsible for or contributing to the contamination problems at a Superfund site. EPA has identified approximately 26,000 PRPs, and those designated by EPA will represent a small slice of the pie by the end of this year, according to the Institute's treatise.
Moody's Investors Service recently said that a "broad spectrum of American industry" faced large contingent liabilities that could affect credit ratings. The following industries carry the greatest environmental risk: chemical, rubber and plastics, petroleum, pharmaceuticals, pulp and paper, heavy manufacturing, steel, mining, electronics and electrical equipment industries and electric utilities.