The Rules Behind The Insurance Game

After years of being limited to the few insurers willing to assume the risk, solid waste managers now can choose from a diverse and competitive market.

In the past, insurers lumped solid waste managers into the same category as oil spillers and illegal waste dumpers. Now, insurers are realizing the distinctions between modern, well-engineered landfills and sanitation trucks and the riskier dumps and vehicles of past decades.

Environmental liability insurance policies for landfill owners and waste haulers range from comprehensive environmental coverage for current or newly-acquired facilities to catastrophic coverage at remediation sites.

Insurance experts advise solid waste managers to compare policies carefully prior to purchase. Unlike standard general liability or property insurance, environmental liability policies vary widely in form, premium and coverage amount, explained Chris Matern, principal of Chris Matern Consulting, Chicago.

The National Environmental Coverage Corporation (NECC), Chestnut Ridge, N.Y., encourages environmental liability insurance buyers to consider the following prior to purchase:

* Investigate everything available. Brokers should have access to a wide selection of underwriters. According to Sedgwick James Inc., a global insurance organization, three major insurers provide environmental coverage in the form of general liability, auto liability and workers' compensation. Another 20 companies write specialty policies.

* The policy should meet your contractual and professional needs. Have the broker review the policy with you so that you understand the coverage and exclusions.

* Select limits and deductibles you can live with in the event of a claim.

Determining The Right Policy A comprehensive general liability (CGL) policy protects from liability as a result of third-party bodily injury or damage. Typically, CGL policies feature standard language and follow a standard form.

According to Matern, the coverage availability under CGL depends on:

* the nature of the claim;

* the state(s) involved;

* the year the policy was issued;

* the dates relating to the environmental problem;

* the date of the occurrence;

* the date the occurrence affected the complainant (e.g., when the hazardous material reached the groundwater or complainant's property); and

* the date the complainant discovered the occurrence (e.g., when the claimant discovered that hazardous material had reached the groundwater or complainant's property).

An environmental impairment liability (EIL) policy is the traditional, site-specific legal liability policy. According to Sedgwick, it is "the grandfather of all environmental liability policies," because it typically covers bodily injury, property damage and legal expenses, and is claims-made. Locations must be scheduled for such policies.

For an additional premium, some insurers will add "first-party cleanup" for the insured property's remediation. Minimum retentions for this addition are $10,000, with premiums starting at $10,000, according to Sedgwick.

Both the EIL and the first-party cleanup provide coverage for pre-existing, but undetected, contamination or contamination that occurs during the policy period.

According to Sedgwick, new environmental insurance products include:

* Post-remediation coverage. Covers cleanup of property discovered to be contaminated after it has been remediated. Coverage is available up to $40 million; minimum premiums are $5,000; and minimum retentions are $25,000.

* Remediation "cost cap" insurance.Catastrophic protection of property undergoing remediation. Premiums and retentions vary.

* Closure coverage. Indemnifies the policyholder for costs related to an unexpected closure of a Resource Conservation and Recovery Act facility.

* Combined general/pollution liability. Limits are available up to $10 million, with retentions of $25,000.

* Combined automobile/pollution. Limits are available up to $10 million, with retentions of $2,500. Coverage for "ordinary" risks (such as workers' comp, umbrella liability, business automobile physical damage, and bonds - hauling performance, landfill closure and post-closure) are available.

Risky Business Since so many choices are available in commercial insurance, an increasing number of solid waste managers believe that self-insurance is too expensive. According to BestWeek, published by AM Best, Oldwick, N.J., costly site cleanup costs include three components:

* costs associated with remedial investigation and feasibility studies and any emergency removal required;

* capital costs related to the construction of the selected site remedy and initial cleanup; and

* operations and maintenance costs of monitoring and treating sites after initial cleanup.

Consider this example: A farmer filed a nuisance suit against a waste transporter, alleging that the odor of manure being transported to a landfill damaged the farmer's corn crop and made it unmarketable.

When the transporter sought coverage, it was denied. The transporter then brought a declaratory judgment action to establish his rights under his CGL and umbrella liability policy, which contained no pollution exclusion clause.

The court had to determine whether there had been an occurrence under the umbrella policy. The transporter's policy used the standard definition: "an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected or intended from the standpoint of the insured."

The court found that while the transporter knew that some of the manure was spilling out of his trucks, he did not release the manure intentionally. Therefore, the damage was not intended. The court also found that the transporter did not expect damage to occur.

Apparently, the farmer had not complained to the transporter prior to filing the suit against him; so the transporter did not have any reason to know that the corn was being damaged.

Ultimately, the court found for coverage under the transporter's umbrella policy, but not under his CGL.

Caution Is Not Enough For financial assurance, you should have some coverage for the risks inevitable to this industry. In addition to the unique waste-related liabilities, risks facing any vehicle owner also concern waste haulers.

Paul Moore, an engineer at the National Institute of Occupational Safety and Health (NIOSH), Washington, D.C., recommended that sanitation fleet owners take these additional precautions:

* implement rigorous driver training programs;

* require precise records that track each shipment; and

* display signs indicating which trucks or railroad cars are carrying hazardous wastes and the kind of wastes involved.

If you are thinking, "but these things couldn't happen to me. I know about everything that goes into my landfill," don't be so sure.

If you purchase contaminated property, you can be liable for thousands of dollars in cleanup costs even if you did not cause, contribute to, or know about the contamination (see "New Legislation Offers Tax Incentive For Brownfields Cleanup," World Wastes April 1997, page 12).

The new real estate transfer policy provides coverage for either third-party suits or cleanup expenses for contamination that was existing but undetected at the time of sale.

According to Sedgwick, limits of $40 million are available for real estate transfer coverage, with minimum retentions of $10,000 and minimum premiums of $5,000.

We all hope we never have to file a claim against our environmental liability coverage. In the event that you do have to work with your insurer during the claims handling process, Karen Sutherland, chair of the North-west Environmental Claims Association, Seattle, advised:

* Cooperate.

* Give notice of the claim as soon as possible. If you delay, and the insurer is prejudiced, your claim will likely be denied.

* Provide the insurer with all relevant documents and witness names as quickly as possible. According to Sutherland, the insurer will ask for all relevant information at some point, and providing it up front can speed the claims handling process.

* Give the insurer a policy copy. In some states, insurers are not required to retain policies over a specified number of years, so it is possible that the insurer no longer has a complete record.

* Have realistic expectations. "Do not expect your insurer to pay 100 percent of your damages if there are substantial legal or factual issues regarding coverage or regarding the existence of a lost policy," cautioned Sutherland.