Environmental Liability Insurance Risk Exposures Explained
What is Environmental Liability insurance, and how is it different to General or Public Liability insurance?
General or Public Liability policies may offer some Pollution Liability coverage but are generally limited to Personal Injury or Property Damage resulting from Sudden and Accidental release of pollutants. The incident must also be reported immediately, as a claim will likely be declined if this remains unchecked for some time.
What about insurance cover against environmental or pollution related incidents? The potential for a major pollution related incident is more likely than one may think, especially for high risk industrial businesses and property owners where the resultant cleanup and legal costs could be astronomical.
Couple this with the negative publicity that could be generated through the media and local community, the result could be crippling – not just financially, but also from a brand image standpoint. The Gulf of Mexico case in the US involving BP is a prime example of this, the company spent in excess of $500 million to restore its brand image, yet they are still haunted by this disaster almost a decade later.
Below details how an Environmental Liability policy could respond in particular scenarios.
Fortunately, these risk exposures can be transferred to an Environmental Liability insurance policy. These policies are essentially designed to help protect the insured from gradual, sudden or accidental pollution coming from their site, including:
- Historical Pollution (long-term or delayed effects of pollution related incidents)
- Air Pollution (including dust and odour)
- Soil Pollution (including sudden or gradual)
- Water Pollution (including surface water runoff and wastewater discharge)
Environmental Liability insurance is an option that is often overlooked and underutilized. The range of cover is comprehensive, the cost is relatively inexpensive and it’s an insurance option that should at least be discussed with your insurance broker.
Typical Environmental Liability insurance products include:
- Contractors Pollution Liability
This policy responds to:
- Errors and omissions in environmental technical/geotechnical reporting;
- Third-party bodily injury, property and environmental damage events arising from such errors and omissions;
- Pollution release during operations; and
- Such liabilities arising from a contractor’s activity and introduction of new/aggravation of new pollution conditions (this can also be taken out on behalf of contractors).
- Pollution Legal Liability
- This is a selection driven policy that can be site specific or across numerous locations.
- Business Interruption cover may also be built into this policy.
- It provides options for miscellaneous contracting operations and transportation of goods.
Helping Property Owners to Protect Themselves
One of the aims of this article is to spread awareness of potential exposures faced by business and property owners and how they can transfer these risks to insurance through an Environmental Liability policy.
A proactive strategy for Property Owners to take is to include an Environmental Liability policy as part of the outgoings under their lease agreements. Building and Public Liability insurance are typically included and passed onto the tenants this way, so why not also include Environmental Liability? This can be done in house by property management agencies and will look after the best interests of the owners and their tenants, as the Environmental Liability insurance will respond as a first port of call should a pollution incident occur.
Social awareness on the environment is increasing, and rightly so. As highlighted in this article, the impact of a pollution event occurring could prove devastating to a small business or property owner. With the risk of a gradual or historical pollution event occurring, not transferring this risk to insurance now could be something that is regretted in the future.
We have included some of the Frequently Asked Questions we receive from our clients, specific to their industry or needs, but please feel free to contact us if you have any questions specific to your property or requirements.
Q. Is Environmental Liability insurance applicable to my Industry type?
A: The insurers that offer an Environmental Liability product policy generally have a broad appetite; the most common industries provided with this policy type include (but are not limited to):
Manufacturing – chemical, automotive, beverage, transportation, logistics and aviation.
Construction – Residential/commercial constructions, demolition and excavation
Services & Real Estate – Waste treatment, landfills, airports, marinas and petrol stations
Tourism & Hospitality – Hotels & resorts, boat yards/marinas and national parks
Energy – Refineries, gas works, terminals and tank farms, wind farms and hydro power facilities
Healthcare & Life Sciences – Hospitals, aged care facilities, clinics, laboratories & diagnostic facilities
Q. A fire in my warehouse caused toxic smoke and run-off from stored chemicals into a neighbouring creek. The investigation and clean up costs are extremely high, and worse still is the tenant has gone into liquidation. Will my Public Liability insurance respond to this?
A: The resultant action from this event would fall under Statutory Liability, which is generally a standard exclusion under all General/Public Liability policies. Where such an incident is a possibility, we recommend an Environmental Liability policy which includes cover for the statutory clean-up costs that can be required under Environmental Law or incurred by a government entity.
Q. Can we de-risk the purchase of a new development site by taking out an Environmental Liability insurance policy to cover off pollution exposures?
A: The history of a development site can certainly pose a risk to any planned new development, especially if that site was previously used as industrial land or as a gas service station, for example. In the right situations, purchasing an Environmental Insurance policy will de risk this scenario and give the buyer a safety net that may otherwise have made the deal too risky.
An Environmental Liability policy not only responds to bodily injury and property damage coverage for pre-existing and new conditions, but it will also respond if a site surveyor fails in their due diligence of the site and did not identify contamination that was in fact present. Instead of letting a prime location site opportunity slip by, mitigate and overcome the risk by purchasing the applicable Environmental Liability policy at the beginning.
Have any questions?
Talk to one of our Commercial Property Experts today!
Who is KBI?
KBI is a national specialist insurance brokerage that has rapidly developed a reputation for being the insurance partner of choice for the Commercial Property and Strata sectors, providing expert knowledge and specialised solutions across a range of asset types.
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By Phil Hughes
Phil Hughes is an Account Manager at KBI with a focus on Commercial Property and Strata insurance.