Environmental Liability and Your Business

What do real estate firms, golf courses, law offices, banks, farm owners, contractors, dry cleaners and gas stations have in common? Exposure to environmental or pollution lawsuits. Companies that deal with the transfer and storage of hazardous materials, like waste haulers, or fuel oil distributors all have an obvious need for insurance against environmental hazards. But businesses involved in property sales transactions (banks, realtors, lawyers) can pick up the pollution liability that comes along with the subject property. Many businesses use chemicals and substances that are benign, when confined to intended purposes (golf courses, farms, dry cleaners). But improper storage of these materials, inappropriate use, or run-off (pesticides and herbicides) can lead to environmental damage, personal injury and a lawsuit.

Business Owners Policies (BOP) and General Liability policies (GL) broadly define and then exclude pollution damages from coverage. These policies can be endorsed to include some pollution coverage. This approach is inexpensive, but may also be inadequate. Endorsements to GL insurance policies typically define pollution narrowly (sudden and accidental discharge vs. gradual and prolonged seepage, for instance). GL insurance policy endorsements will also usually include constraints for permissable reporting period required for the grant of pollution insurance coverage.

A comprehensive assessment of environmental hazards will take into account more than just substances with the potential to pollute or damage the envirnment. For instance, mold caused by the improper installation of insulation or application of exterior building materials could result in an environmental claim.

In the fluid and changing landscape that is environmental, or pollution insurance, a number of companies have introduced insurance policies specifically designed to protect a wide range of pollution losses. In many cases, an umbrella policy with high liability insurance limits can be written over the top of these policies.

Does your business have an environmental exposure, and if so, what is the best way to handle it? The place to start is with an professional assessment of your businesses’ pollution liability exposures. The assessment will identify the largest, or most likely environmental hazards, and some of these can be reduced or eliminated through risk management – changes in or cessation of certain business practices, training and education, etc. The assessment exercise will also help identify and quantify the elements that should be present in an environmental insurance solution.

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