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Environmental Liability Insurance

Environmental Liability InsuranceEnvironmental liability insurance protects a business that runs the risk of causing environmental damage due to the nature of its activities.

Since organizations can find themselves facing environmental liability claims, this offers a means to pay for damages owed or to defend against claims when there is no liability.

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While it would seem that pollution claims would fall under other liability policies, that is not so. Other policies exclude pollution coverage. Or, if there is coverage, it is limited.

Understanding why a business might be liable and what is available to protect a business makes it possible to search for the best coverage. If you are in a high risk industry for environmental damage, you need this coverage. Those industries include manufacturing, healthcare centers and hospitals, and contractors.

Environmental liability can result from different scenarios.

Liability is usually incurred due to a release of pollutants, a tort scenario; or because a law designed to protect the environment has been violated, a statutory scenario.

The other possible scenario is contractual in nature. Each liability situation is discussed in more detail below.

Tort Liability

Tort liability can occur due to negligence. With negligence, the offending party does not show the degree of care that would be expected. This failure must be the proximate cause of damages. If such a failure occurs, an organization can be held legally liable.

Business Insurance and Environmental Liability ProtectionAnother way liability arises is through the intentional torts of nuisance or trespass. If a property owner cannot enjoy his property due to the actions of another, the property owner can allege nuisance. Nuisance exposures can include loud noises, bright lights, or foul odors. Encroachment is not required.

With trespass, a pollutant has to be discharged onto the property. The pollutant may or may not be harmful. Water directed onto the property of another would be an example of a substance that is not harmful. Discharging toxic chemicals onto someone else’s property is an example of a trespass involving a harmful substance.

Finally, strict liability may be imposed. Under strict liability, common law defenses are removed when ultra hazardous activities are taking place or ultra hazardous materials are being used. In these cases, the highest degree of care may be in use but the presence of the materials or the activities results in strict liability.

Contractual Liability

Sometimes an organization will enter into a hold harmless agreement and will assume liability for claims made against another party to the contract. If an environmental loss occurs, the organization may find itself responsible for the loss due to the language of the contract.

Environmental Statutes

Since the second half of the twentieth century, numerous environmental laws have been passed to protect human health and the environment. Many of these statutes impose strict liability.

Almost all of them operate on the premise of requiring the polluter to pay for the cleanup associated with a loss. Examples of such statutes include the Clean Water Act, the Resource Conservation and Recovery Act, the Oil Pollution Act, and the Toxic Substance Control Act.

How Environmental Liability Insurance Protects Businesses

If a business faces environmental liability exposures based on torts, contracts, or statutes, the business should make sure they have coverage in place to address these exposures should they occur.

Categories of Environmental Liability Insurance

While there may be some environmental liability coverage in other policies, business owners must know where there is no coverage so that appropriate additional coverage can be chosen.

Environmental liability insurance policies fall into one of the following three basic categories: site-specific policies, operations-specific policies, and professional liability policies.

Within each category, there are different types of policies.

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Site-specific Insurance Policies

Site-specific environmental impairment liability policies cover pollutant release that occurs on a sudden or accidental basis provided the release occurs at a specifically named location. These policies are often purchased by waste sites, oil refineries, farms, and factories.

  • Commercial general liability/environmental impairment liability policies: These result from the combination of commercial general liability and environmental impairment liability policies. The advantage is there are no coverage disputes since one company writes both types of coverage into one policy. Premiums are often a little less as well. On the other hand, since there is only one policy, there will be only one limit of insurance. Waste disposal companies and chemical manufacturers often obtain this type of policy.
  • Your Environmental Liability Business InsuranceUnderground Storage Tank Compliance: Governmental regulations require the need for underground storage tank compliance policies. The policy serves as evidence of financial responsibility. Such coverage is typically needed for tanks that contain fuel and/or other hazardous materials underground. Those responsible for the tanks must be able to show there are funds available to pay claims and to take any governmentally required actions.
  • Property transfer policies: These are purchased by the seller of a property with the intent of transferring the risk of unknown costs of possible environmental liability to an insurer. These unknown costs are eliminated for the new owner of the property because any on-site cleanup occurs on a first party basis for the new owner.
  • Remediation stop-loss policies: These are written to cover remediation costs that are in excess of projected costs at the time of the sale of a property. These policies actually facilitate the sale because, unlike the property transfer situation where contamination is questionable, with the remediation stop-loss policies, the property is known to be contaminated. You can learn more about these policies at the Environmental Risk Resources Association’s website here.
  • Secured creditor policies: These are designed to protect the lender’s interest in property that has environmental loss potential and that is in default. Under this policy, the protection only applies to the lender not the borrower. There is no benefit to the borrower because the property is already in default.

Operations-Specific Insurance Policies

Contractors’ pollution liability policies provide coverage for contractors’ operations that result in pollution-related losses. This coverage is often Environmental Liability Insurance for Contractorspurchased by such entities as general contractors, building products manufacturers, environmental services vendors, and building maintenance firms.

Commercial general liability/contractors pollution liability combination policies are basically the operations-specific counterpart to the site-specific combination policy mentioned earlier. The cost is usually lower and there are no coverage disputes since the same company is writing both coverage options in one policy. A single limit would still apply.

Asbestos and lead abatement contractors general liability policies are very similar to commercial general liability policies.

Unlike commercial general liability policies though, asbestos liability coverage is included in the abatement contractors general liability policy.

Professional Liability Insurance Policies

Environmental Liability Insurance for Testing LabEnvironmental professional errors and omissions liability policies provide the same coverage as an engineers’ professional liability policy. The difference is that the exclusion for pollution found in the engineers’ policy is not present. Testing laboratories, environmental consultants, and tank testers often select this coverage.

Professional liability/commercial general liability/contractors pollution liability combination policies combine the coverages of all the policies into one. Lower premiums and lack of coverage disputes remain as advantages but as before only one limit will apply.

Once a business determines what environmental liability insurance they need based on their exposures, they are in a position to choose from the different categories and types available. They will be able to compare what they have with what they need and can then compare the various offerings of different insurers. By doing so, these businesses will be able to make sure that they have the protection they need on the environmental side in addition to the protection they need through other liability policies.

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