Pollution / Environmental Liability Insurance
Prior to 1973, standard Commercial General Liability policy forms did not exclude Pollution / Environmental claims. ISO’s first pollution exclusion in 1973 still covered claims arising from “sudden and accidental” discharge or release of contaminants or pollutants; but “sudden and accidental” was not defined. The lack of a policy definition for “sudden and accidental” became one basis for coverage disputes and litigation between policyholders and carriers. Various courts issued disparate rulings on the intent of “sudden and accidental” pollution incidents.
Pollution / Environmental Liability Insurance is most commonly written by specialty underwriters on manuscript forms specifically addressing pollution exposures. Given the exposure severity, policies are written on a Claims-made basis with strict terms and conditions of coverage.
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Pollution liability incidents range from small fuel spills, to long-term asbestos exposure all the way to large-scale environmental impairment claims. Terms synonymous with pollution disaster include Love Canal, Bhopal and Deepwater Horizon, widely considered the largest pollution incident in petroleum industry history.
The array of industries dealing with Pollution liability exposures includes:
- Chemicals (manufacturers, mixers, distributors, Brownfields)
- Oil and gas (drillers, refineries, above ground & underground storage tanks, groundwater contamination)
- Construction (fuel spills, chemical applications, contaminated materials)
- Mining (hazardous tailings, Brownfields, contaminated runoff)
- Transportation (railroads, trucking, garbage trucks)
- Maritime (pipelines, hull rupture, oil/chemical spills, wetlands, Natural Resource Damages)
- Disposal and Recycling Facilities (waste handlers, landfills)
- Municipalities (water purification, wastewater, landfills, Port Authority accidents)
- Manufacturers (electronics, leaking storage tanks, product failure, asbestos)
- Medical (biohazard, radioactive waste, pharmaceuticals)
- Agriculture (dairy farms, fertilizer, storm water runoff)
- Food industry (grease traps, cooking fumes)
- Real Estate (tenant waste, sewage, fuel spills, Sick Building Syndrome)
- Hospitality (chlorine leaks, underground storage tanks)
- Professionals (engineers, environmental consultants)
To manage environmental risk, many industries utilize tools such as Phase I & II Site Assessments, Baseline Environmental Assessments and monitoring pollution levels of ongoing operations. Nonetheless, litigation arises from a variety of areas:
- Toxic torts.
- Environmental contamination.
- Chemical / Hazardous waste spills/releases.
- Groundwater contamination.
- Long-latent occupational diseases.
Environmental litigation commonly involves local, state, and federal agencies regulating:
- Hazardous waste (HAZMAT)
- Transportation of hazardous materials
- Mining / Minerals
- Oil & Gas waste byproducts
- Coastal and inland wetlands
- Remedial Action Plans
Governmental entities with enforcements authority to assess fines and penalties,
- Environmental Protection Agency (EPA)
- Federal Emergency Management Agency (FEMA)
- Occupational Safety and Health (OSHA)
Administer numerous environmental and pollution laws including the:
- Clean Air Act / Clean Water Act
- CERCLA: Comprehensive Environmental Response, Compensation and Liability Act
- Endangered Species Act
- Freedom of Information Act
- Resource Conservation and Recovery Act
- Toxic Substances Control Act
Courtroom chaos resulting from the term “sudden and accidental” prompted ISO to introduce the “Absolute Pollution Exclusion Endorsement” in 1985. While “sudden and accidental” was deleted, pollution was still not “absolutely” excluded. Coverage was still provided for contractor pollution claims from contaminants brought to a working job site. Subsequent ISO forms extended pollution coverage for hostile fire claims and/or building damage caused by contractors.
ISO’s late 1980s “Total Pollution Exclusion Endorsement” was intended to exclude all claims for bodily injury and property damage whether caused “in whole or in part” by the discharge or release of pollutants. While one might assume this would reduce litigation over Commercial General Liability pollution exclusions, ample disagreements persist over the definition of “pollutant”, and there is still no universal interpretation of either an Absolute or Total pollution exclusion.
Individual states regulate coverage triggers for long-tail pollution losses on pre-1973 General Liability policy forms, Rules differ by state, but generally fall in to 4 broad categories:
- Injury in fact trigger: Policyholder required to provide specific evidence of when contamination began, and prove contamination continued throughout the disputed time period.
- Continuous trigger: Policyholder must demonstrate a particular, harmful process occurred over a certain time period and simultaneously contaminated third-party property.
- Exposure trigger (limited number of states): Policyholder must demonstrate only that operations (as opposed to a particular process) continued over a given period of time; the court assumes that the pollution happened simultaneously.
- Manifestation trigger (not widely used): Triggers only CGL policy in effect at the time pollution was discovered; clearly conflicts with plain policy language. Our Experience with Pollution / Environmental Liability Insurance
Mr. Daniel’s insurance career began in 1973, the same year Pollution Liability exclusions first came to the forefront. His experience includes dealing with various iterations of Pollution Exclusions in both ISO and carrier manuscript policy forms and endorsements. This expertise was developed from pollution liability placement and claims handling as a corporate risk manager and later as an agent, as well as from numerous Pollution Liability expert witness engagements.