What You Need to Know About Pollution Insurance

Historical Perspective on Pollution Insurance

Pollution insurance, also known as environmental impairment liability insurance was developed in response to environmental tragedies of the 1970’s, most notably the Love Canal Disaster. The discovery of environmental damage caused by industrial waste spread rapidly through the 70’s and early 1980’s, and the Federal government responded with the Resource Conservation and Recovery Act (RCRA) and the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), which imposed draconian penalties on polluters.

Initially the damage caused by polluters was found by courts to be covered by the general and excess liability policies of the time. In 1985, the insurance industry responded with the “absolute pollution exclusion” on liability and property insurance policies. Innovative underwriters identified a potential market that they could quantify and generate substantial premiums in, and the pollution insurance market place was born.

Pollution Insurance Basics

Environmental impairment liability insurance has evolved into a sophisticated portfolio of products, offered by several national, international and specialty insurance companies. Pollution insurance coverage can be considered from two broad perspectives.

  • First-party coverage provides you with funding if you have a spill or contamination that needs cleanup. This might be necessary if any chemical used in your business leaks into the ground on your property. Your first-party environmental liability policy would fund the cleanup effort.
  • Third-party coverage protects you from allegations of pollution liability due to a release of a pollutant from your facility that adversely affects others. The damage to others can range from something as simple as causing a temporary evacuation to something as complex as contaminating a water table.

Types of Pollution Insurance Coverage

Modern pollution insurance coverage is typically provided by policies that offer a wide range of options to the insurance buyer. Environmental insurance companies have spent millions of dollars in an effort to differentiate their policies and companies from their competitors. It is important that the environmental impairment liability insurance buyer take the time to understand the differences in the pollution insurance coverage that is available and to carefully evaluate their options regardless of jargon.

Pollution insurance coverage is usually available to cover a menu of possible conditions and business needs.

  • On-site clean-up costs for pre-existing and/or new conditions
  • Off-site clean-up costs for pre-existing and/or new conditions
  • Third-party claims for bodily injury and/or property damage
  • First-party business interruption expenses related to a pollution condition
  • Pollution releases resulting from the transportation of hazardous materials

Specialized environmental insurance policies are available to cover contractors, environmental engineers, hazardous waste operators, industrial sites and underground storage tanks. There are coverages available to help facilitate real estate transactions of polluted property sites, and even policies that can put a cap on clean up costs. To evaluate your options we recommend that you discuss your situation with a knowledgeable insurance agent with specific pollution insurance expertise.

Contact Ahmann-Martin: To build an insurance policy that will be effective and affordable, you need a company that customizes your policy for you. Visit us at Small Business Liability to consult with an insurance professional who will construct an insurance program that will work for you.

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Russ Birch, CPCU, ARM has 33 years of experience in the commercial insurance industry in roles ranging from underwriting to sales and marketing management. In addition to his Chartered Property Casualty Underwriter and Associate in Risk Management designations, he holds an MBA in Finance from the University of Minnesota. He currently leads a team of professionals at Ahmann-Martin in suburban Minneapolis. You may call Russ today, at (800) 600-6185, or fill out our simple Contact Us form to the right and we will return your call during business hours.