Agribusiness Insurance Programs Must Consider Pollution Insurance Coverage

Forty years ago America was unaware of a looming pollution crisis due to leaking underground storage tanks and other issues that ultimately lead to an inability of agribusiness owners to obtain pollution insurance coverage.

Fertilizers and herbicides were found to have effects on soil and ground water that were far more serious and long lasting than anyone ever contemplated. From coop-owned gasoline stations to oil refineries, the tanks holding petroleum and farm products had rusted through and were leaking petrochemicals into the ground water. DDT and other chemicals had been identified as having major environmental impacts that lasted far longer and well beyond the initial application.

Federal and State Environmental Protection Agencies responded aggressively, requiring agribusiness owners to cease using polluting chemicals and remediate the damage done to the environment. Initially agribusiness owners were able to obtain protection for their pollution liability through their general liability insurance policies. The insurance industry realized that they were now covering claims that had never been contemplated when the policies were written and responded with the absolute pollution exclusion on its general liability insurance policies, leaving the agribusiness owners unprotected.

Ultimately creative underwriters developed special and specific pollution insurance products, now known as environmental impairment liability (EIL) insurance, designed to protect many types of businesses from pollution claims, including agribusiness insurance buyers.

Agribusiness Insurance and Genetically Modified Organisms

After states and the Federal government responded to the pollution crisis with regulations designed to protect the environment, the general public lost its focus on pollution issues related to agribusiness. The issues related to contamination of food products from animal waste presented other issues that agribusiness insurance buyers needed to deal with, often responding to tight state and Federal controls.

In recent years however, advances in the science of genetically modified organisms (GMO’s) have created new issues for agribusiness insurance programs. Genetically modified seed is now in common usage in American agriculture. Some insurance carriers have responded to the introduction of GMO seed the same way that they responded to the environmental impairment liability insurance crisis forty years ago by excluding coverage for claims arising from the use of GMO seed. Other insurance carriers refuse to insure agribusiness entities that utilize GMO seed. Environmental groups have launched lawsuits trying to preclude the use of GMO seed and keep it out of the environment. Their claims are beyond the scope of this article, however a smart agribusiness insurance buyer should think through how their insurance program will respond to claims derived from the use of GMO seed.

Pollution Insurance in an Agribusiness Insurance Program

State and Federal laws and regulations have become very specific in terms of the requirements that agribusiness owners must meet to operate legally. Those regulations apply to environmental impairment issues as well as preserving the integrity of the food chain.

We recommend that agribusiness insurance buyers carefully consider their pollution insurance exposures and reach a thoughtful decision in terms of how to address their environmental exposures. It may be possible in the case of certain growers’ cooperatives to gain some level of insurance protection through the coop for the growers. There are situations where pollution insurance is simply not feasible. Evaluate your exposures and discuss them with a knowledgeable agribusiness insurance agent to determine how your agribusiness can be protected by integrating pollution insurance into your agribusiness insurance program.

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 and Insurance 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.