Companies that accidentally pollute can face millions of dollars in costs related to lawsuits and cleanup requirements. Expensive incidents can also occur when business operations inadvertently lead to mold, bacterial or asbestos contamination. Environmental liability insurance provides important coverage for contractors, manufacturers and other businesses that have environmental-related exposures.
What is an environmental liability insurance policy?
The National Association of Insurance Commissioners (NAIC) says environmental insurance – also called pollution insurance – provides commercial coverage for losses and damages stemming from unexpected releases of pollutants.
Why do businesses need pollution legal liability insurance?
Some business leaders think they don’t need environmental insurance because they already have commercial property and general liability insurance, but this is a potentially expensive misconception.
The NAIC says general liability and property insurance policies normally exclude coverage for losses related to pollution. If your business needs coverage for accidental pollution and other environmental contamination (such as mold, lead paint, asbestos, legionella or poor indoor air quality), environmental liability insurance can provide you with protection. Without environmental coverage, you could face major out-of-pocket costs.
Who needs environmental insurance?
Many businesses have environmental risks – from property owners and developers to contractors and construction companies. These businesses may need environmental and pollution liability insurance to cover risks related to toxic materials, pollution, mold, asbestos, lead and other environmental hazards.
The Insurance Information Institute says there are different types of environmental liability insurance. The policy types suitable for you will depend on your organization and its operations.
- Environmental Liability Policy: Property owners and companies that store or handle materials that may be toxic should consider purchasing an environmental liability policy.
- Environmental Contractor Policy: Remediation contractors may need this kind of coverage, depending on the scope of their work.
- Environmental Testing Laboratory Policy: Laboratories that analyze hazardous materials in the environment may need testing laboratory coverage.
Since environmental exposures can vary widely between industries, business leaders should discuss their coverage needs with an insurance professional. The most important thing to keep in mind is that other types of commercial insurance typically exclude environmental risks, meaning you should talk to your agent about your policy options if you have any environmental exposures or risks.
Asbestos Exposures
According to the National Cancer Institute, asbestos is a naturally occurring mineral that is resistant to heat and corrosion. In the past, it was commonly used in commercial products, namely insulation and fireproofing materials, due to these properties. But, when people breathe in asbestos fibers, the fibers can accumulate in their lungs and lead to serious health problems, including several types of cancer.
As a naturally occurring mineral, asbestos is present in certain environments. For example, the California Air Resources Board says ultramafic rock can contain asbestos levels ranging from less than one percent to as much as 25 percent. However, if asbestos is present in a rental, property management companies or landlords are required to disclose this to tenants and to properly contain the asbestos. If not properly contained, residents could be put in danger and landlords without proper insurance coverage could find themselves in a difficult financial situation.
Legionnaires’ Disease
Legionnaires’ disease is caused by legionella, a type of bacterium. According to the CDC, Legionnaires’ disease is a serious type of pneumonia. People can become sick when they breathe in small droplets of water or swallow water that contains legionella bacteria. Legionnaires’ disease is serious – approximately 10 percent of people who become sick die due to complications.
According to the Legionnaires’ Lawyer, if a Legionnaires’ outbreak occurs at a property, the property owners and managers can be held liable, along with companies involved in the development, design, engineering, construction, maintenance or repair of the property, making adequate habitational insurance a must.
Bodily Injury, Property Damage and Cleanup Claims
If a covered event occurs, an environmental liability insurance policy can help with multiple types of related costs and claims.
The NAIC says environmental insurance can cover claims against the insured for bodily injury, property damage, cleanup costs and business interruption. The Insurance Information Institute says environmental insurance policies can also cover legal expenses related to pollution or contamination, along with incidents that are sudden or that are gradual.
Environmental Liability Lawsuits
Environmental lawsuits can stem from many types of events. Consider the following scenarios:
- Your manufacturing business stores chemicals necessary for your operations. Even though you store the chemicals securely and take all the appropriate safety measures, the containers are damaged in a fire. The chemicals leak and contaminate the local water supply. The cleanup will be expensive – and your company is on the hook for the costs.
- Your company is performing renovations on a property where legionella bacteria is present in the pipes. The presence of the bacteria goes undiscovered until an outbreak of Legionnaires’ disease occurs. The illnesses are traced back to your company’s work and the legionella bacteria. You’re now facing a lawsuit alleging bodily injury.
Environmental liability insurance can help with bodily injury claims, property damage claims, cleanup, legal costs and business interruption losses in events like these. However, there are several types of environmental liability insurance policies, and coverage can vary. Review your policy terms and discuss your options with your insurance broker to help ensure your coverage fits your exposures.
The Cost of an Environmental Incident
Environmental incidents can require extensive cleanup efforts and may result in serious injury or even death. For this reason, lawsuits alleging environmental liability can be costly.
When Hurricane Harvey struck Texas, the resulting floods led to a fire at Arkema, a chemical company that was storing flammable organic peroxides. According to Reuters, police and EMTs filed a lawsuit for at least $1 million against Arkema, claiming that they were injured after the company failed to take adequate steps to prevent the fire. This is just one of multiple lawsuits Arkema faced in the aftermath of the hurricane, according to the Texas Tribune.
For property management companies, environmental claims involving asbestos and legionella can also be costly. According to the Legionnaires’ Lawyer, settlements related to Legionnaires’ outbreaks have ranged from $225,000 to $5.2 million. According to Mesothelioma Hope, the average asbestos settlement ranges from $1 million to $1.4 million.
Environmental Liability May Rise
Due to increased awareness, environmental concerns are growing. For this reason, environmental exposures that may have been ignored in the past are now receiving an increase in attention. With this, more stringent regulatory enforcement is expected to result in more fines, penalties and claims for organizations that do not comply. Pollution liability lawsuits have also increased in terms of both frequency and severity.
One type of pollution that has received increased attention recently is PFAS (per- and poly-fluoroalkyl substances), commonly known as forever chemicals. According to Axios, chemical producers have agreed to pay billions of dollars to settle claims that they polluted U.S. water with PFAS.
An increase in natural disasters could also lead to more pollution liability claims. According to the NAIC, catastrophic events sometimes damage infrastructure, which can contribute to heightened environmental risks.
Do you have the environmental liability insurance you need?
If you have a claim involving pollution or environmental liability, you most likely won’t have coverage under your general and commercial liability insurance policies. Higginbotham can help you secure the environmental insurance solutions you need. Talk to a member of our team today.
