Manufacturing: The Evolution of Regulations, Exposures, and Insurance
As the understanding of the breadth of pollution exposures manufacturers face has broadened, the environmental industry has worked to keep pace, providing coverages for a growing range of situations.
Manufacturing has always had an impact on the environment around it. Whether smoke discharge from a stack, permitted discharge of fluids into waterways, or landfilling of waste products, since the first days of manufacturing the environmental impacts have been real and measurable.
In the late eighteen hundreds there were virtually no controls over what could come out of a facility and how it needed to be handled. Over the intervening years, and the last several decades in particular, public health policies have evolved to drastically reduce and control these emissions. What was once tossed in a pit out back now has to be disposed of in an approved site. What used to simply be burned in an incinerator now has to be measured, tested, and disposed of carefully.
Now overseen by the EPA and OSHA, manufacturing facilities are far safer and cleaner today than they once were. This does not mean, however, that they are without risk. It is important for agents working with manufacturing clients to recognize the breadth of exposures those operations have. Discharging and disposing of waste under permit is fine, but what is the liability to the business if those permits are exceeded? And what about unintentional discharges or releases? What happens if a long term process at the site slowly contaminates the ground water at the insured’s plant? How does an insured handle that exposure?
As the understanding of the breadth of pollution exposures manufacturers face has broadened, the environmental industry has worked to keep pace, providing coverages for a growing range of situations. Today’s insurance industry offers a wide array of products to manufacturers, addressing the myriad exposures they face. The challenge for agents working with these products is selecting the right coverages to correctly protect their client.
Exposures for manufacturers can be broken into two distinct categories. First are those stemming from the facility itself, and second are the exposures from the products manufactured. Within those categories however, there are a range of specific issues that agents need to be aware of.
Insurance policies offered to manufacturers mirror these component parts. Generally, the main coverage part of the policy is Site Specific Pollution coverage. This policy is designed to address an insured’s exposures stemming from a specific site. These are incredibly flexible in what they cover and how they can be structured, but in general the intent is to provide coverage for contamination at, on, or emanating from a specific location.
One of the first exposures manufacturers have that they need to be aware of is the materials with which they make their products. Chemicals, solvents, fertilizers, plastics, etc. can be toxic if released into the atmosphere or into the soil or ground water. Storage of these raw ingredients can be an area of concern.
It is also possible for the process itself to create contaminations. In electroplating facilities the chemicals heated and used to treat the metal are very toxic and can lead to residual contamination through release of vapors. Release of smoke from a facility, while permitted, can lead to a pollution claim if the discharge exceeds the allowable permit amount. Another example is lumber treatment facilities―the material used to coat the wood can be very toxic if released, whether from the wood itself or during the treatment process.
The machinery utilized in the manufacture of products represents another area of concern. Fuel, lubricants, cleaning materials, etc. can all lead to pollution releases.
Another facility based exposure comes from their waste stream. Every manufacturing process has some sort of waste. Whether it is residual oil or lacquers, or ends of plastic runs or carpeting, there is generally something that needs to be stored and disposed of. Often this waste stream is overlooked by agents as they help their clients assess the risk. Properly covering the disposal exposure can be done through a combination of Transportation Pollution coverage and Non Owned Disposal Site (NODS) coverage.
Once the risks associated with the facility have been addressed, it is important to consider the pollution exposure from the product itself. Most agents do a great deal with products liability, but it is important when considering the environmental exposures to look at the pollution exclusion in or added to the CGL policy. In some unmodified CGL forms, the pollution exclusion does not apply to products once they have left the possession of the insured, except for the clean up exposure. That is often excluded for products of the insured. In many endorsed pollution exclusions, pollution is excluded absolutely, meaning there is no coverage for a pollution condition stemming from a failed product.
If a company manufactures a drum, tote, or tank for example, the failure of that product could lead to the release of contaminants into the environment. Products liability in a CGL form with an exclusion for cleanup of pollutants would provide third party BI & PD, but no coverage for removing the pollutants. An endorsed pollution exclusion could remove all coverage for the release.
As the environmental industry has grown, it has worked to address many of the exposures manufacturers face. Companies have created policies that combine the above referenced Site Specific Pollution with Transportation and Disposal Site coverages. They have created forms that add CGL coverage, full products, and incidental contracting coverages into the forms as well. The off shoot of this evolution has been a suite of very powerful products available today for manufacturers and their agents to consider.
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