Understanding Pollution Coverage for Waste Disposal Risks
The environmental specialty market can comprehensively insure waste disposal risks in the surplus lines marketplace
Many waste disposal risks are not properly addressing their pollution exposures as part of their insurance program and as a result they may be unknowingly self-insuring. Depending on the state, there are standard and surplus specialty markets writing GL/Auto liability for the disposal industry, as the standard markets may not offer any pertinent environmental coverage. There are also some limited givebacks that the insureds may feel gives them meaningful protection—this is often not the case. Agents should take the time, energy, and effort to review and explain these different options to the insured when proposing coverage.
There are pollution exposures that affect multiple coverage lines in the disposal industry. Clients’ premises, neighboring properties, contracting operations, their transportation and arrangement of additional transportation, and disposal of materials. Even without any additional pollution exclusions to the CGL policy there is not meaningful coverage under the current ISO form offered by standard market carriers. There is limited response to building heat equipment, fuels brought onto a jobsite for use in mobile equipment, and 3rd party bodily injury and property damage coverage related to soot/fumes from a hostile fire. The GCL form also specifically excludes waste, which it defines as materials to be recycled, reconditioned, or reclaimed. In addition to the these limitations in the base policy form, we most often see absolute pollution exclusions on standard market policies where the intent is not to respond to any suits for environmental damage. When the admitted market wants to include some pollution coverage they typically do it via a time element pollution giveback endorsement. Sometimes referred to as sudden and accidental pollution, these endorsements are very limited in their ability to properly respond to a waste disposal’s pollution claim. The onus is on the client to identify a new pollution event that occurred only days or hours earlier and must report it to the carrier within a specified period of time. The coverage trigger on this type of endorsement can only protect against spills that are easy to distinguish when the event started and who is responsible.
Pollution events, in practicality, are much harder to determine when the pollution event occurred and have created a specialty surplus marketplace designed to better address these exposures for the waste industry. They provide affirmative coverage grants to address the insured’s transportation, facility, off site contracting, and disposal environmental exposures. It can be purchased separately as a standalone policy or together as a package as part of the commercial General Liability policy. A few surplus line carriers will also write the Auto liability and Workers Compensation on admitted paper in conjunction with the package pollution coverage.
Pollution for the insured’s contracting and transportation risk can be offered on an occurrence or claims made basis. With regard to a new claims made contracting coverage, it’s usually offered with an inception retroactive date. The coverage trigger takes into consideration not only the date the claim was filed with the insurance company, but the date the work was performed and when the injury occurred. Pollution for the insured’s facility and 3rd party disposal site are most often written on a claims made basis. Depending on how long the insured has been operating at the location, and the type of waste being stored, unknown preexisting coverage can be considered with the property underwriting information which the insured may have available.
With the exception of the insured’s premises there has been a movement, in the environmental specialty market, to offer all pollution coverages on an occurrence basis. Agents and insureds tend to believe occurrence coverage is more beneficial because there’s a huge coverage gap with claims made should the insured decide not to purchase pollution coverage in the future, or the agent forgets to pick up the prior claims made retroactive date on the future policy, or the insured doesn’t report these claims to the insurance company in the designated timeframe. There’s also the matter of cost as the future pollution carrier must underwrite to this multi-year exposure and decide what premium to charge to insure this increasingly greater exposure every year. With choosing occurrence coverage, however, the insured is betting pollution policies will not be broader in the future.
We have seen a number of newer surplus lines entrants willing to write the insured’s disposal exposure on an occurrence basis and also take any prior claims made coverage and convert them permanently into their insurance program. This is a drastically different approach in our marketplace as this is often perceived as one of the greatest exposures to their policyholders, especially in the waste industry. The CERCLA “Superfund” law holds potentially responsible parties responsible on a joint and several basis, meaning the federal government can seek to recuperate the total clean up costs of closed/abandoned disposal facilities from each customer/party listed on the waste manifest. Paints, varnishes, oils, fertilizers, petroleum/chemicals/hazards materials from job sites such as asbestos, contaminated soils, lead paint, radioactively materials, or medical pathological waste disposal are all considered pollutants that should be properly covered by an environmental insurance carrier.
We are also seeing some insurance companies restrict coverage for Non-Owned Disposal Site coverage for certain classes of business. Electronic waste/recycling is one class that is becoming harder to obtain the proper coverage, due to the amount of electronic waste being improperly disposed of. Not only will the last transporter who improperly disposed of the material be held responsible, but other companies higher up the chain that collected, sorted, and hired subsequent businesses may also be brought into a claim or lawsuit.
Transportation is another coverage exposure best covered by an environmental insurance company. They can cover 1st party and 3rd party pollution cargo pollution while in transit, as well as the loading and unloading. Some carriers also account for the temporary storage of this waste, stationary at a holding facility. Appropriate coverages to consider include 3rd party property damage, bodily injury, clean up, restoration costs and natural resource damage, and defense cost coverage. Over a decade ago coverage was only available on a claims made and reported basis. Most carriers can now also offer occurrence coverage for many types of businesses.
Contractors Pollution Liability is another coverage offered by the surplus lines that’s not properly addressed with standard insurers. Essentially, its 3rd party bodily injury, property damage, and clean up coverage should the contractor create or exacerbate a pollution issue on a job site or their work affects a neighboring property. Often times these 3rd party claims are pollution events seeping into the ground or air and takes a long time to develop. It would be very difficult to get a time element pollution policy to trigger with a claim. Surplus lines markets almost always write these exposures under an occurrence policy and afford coverage for ongoing work as well as completed operation coverage. These issues are not generally addressed with admitted markets.
Premises Pollution Liability, often referred to as Environmental Impairment Liability, is one of the most creative and flexible coverages in insurance today. It can be written to cover future new pollution events, unknown preexisting issues at their facility, can insure known issues in the soil or groundwater should they travel and affect neighboring properties, can exclude known conditions for clean up with an automatic trigger to add back once the contaminant is cleaned up to an acceptable governmental standards.
Obtaining the proper environmental coverage is essential for disposal companies that own or lease their own landfill, transfer station, or material recycling facility (MRF). We’ve seen some complicated situations with coverage for waste disposal businesses, including ones where environmental insurance companies defend or have paid claims where neighboring locations allege liquid waste escaped from cells at a landfill and contaminated their land. One claim involved a trash hauler picking up improperly dumped hazardous chemicals that leaked out of their vehicle and into a storm drain. Costs for emergency response costs, clean up, and monitoring the waterway was north of $100,000. The Minnesota pollution control agency recently discovered the forever chemical PFAS, in the groundwater, at 98 of 101 tested landfill locations. 10 times the legal limit at 15 closed landfill facilities. A former Wisconsin electronic recycler was also found guilty of storing, labeling, and transporting hazardous waste improperly, leading to an 18 month prison sentence.
Only the environmental specialty market can comprehensively insure these risks in the surplus lines marketplace. While many agents are more comfortable working with standard carriers they should consider the E&S market for this industry to be the primary insurer or supplement the overall insurance program.
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