The Summit

Beacon Hill Associates A publication of Beacon Hill Associates

Understanding the Basic Structure of a Site Pollution Policy

The basic structure of a Site Pollution policy will address the following areas: where coverage will be applied, what coverage will be offered, and when coverage will respond.

Site Pollution Liability. Environmental Impairment Liability. Premises Pollution Liability. Coverage specific to pollution exposures on a scheduled location may have more names than any other coverage in the environmental insurance industry. Regardless of the title of the product or company offering coverage, one fact holds true, no two Site Pollution policies will be identical.

The basic structure of a Site Pollution policy will address the following areas: where coverage will be applied, what coverage will be offered, and when coverage will respond. Policies will often address each category in the following terms:

  • On the scheduled location or off the scheduled location (the where).
  • Clean up, Property Damage, or Bodily Injury (the what).
  • New or Pre-existing conditions (the when).

When requesting coverage, it is first important to identify the location that will be scheduled onto the policy for coverage. An underwriter will analyze the history of this property utilizing environmental reports and basic research. The insured’s current activities at this location will be considered, along with any existing structures and types of materials housed there. This information will allow companies to fully understand the pollution exposure at the covered location and the environmental impact that it may have on both the location in question and neighboring properties. Coverage can be afforded for one or the other, or both. Within a Site Pollution policy, key phrases such as “Onsite”, “Offsite”, “on, at, under, migrating or migrating from”, “First Party,” or “Third Party” will help determine where coverage will be applied. Onsite coverage will most often be limited to the location(s) scheduled onto the policy. Offsite coverage will apply to locations not scheduled onto the policy, but are impacted by pollution events from the scheduled location. Identifying which locations are covered and ensuring that the policy is comprehensive to both the insured’s exposure at their own location and liability to neighboring properties is truly the first step to structuring a Site Pollution policy.

The second set of variables in a Site Pollution policy is determining which types of losses and claims will be included. These policies most often cover three basic losses: “Clean Up Costs”, “Bodily Injury,” and/or “Property Damage.” Definitions of each will inevitably vary between companies. “Clean Up Costs” can include the reasonable and necessary costs associated with cleaning up a pollution event. Policies may require that this be covered to the extent required by a governmental authority or until the location is restored to the same condition prior to the damage. “Bodily Injury” can extend to physical injury, sickness, and disease. A broader policy will include mental anguish or emotional distress, even if not accompanied with a physical injury. “Property Damage” addresses the physical injury or destruction of property. Policies may include loss of use or natural resource damages in this definition as well. A well-rounded policy will address all three categories and provide thorough definitions of each.

Lastly, Site Pollution policies will distinguish if the intention is to cover new pollution conditions only or pick up what will be defined as pre-existing pollution conditions. Coverage is usually written on a claims made basis form, therefore applying a retroactive date for a scheduled location or specific coverage. If the intention of the policy is only to cover pollution conditions that are considered “new,” it is important to determine when the carrier believes “new” begins. For most companies, this will be the retroactive date, which will serve as the starting point for when incoming pollution losses could be covered. Other companies may consider the effective date of each policy to become the starting point for new pollution conditions. If the Site Pollution policy also includes pre-existing pollution coverage, the policy form should be read in full to understand when a loss is pre-existing. Is it prior to the retroactive date? Prior to the policy effective date? Is it very clear within the policy when a loss may be considered “new” or “pre-existing”? This may be where most Site Pollution policies vary the greatest.

For any one scheduled location, coverage can be pieced together in countless arrangements. A policy may include coverage for the scheduled location and neighboring properties (onsite and offsite), include cleanup coverage for just the offsite portion with new and existing conditions but only new conditions coverage for Bodily Injury and Property Damage coverage at the covered location (onsite). Another policy may give full coverage for Cleanup Costs, Bodily Injury, and Property Damage for new conditions only, but provide full pre-existing coverage limited to Cleanup Costs only. An insurance company may choose to identify “new” conditions as occurring after an established retroactive date. Another company may consider pre-existing conditions to be for losses occurring after the retroactive date but before the policy effective date, which distinguishes new conditions to be losses occurring after the policy effective date.

It is important to partner with a specialist that understands the components of a Site Pollution policy and how they can be carefully assembled to provide one comprehensive policy. Coverage should provide coverage where the insured needs, gives the type of coverage desired, and correctly determine when the coverage began.

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