Pollution Coverage: Is It Necessary For Your Business?

Pollution liability insurance is a coverage option that protects businesses from liability for damages or injuries caused by pollutants they work with, produce, or exacerbate. While it is a requirement for many commercial and industrial activities, any business can benefit from this type of insurance as nearly all activities create pollutants. This insurance covers bodily injury claims and property damage, as well as clean-up costs caused by toxic waste materials. It is especially important for independent contractors who deal with waste and businesses that produce hazardous waste emissions during manufacturing, including oil, agribusiness, construction, excavation, waste depositories, asbestos abatement contractors, and more.

Independent contractors and hazardous waste

Independent contractors who work with hazardous waste should consider purchasing pollution liability insurance to protect themselves against liability from damage caused by hazardous waste materials. This type of insurance covers claims from third parties for bodily injury and property damage caused by hazardous waste materials released during a company's operations. It also covers clean-up costs caused by contamination from toxic waste materials.

Even if an independent contractor does not directly deal with hazardous waste, they may still benefit from having a pollution insurance policy. This is because every company is capable of causing damage or injury with contaminants, and environmental laws are always changing. For example, an inspection performed on a property before purchase may have missed underlying hazardous waste that could be discovered years later, leaving the current owner potentially responsible.

The cost of pollution liability insurance varies depending on factors such as company size, risk, the amount of coverage needed, deductibles, and discount eligibility. Annual premiums typically range from $1,000 to $100,000, and most companies that sell contractors insurance offer pollution liability coverage.

Some specific examples of independent contractors who should consider purchasing pollution liability insurance include:

• Manufacturing and construction contractors, as their activities use chemicals and produce hazardous emissions and waste.
• Plumbing, heating, and air conditioning contractors, as accidents in plumbing work can result in sewage contamination, and incorrect installation of HVAC systems can cause indoor air pollution.
• Beverage manufacturers, as the ingredients in beverages like wine and distilled spirits can become pollutants and contaminate land and water.
• Dairy farms, as they are at risk of pollution lawsuits from the large amount of nitrogen generated by manure.

In summary, independent contractors who work with hazardous waste should strongly consider purchasing pollution liability insurance to protect themselves against liability for damage caused by hazardous waste. Even if an independent contractor does not directly handle hazardous waste, a pollution insurance policy can still provide valuable protection due to the potential for environmental laws and regulations to change.

Environmental law and liability

Environmental law liability provisions are well-established for oil spills and hazardous waste contamination in the US and EU. The Environmental Liability Directive (ELD), which came into force in 2007, established a comprehensive EU-wide liability regime for environmental damage based on the 'polluter-pays' principle. The ELD makes those who have caused environmental damage liable for remediation and also makes those whose activities threaten the environment liable for taking preventive action.

Environmental liability provisions can serve as gap-fillers, covering activities not specifically identified as illegal but nevertheless resulting in harm to the environment, livelihoods, and public health. Tropical countries face a host of challenges to their natural environment and resources, including deforestation, illegal wildlife trafficking, and contamination from mining, industrial production, and illegal hazardous waste trade. These losses have profound ecological effects and also impair human well-being and deprive national economies of billions of dollars in revenues, impeding sustainable development.

Research conducted by the Environmental Law Institute (ELI) and the Center for International Forestry Research (CIFOR) found that tropical countries have created legal authorities for environmental liability and are starting to apply them to remedy a wide range of environmental harms. ELI has also been involved in projects to develop resources and provide training for the use of environmental liability to protect biodiversity. One such project, based in Indonesia, resulted in the first lawsuit of its kind against an illegal zoo displaying several protected species.

Environmental liability law has a wide range of applications, from conservation litigation to the protection of natural resources and ecosystems. It is an important tool for promoting compliance with laws and regulations and preventing further environmental damage.

Pollution policy exclusions

Pollution liability insurance is a coverage option that businesses may want to consider, as nearly all business activities create pollutants. This type of insurance is especially important for independent contractors who deal with hazardous waste, as they may be required to have pollution insurance and may need to show proof of coverage before obtaining jobs.

However, pollution policies are not always standard, and exclusions and coverage limits can vary from carrier to carrier. One such exclusion is the "absolute pollution exclusion" clause, which eliminates coverage for bodily injury or property damage resulting from the discharge, dispersal, release, or escape of pollutants from any premises owned or occupied by the insured. This exclusion came about in response to government regulations regarding environmentally harmful materials and has been included in insurance policies since the 1980s.

Another exclusion to note is the "total pollution exclusion," which is even more restrictive and removes any and all liability for insurance companies related to damage or injury resulting from the use or release of pollutants in the daily operations of their insured clients.

Additionally, standard pollution exclusions may not cover fungi, bacteria, mould, asbestos, silica, or lead, which may require specialised environmental insurance to fill the coverage gaps.

The cost of pollution liability insurance can vary depending on factors such as company size, risk, the amount of coverage needed, deductibles, and discount eligibility. Annual premiums can range from $1,000 to $100,000, and insurance carriers typically require payment in full before coverage is initiated.

Pollution insurance cost

The cost of pollution insurance varies depending on company size, risk, the amount of coverage needed, deductibles, and discount eligibility. Annual premiums typically range from $1,000 to $100,000, with most policies requiring payment in full before coverage begins. AIG, for example, offers a minimum premium of $2,500 for its Contractors Pollution Liability (CPL) policy, which includes product liability and pollution coverage for construction and commercial services contractors.

Pollution insurance policies are designed to protect businesses from liability arising from damages, injuries, or clean-up costs caused by pollutants. While some businesses may not consider themselves at risk, pollutants are broadly defined, and many unexpected substances can be classified as such. For example, ingredients in beverages like wine and distilled spirits can become pollutants.

Some common types of pollution insurance include:

• Pollution Legal Liability: Covers legal liability for on- and off-site pollution claims, including bodily injury, property damage, and clean-up costs.
• Professional and Contractor Environmental Liability: Similar to Pollution Legal Liability, but tailored for individual contractors rather than entire companies.
• Transporter Insurance: Extends coverage to hazardous materials while in transit.
• Cleanup Cost Cap or Stop Loss: Covers a portion of environmental clean-up costs.
• Errors and Omissions Insurance: Covers liability for providing faulty information during a project, such as declaring a site free of contamination when it is not.

The specific type of pollution insurance and level of coverage required will depend on the nature of the business and its operations. It is recommended to consult with an insurance professional to determine the appropriate coverage.

Types of pollution insurance

Pollution insurance is a critical tool for businesses in high-risk industries, such as agriculture, construction, manufacturing, waste management, and chemical manufacturing. The cost of pollution insurance depends on various factors, including industry risks, location, and policy limits, as well as business size and scope of operations.

There are several types of pollution insurance policies available, including:

• Contractors Pollution Liability (CPL): This type of insurance covers pollution incidents resulting from contracting operations, such as hazardous material spills or mould growth due to improper building techniques. It is essential for contractors working on third-party sites and can protect against cleanup costs, litigation, and third-party claims.
• Site Pollution Liability: This insurance is designed for property owners and businesses operating in fixed locations, covering pollution incidents that occur on a specific site. It is vital for businesses like manufacturing plants or agricultural operations, where environmental contamination is more likely.
• Storage Tank Liability: This coverage is essential for businesses that store fuel or other hazardous materials. It addresses risks associated with storage tanks, such as leaks or spills, and helps protect the surrounding community and environment.
• Premises Pollution Liability: This type of insurance protects landowners from existing pollutants on the property, such as underground fuel tank leaks. It provides first-party coverage for business interruption, cleanup costs, and emergency response.
• Comprehensive Environmental Liability Insurance: This is a broader form of insurance that combines site-specific and contractor liability coverages, offering protection against a wide range of pollution incidents for businesses seeking extensive coverage.

It is important to note that pollution insurance typically excludes coverage for acts of war and terrorism, and mould or fungus-related issues. Businesses should carefully review their policies and consider seeking advice from environmental insurance specialists or lawyers to ensure they have adequate coverage for their specific needs.

Frequently asked questions