Why Do I Need Environmental Insurance?
Unlike ten, or even five years ago, environmental liability is a necessary coverage for almost every business. Many general liability and builder’s policies exclude coverage for environmental risks. Accidentally hitting pipelines, discovering asbestos or pollutant drainage from one business to another are all pretty common environmental losses. In fact, remediation and environmental clean-up is an $18 billion industry. You may need remediation for several reasons, for example, if your business develops or remodels land/structures you will be liable for any contaminated soil, asbestos, lead or other hazardous materials found on premises.
Environmental claims are on the rise and they are often very costly. Even a small retailer can experience a loss, and if they are uninsured, then private assets and potentially the business itself will be at stake. It doesn’t matter how long you have gone without an environmental loss, it only takes one to potentially bankrupt a business.
The U.S. Environmental Protection Agency (EPA) estimates there are more than 450,000 active brownfield sites in the United States as of 2016. Brownfield land refers to land previously developed for industrial or commercial purposes which has known or suspected contamination, such as tainted soil due to hazardous waste. The average per-site cost to clean-up brownfield sites is approximately $602,000. The top three contaminants, reported to be found in over 3,500 sites in 2017, are lead, arsenic and mercury.
There are also many environmental risks for small and large businesses not associated with potentially contaminated land. Air and water pollution can result from such triggers as poor ventilation or frozen/damaged pipes. These types of risks can affect even the smallest of businesses and even just one lawsuit arising from a pollutant can cost thousands, if not hundreds of thousands, or dollars. Any business that uses environmentally unsafe materials or chemicals, such as a hair salon or dry cleaning service should consider environmental insurance. The experts at The Insurance Shop can help you assess your environmental risks and guide you through choosing the right amount of coverage for the best rates available.
What Does Environmental Insurance Cost?
Premiums for environmental liability insurance will depend on factors such as perils covered, the risk level and limits of coverage, as well as deductible options. The market for environmental insurance is increasingly competitive, which means carriers are setting low rates in order to gain more business. According to one of our carriers, premiums for longer term policies can vary from less than one percent to approximately four percent of the policy limit. Some factors that will influence costs include:
- Type of business.
- Types of chemicals or hazardous materials used.
- Disposal methods used.
- Proximity to residential zones.
Furthermore, having environmental risk mitigation procedures and policies in place can help lower your risk and rates.
What are Common Environmental Claims?
According to a 2016 analysis of the environmental insurance market performed by Willis Towers Watson (WTW), claim frequency is continuing to rise by 20 to 30 percent each year. When catastrophic pollutant events are highly publicized the regulatory bodies are held responsible by the public. This results in stricter environmental laws and regulations, particularly in the transportation, mining and energy industries. Also reported by WTW is the rise of indoor air quality (IAQ) related claims, such as mold or legionella (bacteria).
The following are examples of claims made by small businesses in 2017, provided by AmWINS Group, Inc.
| HVAC Contractor |
Mold |
A mechanical contractor installed an HVAC system in an assisted living facility for seniors. The system was constructed improperly, which caused mold growth in a portion of the residences. The facility was forced to relocate several patients during the system repair and the renovation of the moldy building materials. |
A claim for clean-up costs and property damage was filed. |
| Plumbing Contractor |
Contaminated Water |
A plumbing contractor installing a lawn sprinkler system did not install adequate vacuum breakers on the discharge side of the water supply valves. When pressure in a drinking water system fed by the same water main fell below atmospheric pressure, a vacuum was created which caused back-siphonage of stagnant water from the lawn sprinkler system into the drinking water supply. Several people drank from the water supply and contracted dysentery. |
Costs were incurred to investigate the issue, purge the system and to provide temporary clean water. Suits followed, alleging bodily injury. |
| Self-Storage Business |
Hazardous Material |
A self-storage facility repossessed a locker from a renter who had missed several payments. Upon gaining control of the rental space, they found 12 drums of hazardous material. |
The renter could not be found, so the owner of the storage facility was required to pay for the cost of disposal of the drums. In addition, soil and groundwater investigations were required due to staining on the floor of the unit, which resulted in the need to excavate several tons of impacted soil. |
| Janitorial Services |
Toxic Chemical |
Working at a mall, a cleaning company inadvertently mixed cleaners, one ammonia based and the other chlorine based. The result was a toxic cloud of ammonia chloride that caused respiratory distress in dozens of shoppers. |
Total cost of this claim: $175,000. |
How Can I Reduce my Risk?
Whether you are a service-based or premises-based business owner you should do the research to identify all environmental risks. Many business choose to use an Environmental Consultant to help assess their business for exposures. However, working with an experienced environmental liability agent may be a better choice for small businesses with smaller budgets. Agents at The Insurance Shop are experienced in many industries and liability coverages, helping any size business identify and cover all their environmental risks.
Once you have identified your risks you can take steps to mitigate and weaken them. Details will vary based on your specific industry and business type, however some basic steps that every business should take include:
- Establish and maintain a consistent documentation process for all aspects of the business with associated risks. For example, proposals should highly detail the work to be done, success criteria and estimated costs as well as address any environmental risks involved in work. Then during the work period every step taken to mitigate such risks should be documented in detail. Having this documentation in the event of a claim will help establish responsible parties as well as the amount of responsibility.
- Establish and enforce policies and procedures for hiring subcontractors. Subcontractors should be vetted properly to assure they won’t expose you to further risks. Qualification factors should include amount of expertise and resources as well as their financial stability, including adequacy of the subcontractor’s insurance. These prevention methods will mitigate the risk of claim responsibility falling to you if there are gaps in coverage for example if the subcontractor isn’t adequately covered.
- Know and enforce all regulations related to your work. If your business is regulated in any way, those regulations and the processes for following them should be clearly communicated to employees. Employees should be trained and kept up to date on all environmental exposures. For example, if your business handles or stores hazardous materials, all employees should know what is required to handle them (gloves, safety glasses, etc.) and the procedures for managing spills or breaches. Depending upon your amount of risk, it may be necessary to appoint a qualified safety officer, or similar position, to ensure regulations are being met and employees are well-trained.
As an additional benefit to utilizing best practices and following these steps, underwriters will consider this information to factor lower rates.
Frequently Asked Questions
- Is environmental insurance the same as environmental impairment liability insurance and pollution liability insurance?
Yes, these are all terms for environmental insurance. Carriers will often have their own name for these types of products as well.
- What information is needed to obtain environmental insurance?
There aren’t any industry standards for EIL, so insurance carriers may have different requirements as well as policies. However, it is typical, depending on your industry, to need desk study information. This can include such documentation as property survey reports or environmental database reports. Most carriers will also want to know your current pollution policies and procedures as well as about any communications with regulators.
- What happens if/when environmental regulations and laws change?
Environmental insurance policies are designed to respond to changing legislation and enforcement practices, especially long term policies. It is best to ask your agent specifics before committing to any policy, to better understand how you are covered.
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