Why You Need Pollution Liability Insurance

What is Pollution Liability Insurance?

Pollution liability insurance, also known as environmental liability insurance, provides coverage for the costs associated with pollution conditions resulting from your business operations. Due to the unknown nature of many environmental conditions, a pollution claim can arise at any time, for nearly any type of company, and with devastating costs. Luckily, pollution insurance is available as a separate policy to protect companies from the risk of environmental conditions and to cover the claims that may arise.

There are various types of pollution policies:

1. Environmental Impairment Liability: Pollution liability insurance (or environmental impairment liability insurance) is a coverage that protects businesses against third-party claims and first-party exposures resulting from pollution conditions caused by covered operations performed by or on behalf of a business. This type of policy is essential for businesses involved in industries such as manufacturing, waste management, construction, or any other activities that have the potential to cause environmental pollution.
2. Contractors Pollution Liability (CPL): CPL protects contractors against third-party claims for bodily injury, property damage, or environmental damage (including related defense costs) resulting from pollution conditions caused by covered operations performed by or on behalf of the contractor. Contractors working in fields like construction, demolition, remediation, or transportation should consider obtaining CPL coverage to safeguard against potential pollution-related liabilities.
3. Sudden & Accidental Pollution: Sudden and accidental pollution coverage is typically tied to a discovery and reporting period and is generally included in a General Liability policy. It covers bodily injury and property damage caused by a pollution loss that occurs suddenly and accidentally, such as a chemical spill or a burst pipe. While this coverage may provide some protection against unforeseen pollution incidents, it’s important to note that it may have limitations in terms of the types of pollutants covered and the duration of the coverage.

Each type of pollution policy serves a specific purpose, and the suitability of a particular policy depends on the nature of your business operations and the potential pollution risks associated with them. Consulting with an experienced insurance professional can help you determine the most appropriate coverage for your business and ensure that you are adequately protected from pollution-related liabilities.

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Why is Environmental Coverage Needed?

Many business owners assume that their commercial general liability (CGL) policy will cover environmental claims, but the unfortunate reality is that most CGL policies contain pollution exclusions that leave businesses uninsured in the event of a pollution incident. It is important for businesses to review their coverage to ensure they have the appropriate insurance in place.

Even if your company is not in a high-risk industry, the risk of pollution is unpredictable and can be financially disastrous. Pollution insurance can cover bodily injury, property damage, and hefty cleanup costs, both for contaminants that travelled off-site or were released onsite. Plus, the company would be responsible for the court costs associated with defending itself.

Additionally, if you are a contractor, you face environmental risks stemming from operations on a daily basis. A single pollution incident or loss can seriously damage your operations, balance sheet, and even reputation. That is why many contractors are increasingly turning to contractors pollution liability (CPL) insurance to ensure they have the right coverage in place to remain secure and profitable. It is important that contractors work with their broker to find a CPL policy that is tailored to their needs and will provide adequate protection.

Some examples of pollution sources that may affect your company include:

• Chinese drywall: defective drywall containing unsafe levels of sulfur that has been released into the air
• Toxic mold, fungus, or other bacterial contamination
• Silt runoff from construction sites into public water sources (liability for both contractor and property owner)
• Certain green construction techniques that can cause unforeseen pollutants
• Nanotechnology
• Asbestos
• Lead-based paint
• Any contaminants or chemicals that could be released into the air or public water supply, including solvents, degreasers, paints, cleaning products, fuels, pesticides, herbicides, etc.
• Aboveground or underground storage tanks
• Improper waste disposal (including medical waste)
• Building or car exhaust/fumes
• Malfunctioning of HVAC or ventilation equipment
• Malfunctioning, crumbling, or leaking of older buildings and pipes, causing contamination

Real-life Pollution Claim Examples

Here are some examples of real-life pollution claims that could financially devastate a business without proper insurance coverage. Surprisingly, none of these incidents were determined to be covered under the applicable commercial general liability policy. That’s why it’s essential to have pollution liability insurance in place to protect your business from these and other pollution-related incidents.

• Carbon monoxide escapes from a restaurant’s heating, ventilating or air conditioning system causing illness and dizziness among patrons.
• A fuel line on a contractor’s air compressor suddenly ruptures, discharging fluid, which scars a recently resurfaced parking lot.
• A cleaning compound is inadvertently deposited down the drain of a daycare centre, causing fumes, which makes some children ill.
• A private country club dumps herbicides in an abandoned well, causing groundwater contamination.
• An off-site service person ruptures a chemical hose, resulting in extensive premise damage.
• Each of these incidents could result in significant financial loss for the business involved.

Contractors Pollution Liability Insurance Information

CPL policies provide contractor-based insurance for third-party coverage for bodily injury, property damage, defence, and cleanup as a result of sudden and gradual pollution incidents arising from contracting operations performed by or on behalf of the contractor. CPL policies are non-standard, meaning each policy is different and can be modified to cover the various needs of the contractor purchasing the policy. Generally, policies that cover both gradual and sudden releases of pollutants provide contractors with a broader scope of coverage.

In addition, policies that provide a broad definition of pollutants are considered superior to those that contain a narrow definition. It is important that contractors work with their broker to find a CPL policy that is tailored to their needs and will provide adequate protection.

Contractors should also be mindful of the pollution risks associated with their work. All contractors face environmental risks, no matter what industry they work in. A CPL insurance policy can provide much-needed security in the event of a pollution incident, even in the most unlikely of circumstances. Having a CPL insurance policy in place can also serve as an upfront sales tool during the bidding process that enables contractors to qualify for opportunities when such coverage is required.

Contractual requirements may serve as another motivating factor that leads many contractors to obtain a CPL policy. In many instances, project owners and general contractors will require contractors to obtain pollution insurance that meets certain predetermined standards. From this perspective, having a CPL insurance policy in place can serve as an upfront sales tool during the bidding process that enables contractors to qualify for opportunities when such coverage is required.

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Protect Your Business with Environmental Insurance

Having pollution liability insurance is crucial for any business, regardless of industry or perceived risk. The potential financial impact of a pollution incident can be devastating, making it important to ensure you have adequate coverage in place. Contractors should also be mindful of their environmental risks and consider obtaining contractors pollution liability (CPL) insurance to protect themselves from unforeseen pollution incidents.

Contact CMB Insurance Brokers today to learn more about the Pollution Liability coverage solution that’s right for you and ensure you have the appropriate insurance in place to protect your business.