Authors: Sarah Wirtz, Samantha D'Amico
While environmental insurance isn't always top of mind, environmental issues are a fundamental economic and reputational risk for businesses across all industry sectors. A complex, continuously changing regulatory landscape and increased societal pressure for corporate social responsibility require businesses to adopt defensive postures and programs. Agents and brokers must assist clients in managing these exposures and ensuring that they are protected in the event of a loss.
Products manufacturing and distribution is one of the most common liability placements in the E&S sector. In that space, the E&S market regularly sees products ranging from industrial coatings, to fertilizers, to component parts such as pumps and valves.
While many insureds focus primarily on securing coverage for the liability associated with their products, that's not enough. Agents and brokers also need to make sure there is pollution coverage for those products.
Agents are also responsible for reminding clients that not all risks are obvious. For example, hazardous material may pass through their pumps and valves, which could lead to a pollution exposure that was previously unaccounted for.
Below are five reasons why products manufacturing and distribution clients need to consider purchasing environmental coverage:
1) General Liability Probably Won't Protect Them
Many primary general liability policies have a total pollution exclusion, with some offering minimal carve back. In addition, a general liability policy likely wouldn't cover defense costs in the event of a pollution loss, whether it is caused by the failure of the product or it happens during the transport of the product.
Products pollution and transportation pollution liability are two coverages products manufacturers and distributors should consider adding to their insurance portfolios in the event of a pollution trigger. These coverages can be purchased on a monoline basis or in conjunction with other environmental offerings, such as site pollution or contractor's pollution liability policies.
Clients also need to be aware that pollution exclusions are found everywhere.
The ISO General Liability form includes an absolute pollution exclusion, currently found in Section 1, which specifies that the general liability policy will not respond to any sort of pollution incident.
Many carriers go a step further and include the ISO Total Pollution Exclusion Endorsement, which further expands the exclusion within the ISO base form with even more restrictive language.
Long story short, when it comes to pollution, general liability policies usually don't cover much.
2) Clean Up Isn't Cheap
Clean up of a product that creates a pollution condition in transit can be costly, significantly impacting a business' bottom line. A standard auto policy likely will not provide any kind of assistance if an insured's cargo creates a pollution condition.
A transportation pollution liability policy will provide coverage for spill cleanup, property damage, bodily injury and defense. This coverage will also respond to an over-the-road exposure, which is vital for distributors, who often have large fleets and an extensive radius for delivery.
3) There are Huge Benefits Beyond the Initial Response
Environmental insurance also offers additional enhancements that will benefit insureds.
For example, coverage can be written on either an occurrence or claims-made form. It can also include site pollution liability to protect against potential contamination or a spill at the client's own location, making it ideal for a manufacturer.
These policies can additionally cover legal expenses, and include broad definitions of bodily injury and property damage. It is important to review the carrier forms for specific terms and conditions, as some carriers will also provide coverage for civil fines or penalties.
4) Pollution Conditions Affect More Industries Than One Would Expect
Products pollution coverage, along with transportation pollution coverage, can be particularly helpful for insureds involved with chemicals, paint, metal goods, machinery, rubber and recycling exposures. However, they are not the only industries at risk of inadvertently creating an environmental exposure.
Any company that manufactures a product is at risk, and products pollution insurance can also respond in the event that a product failure leads to an environmental incident.
Therefore, it is critical to recognize that even if an insured doesn't fall within the specific "danger zone"categories identified previously, if their products are installed improperly or do not function in the expected fashion, there is still a potential pollution exposure. And where there's exposure, there's a coverage need.
5) Exposures Evolve
As agents and brokers, it is essential to consider every possible exposure your insureds may face. Then, in the event of a claim, they will have coverage to respond-even in the event of an unexpected environmental crisis.
The goal is to ensure that clients will be indemnified and their businesses will remain in operation. By taking the time during the renewal process to thoroughly review your clients' portfolios for any coverage gaps, you can help them achieve that goal.