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If your business causes contamination or pollution, you could be held liable, and the legal and cleanup costs related to these claims can be considerable. To protect your company from the financial consequences of these risks, consider purchasing Pollution Liability Insurance.
What is Pollution Liability Insurance?
Pollution Liability Insurance provides financial protection if pollutants are released or cause damage as a result of your company’s work. If your company is found to be at fault for damages related to pollution, the costs of legal defense, settlements, and cleanup could be overwhelming. If your company works with hazardous chemicals or potential pollutants, Pollution Liability Insurance is a smart choice that can help protect your company from the costs of pollution-related claims.
Pollution Liability Insurance is not standardized, and many insurers offer policies under various names and with specific requirements and coverages that can differ widely. Policies are typically tailored for specific industries and types of risk. When you purchase Pollution Liability Insurance, it’s crucial that you carefully evaluate your risk exposures and work with your insurer to make sure your insurance covers you appropriately.
It’s important to understand that commercial general liability insurance (CGL) policies typically exclude pollution-related losses and costs. Although CGL policies may provide a small amount of coverage for certain types of pollution, this coverage is not sufficient for many risks.
- An employee of your cleaning company pours a cleaning solution down a drain at a client’s office. The cleaning solution causes toxic fumes and several people suffer respiratory problems as a result. Your Pollution Liability Policy would cover legal fees and settlements arising from the incident.
What does Pollution Liability Insurance cover?
Pollution Liability Insurance policies generally cover first-party and third-party damage caused by pollutants that are released as a result of your business’s operations, although some policies cover only third-party claims. First-party damage refers to damage suffered by your company itself, such as a chemical spill that contaminates your property, while third-party damage applies to people and property outside of your company.
Pollution Liability Insurance provides coverage for:
Property damage. If pollutants from your company damage the property of others, Pollution Liability Insurance will cover damages, pay for cleanup operations when legally required, and provide funds to defend any lawsuits that result. If your policy includes first-party coverage, it will also pay for any pollution-related losses or cleanup that occurs on your own property.
- Your landscaping company inadvertently contaminates a well with herbicides. Your insurer would provide funds for cleanup efforts and cover any resulting lawsuits and settlements.
Bodily injury. If people are injured due to pollution caused by your company, your insurer will provide funds to cover claims and settlements.
- Several people suffer severe lung irritations from fumes, dust, and exhaust caused by your nearby construction site. They sue your company. Pollution Liability Insurance would cover the legal case and any resulting settlements.
Products and completed operations. If work you complete causes pollutants to leak over a period of time or at a later date, your insurer would provide funds to cover the claim.
- Piping installed by your company fails several months after installation and fuel leaks into the surrounding soil. Pollution Liability Insurance would cover damages.
Legal defense. In third-party cases, Pollution Liability Insurance may provide funds for your legal defense, investigations, and any resulting settlements or judgements against you if you are sued for causing pollution. Even if your company was not at fault in a pollution case, you could become involved in a legal case if claimants believe you caused the situation; Pollution Liability Insurance can protect you from having to pay for legal costs if you are accused of causing pollution-related damage.
Pollution Liability Insurance typically covers both catastrophic and non-catastrophic pollution that occurs in the course of your operations. Some policies may only cover one of these types of pollution, so it’s important to confirm how your policy handles these incidents. Catastrophic pollution occurs if a sudden event like a fire or explosion releases pollutants, while non-catastrophic coverage covers pollution that occurs slowly over a long period of time and affects neighboring people and businesses.
Types of Pollution Liability Insurance
Pollution Liability Insurance is known by a number of names and coverages are designed for specific industries. However, there are several main categories of coverage that most policies fall into:
Premises Pollution Liability
Premises pollution liability provides businesses with financial protection if an incident of pollution on their property causes property damage, bodily injury, or environmental damage at a specific or specified location. Premises pollution liability insurance may also be known as pollution legal liability insurance, site pollution liability insurance, or environmental impairment liability insurance.
This form of Pollution Liability Insurance typically covers first-party cleanup costs as well as covering legal fees, settlements, and other costs associated with third-party damages. However, some insurers will not cover first-party expenses, so it’s important to check with your insurer to confirm what is covered.
- Your nursing home’s HVAC system causes a carbon monoxide leak and many of your patients fall ill as a result. Your patients sue you. Your Pollution Liability Insurance would cover the lawsuit and any settlements.
Contractors Pollution Liability
Contractors pollution liability insurance is a form of Pollution Liability Insurance that is designed for contracting businesses. It differs from premises pollution liability policies because it provides coverage for third-party losses that may occur at multiple job sites that the company does not own, rather than at one fixed location.
If contractors cause bodily injury, property damage, or environmental damage during their work, contractors pollution liability insurance will step in to provide funds for legal defense, settlements, and cleanup costs. This is a key coverage for contractors since they work at many locations and may deal with hazardous chemicals or equipment that could cause a pollution incident.
- While excavating on a site in preparation for building, your contracting company accidentally ruptures an abandoned fuel tank, causing the fuel to leak into the soil. Your contractors pollution liability policy would cover cleanup costs and legal fees.
Errors and Omissions Insurance
Environmental errors and omissions coverage is necessary for companies such as environmental consultants, pollution cleanup companies, and other companies whose professional work is related to the environment. An error or oversight in their work could lead these companies to accidentally cause contamination or mistakenly claim that a property is free of pollutants when it is not. If an environmental consulting company tells a client that they detected no asbestos, but it later turns out that the building does contain asbestos, a lawsuit could result. Errors and omissions policies would provide financial support in the event that you are sued for mistakes in your professional work.
- Your environmental testing company evaluates a building and reports that no mold was detected. However, black mold is later discovered in the basement, and your company is sued. Your errors and omissions insurance would cover the lawsuit and any resulting settlement.
Products Pollution Liability Insurance
Products pollution liability insurance is important for companies that manufacture products, but it is also relevant for companies that repair or install products. If a product you worked on causes pollution, you could be held liable for third-party property damage or bodily injury. If that happens, products pollution liability insurance would cover damages, legal fees, and cleanup costs.
- Your contracting company repairs a fuel tank at a gas station. A faulty pipe is installed, causing fuel to leak. Your products pollution liability insurance would cover damages and cleanup operations.
- Your company manufactures storage tanks. A chemical plant purchases your company’s tanks and uses them to store industrial solvents. One of the tanks ruptures, releasing solvents into the ground. It turns out the rupture was due to a manufacturing defect. The chemical plant sues your company. Products pollution liability insurance would cover the claim.
Transportation Pollution Liability Insurance
Transportation pollution liability insurance covers your company if contaminants are released while in transit. If your company transports potentially hazardous products or materials, a collision or a mishap during loading or in transit could result in pollutants being released into the environment. Contractors and premises pollution liability policies may not cover incidents that occur in transit, but you can typically add this coverage by endorsement.
- Your construction company is transporting a load of cement. While on the way to the job site, your cement mixer is involved in an accident and overturns, releasing cement into a local creek. Your insurer would cover cleanup and damages.
Who needs Pollution Liability Insurance?
There are many types of businesses that may require Pollution Liability Insurance. Any company that regularly handles potentially harmful chemicals could benefit from this type of insurance. Businesses that may face pollution exposures include:
- Contractors and construction companies
- Architects and engineers
- Auto repair companies
- Dry cleaners
- Cleaning companies
- Hair salons
- Health care facilities
- Trucking or shipping companies
- Oil and gas companies
- Farms and agricultural companies
What are the key exclusions of Pollution Liability Insurance?
There are a number of situations Pollution Liability Insurance will not cover. These include:
- Pollution caused by intentional acts
- Pollution caused by war or terrorism
- Contractual liability
- Failure to comply with environmental laws
- Claims that would be covered by workers’ compensation or employers’ liability policies
- Damage caused by acid rain
- Sealed off or closed waste sites
In some cases, common pre-existing hazards like asbestos, lead, or mold may be excluded from Pollution Liability Insurance coverage. However, it may be possible to add coverage for these hazards by endorsement.
What are the limits of Pollution Liability Insurance?
Limits of insurance are the maximum amount an insurer will pay for a single claim or in a policy year. Pollution Liability Insurance policies typically have higher limits than CGL policies because defense costs are included in Pollution Liability policies’ limits. This means that the costs for a lawsuit would be subtracted from the policy’s limits, reducing the amount of coverage you have remaining. Policies typically have a limit per occurrence as well as an aggregate limit for the entire policy year.
Does Pollution Liability Insurance include a deductible? What is self-insured retention?
Pollution Liability Insurance may include either a deductible or a self-insured retention requirement, depending on the insurer. A deductible is the amount of each claim that your company is responsible for paying before insurance coverage begins. Policies with lower deductibles will have higher premiums.
A self-insured retention (SIR) is similar to a deductible in that it is also a portion of the cost of a claim that your company is responsible for paying. The SIR differs from a deductible because it is not typically subtracted from your limits of insurance. For example, if your limit of insurance is $1 million and your SIR is $10,000, you would still have $1 million of coverage remaining after paying the SIR.
Is Pollution Liability Insurance offered on a claims-made or occurrence basis?
Pollution Liability Insurance policies can be written on either a claims-made basis or an occurrence basis, depending on the insurer. Premises pollution liability policies are usually written on a claims-made basis.
Claims-made policies provide coverage for incidents that occur during the policy period if the policy is active when the claim is submitted. If, after your policy expires, a claim arises of a pollution incident that occurred while your policy was active, your insurer would not cover the claim.
Occurrence policies will handle claims related to any covered incidents that occur while your policy is active, regardless of when the claim is made. If an accident occurs during your policy period, but you don’t submit a claim until after your policy has expired, the claim will still be covered.
How is Pollution Liability Insurance priced?
There are many factors that affect the pricing of your Pollution Liability Insurance policy. Insurers usually consider:
- What type of business you are operating
- The type of chemicals or potential pollutants used in your business’s work
- What disposal methods are used for hazardous materials
- Whether your business operates near residential neighborhoods
- Your claims history
- The construction, history of use, and existing pollution issues of a building or work site
Pollution can arise from many sources and can affect businesses in many industries. If your company is accused of harming people or property through pollution, the resulting legal expenses, settlements, and cleanup costs can be extremely costly. A major claim could even put your company out of business. There are a wide variety of Pollution Liability Insurance policies available to help your company address these concerns. Because Pollution Liability Insurance coverage can differ greatly, it’s crucial to work with your insurer to ensure that the policy responds to your company’s individual needs when you purchase a policy. The right Pollution Liability Insurance will give you peace of mind that you will be protected in the event of an unforeseen pollution event.