Author: Cameron Douglass
Society has never placed more value on the environment, resulting in increased regulation and litigation that can result in costly claims.
Pollution liability insurance offers manufacturers a comprehensive risk management solution to safeguard against these risks.
Understanding pollution liability
Pollution liability refers to the legal responsibility of manufacturers for any pollution-related exposures associated with their operations, products or property that they own or lease. Manufacturers can be held liable for bodily injury, property damage, cleanup costs and legal expenses resulting from pollution incidents impacting soil, water and the atmosphere.
Standard liability and property insurance policies have excluded coverage for claims associated with pollution events since 1985, leaving significant coverage gaps in insurance programs. The broad interpretation of pollutants reinforces the strength of pollution exclusions. Pollution liability insurance is the solution for securing affirmative insurance for pollution exposures.
Pollution risks and liabilities
Manufacturers face various risks and liabilities related to pollution incidents, including accidental spills, leaks, emissions and improper waste disposal. Moreover, manufacturers may own and/or operate properties with existing contamination, and they may ultimately be responsible for required cleanup costs or third-party claims for bodily injury or property damage.
In addition to these location-specific risks and liabilities, manufacturers may experience a pollution-related loss arising from their product. A pollution-related product liability loss would be excluded under the "pollution" exclusion on standard policies and would require consideration of a combined General Liability and Pollution Legal Liability (GL/PLL) policy.
These pollution-related exposures can harm human health, damage ecosystems and violate environmental regulations. Manufacturers may be held accountable for cleanup costs, third-party claims, business interruption and legal expenses that can lead to:
- Financial consequences
- Reputational damage
- Regulatory fines and penalties
Programs available
Standalone Pollution Legal Liability coverage
Standalone Pollution Legal Liability (PLL) programs provide coverage for cleanup costs, bodily injury and property damage associated with pollution conditions on, at, under or migrating from your property. Coverage can be tailored to address potential future pollution events as well as potential liabilities associated with existing contamination at a property. PLL programs typically include numerous enhancements, including legal defense, transportation, business interruption and waste disposal coverage, among others.
Our team can also obtain excess liability coverage with follow-form PLL coverage to obtain the desired limit of liability (given that many carriers have capacity limitations).
Combined General Liability and Pollution Legal Liability coverage
The value of a combined GL/PLL program varies depending on several factors, including the size and nature of the business, the industry it operates in and the specific risks it faces. However, several potential benefits can add value to such a program:
Comprehensive coverage: By combining GL and PLL coverage, businesses can obtain a more comprehensive insurance solution that addresses a broader range of risks under a single policy. This breadth can help protect the business from financial losses and lawsuits arising from both general liability and pollution-related incidents.
Additionally, numerous enhancements would be included, such as products for pollution-related losses arising out of your product (which would be excluded on standard GL forms).
Cost savings: Buying a combined policy can often be more cost-effective than buying separate GL and PLL policies. Insurers typically offer discounts or package deals for combining these coverages, resulting in potential cost savings for the business.
Choosing the right insurance coverage
Manufacturers should carefully evaluate their specific risks and select pollution liability insurance policies that align with their operations. Factors to consider include program type, coverage limits, retroactive dates, policy exclusions and additional endorsements. Working with the Gallagher Environmental team can help manufacturers navigate the complexities of insurance policies and ensure adequate coverage.
Claim examples
- In 2023, an agricultural pesticide manufacturer sold their product to their agricultural customers across the country. Despite rigorous testing and safety protocols, a batch of their pesticide was found to have been contaminated during the manufacturing process, ultimately leading to unintended environmental pollution in the form of runoff into surface water near their customers' properties. Additionally, significant claims from farmers alleging their crops had been damaged by the contaminated pesticide were received. Total losses from property damage, natural resource damage, cleanup costs and business interruption claims exceeded $11,000,000.
- In 2022, an Indiana steel company was ordered to pay $3 million in a settlement with environmental groups after its 2019 cyanide spill into a river killed almost 3,000 fish, closed beaches and shut down a water facility.
- In 2014, a chemical spill occurred at a manufacturing plant in West Virginia, releasing approximately 10,000 gallons of a coal-cleaning chemical into the Elk River. The spill contaminated the water supply for more than 300,000 residents, leading to a state of emergency and widespread water restrictions. This resulted in a $151,000,000 settlement, among many other associated costs related to the cleanup.
- In 2016, a textile dyeing factory was found to be illegally dumping untreated wastewater into nearby rivers. The discharged wastewater contained toxic chemicals and dyes, leading to the contamination of water sources, killing aquatic life and affecting the health of local communities relying on the polluted water. The company incurred over $10,000,000 in losses associated with natural resource damages and third-party bodily injury claims.
- In 2022, an unknown amount of milk from a new factory spilled into the city's stormwater system, leading to an emergency response given the potential impacts to the ecosystem. While the emergency response costs are unknown, a $600,000 fine was imposed on the company.
Conclusion
Pollution liability insurance is a vital risk management tool for manufacturers. By investing in this coverage, manufacturers can protect their financial stability, comply with environmental regulations, safeguard their reputation, and demonstrate their commitment to sustainable practices. Manufacturers should proactively assess their pollution risks and seek appropriate insurance coverage to mitigate potential liabilities and protect their businesses and the environment.
Gallagher's Environmental team specializes in providing environmental risk management and insurance services. Our role as an industry leader in this area is to:
- Identify the potential environmental risks facing our clients.
- Analyze the risks in terms of potential frequency.
- Review the appropriate risk control and financing mechanisms, including environmental insurance available to address these risks.
Reach out to our team to learn more about how the Gallagher Environmental team can adequately address your pollution liability exposures through environmental insurance solutions.
