by David Dybdahl
How can you help your commercial clients fill the insurance gaps created by
pollution exclusions?
The only reliable method is and always has been through the purchase of a separate environmental impairment insurance policy designed specifically for the customer. Two different policy forms can address this need:
- Environmental impairment liability insurance: designed to insured-specified locations
- Contractors environmental insurance: designed to insure a contractor’s described operations
But significant barriers stand in the way for insurance agents trying to successfully utilize these insurance policies for their customers. Although gaining access to the insurance products through wholesale insurance brokers is very simple, gaining access to the knowledge necessary to match the environmental insurance policy to the needs of the customer is difficult. No industry standards exist for the coverages provided in any environmental insurance policy and very few educational venues are available for agents to learn about environmental risk management and insurance.
Another complication? Today, environmental insurance policies are used for purposes they were never designed to address. Environmental insurance policies were originally targeted for industrial operations. These industrial-grade environmental insurance policies were too expensive for the average farm, small business, artisan contractor or commercial building owner, and the core environmental insurance coverage designs were created decades before fungi and bacteria even became coverage issues in standard insurance policies. Unless an agent pays close attention to matching the environmental insurance policy to the coverage needs of a particular customer, it is possible—and in some classes of business, like farming, even likely—that an insurance agent will sell an environmental insurance policy to a customer that excludes everything likely to cause a pollution claim for the customer.
But a lot has changed in the environmental insurance business over the past 10 years that makes high-quality environmental insurance affordable for most commercial insurance buyers today. More than 100 different genuine environmental insurance policies are available from some of the largest and most financially secure insurance companies in the world. Any legal activity is insurable under environmental insurance policies and has been for decades.
That means price is no longer the barrier it once was. For example, the cost of a good contractors environmental liability policy for a plumber dipped below $2,500 in 2011. Plumbers require this coverage because most completed operations claims scenarios for plumbers involve some kind of fungi or bacteria. All water in a drainpipe is classified as Category 3 water, which means bacteria is already present, and mold grows on drywall in 36 hours. Any leak in a pipe is highly likely to have one of those two elements associated with it, which will then trigger the fungi and bacteria exclusion on the entire loss if the claims adjuster is paying attention.
Today, $1,000-premium contractors environmental liability policies are available—but these ultra-low-cost policies usually offer glitchy coverage for fungi and bacteria even though they can work fine for outdoor construction projects. A fire and water damage restoration contractor or who works on Category 3 water and mold clean-ups (they all do) can find insurance for $3,500 with a top-notch general liability/contractors environmental liability /professional liability insurance policy. Fungi and bacteria exclusions on the general liability polices purchased by restoration firms have significant coverage gaps that cannot be fixed through the purchase of a contractors environmental liability insurance policy. The combined policy forms are the only known way to fix the general liability gap for showing up at a fungi and bacteria or Category 3 water remediation project in this class of business.
Owners of commercial buildings, including apartments, now need coverage for fungi and bacteria loss exposures, including clean-up costs and loss of rents. A best-in-class environmental impairment liability policy is available for as little as $3,500 and that premium can cover more than one building. On larger commercial property schedules, environmental impairment liability can cost as little as $300 per building for a $1,000,000 policy limit if the properties have a good water intrusion loss prevention plan in place. These plans from preapproved water damage restoration contractors are available at no cost to insurance applicants and can reduce the rates charged for environmental liability insurance by 70%.
The environmental insurance cost barrier for the average dairy farm in Wisconsin vanished this month with the introduction of a $1,000,000-limit environmental impairment liability insurance policy costing as little as $3,500 for the average family farm. This policy is specifically designed for farming operations with clean-up and third-party liability coverage for pollutants released from manure lagoons, the application of manure, fertilizer and pesticide to fields, storage of farm chemicals, fuel storage tanks, pollution releases from vehicles and mobile equipment. Coverage can even extend to a farmer’s participation in manure to energy plants. This product line will be available nationally in 2015.
Pollution damage claims can be very expensive, especially if aquifers require remediation or if people suffer bodily injury. Meanwhile, specific exclusions and the development of insurance coverage case law continue to systematically strip insurance coverage away from standard insurance policies. There is no need for farmers, plumbers, hotels, shopping centers and other Main Street business to roll the dice every day on how the pollution exclusions in their insurance policies may operate in a particular loss scenario. Environmental insurance can be a value-added proposition for existing commercial accounts and provide a competitive edge on gaining new business.
David Dybdahl, CPCU, is president of American Risk Management Resources Network, LLC (ARMR.net) in Middleton, Wisconsin—a wholesale insurance brokerage firm and leading resource in microbial matter risk management and insurance that assists insurance agents and brokers in the design and placement of environmental insurance policies.
