A Large, Complex Market

Agents and brokers agree that the current coverages are greatly improved from the earliest days of what was very basic coverage in many offerings. As an example, said Eversull, "On contractor risks, carriers now have the ability to include contractors' pollution, errors and omissions and CGL on almost every type of job. In addition, we can write contractors' pollution stand-alone or per project or per client."

The current domestic environmental insurance market is generally considered to be in the range of $1.5 to $2 billion in annual written premium nationwide. Individual state statistics are difficult to pinpoint. However, according to the market data reports section of the Florida Surplus Lines Service Office web site, 2008 surplus lines written premium in the category "Pollution and Environmental" totaled just under $35 million for the Sunshine State.

These numbers are not large compared to other segments of the property and casualty industry in Florida and across the nation, but the market is every bit as complex as other coverages. There are a wide array of products available, numerous coverage options, and hundreds of classes of business to which those coverages apply.

To help sort out the most common classes of environmental insurance, Foering offered a simplified listing:
Environmental contractors and consultants, such as those specializing in abatement, lead or mold.

Manufacturers or distributors.
Real estate — many exposures and options, including contaminated sites.
Non-environmental — artisan (plumber, electrician).
Transport — motor vehicle, ocean, and the like.

Some of the more recognizable exposures are remediation/clean-up work and disposal hazards, including chemicals from dry cleaning risks, grease recycling or disposal from restaurants, oil disposal and recycling from auto repair facilities, and roofers and others disposing of a long list of building materials. Add to that oil and gas spills, and removal or abatement for asbestos, lead and mold hazards, and this market's size and complexity become even more apparent.

Of interest to Florida producers particularly, both Foreing and Eversull confirmed that mold is the area with the highest claim frequency. Eversull said that out of every five claims he sees, perhaps four are for mold.

While mold claims are more frequent, underground storage tanks (USTs) and remediation are areas more likely to produce severity.

According to Stacy Brown, president of Freberg Environmental Insurance in Denver, USTs are a major concern in Florida. "A few years ago the state mandated that all single-walled USTs must be removed and replaced with double-walled tanks by year-end 2009," Brown said. "Many stations are mom-and-pop, and most USTs leak (connections especially) and all businesses with USTs have to have insurance. Carriers will not write single-walled tanks, so anyone who has not removed them will virtually be out of business."

The much-in-the-news Chinese drywall has not become a major claim issue yet. Most carriers believe that their existing exclusions apply, and until those wordings are tested in court, it is anyone's guess as to how it will turn out.

Artisans Contractors Is a Growing Nich Market

Other environmental exposures may not be as obvious or as well-publicized, but the need for adequate protection is just as critical.

Eversull said that artisan contractors is a class with exposure and a growing requirement to carry coverage. "We focus on smaller mom-and-pop risks, along with new ventures," he said. "Artisan contractors (contractors' pollution) has been a big push for us in the past four to five years. For the most part, it is the result of insurance requirements by contracts, usually from large home contractors."

Examples of exposures for artisans vary. "It could be an electrician taking out old transformers that include PCB contaminants" said Foering. "A plumber could have exposure installing an underground storage tank, but more likely the exposure is from poor or improper installation of household plumbing fixtures and the resulting mold growth due to a water leak. A contractor doing excavation could strike an underground tank or utility."

Coverage cost is usually very affordable, which also adds bulk to the growing market segment.

"Contractors' pollution coverage is frequently a fraction of the GL premium," said Eversull. "For example, a risk that is paying $25,000 for GL can probably get the pollution coverage for $2,500."

Site Pollution Encompasses a Broad Array of Products

Another area of the environmental market encompasses a broad array of products generally described as site pollution. Many of these fall under the heading of environmental impairment liability.

"These are typically lender-driven policies," said Brown. "Once a lender takes possession due to default of the loan, it is financially responsible for all liabilities, including environmental. The lender will not lend on a property due to concerns that there is a potential latent contamination issue.

"Starting in the mid- to late 1990s, many banks started taking the extra step of having an environmental consultant examine the property before they would lend money on the property," Brown said. "Typically this is done for industrial real estate transactions, but can be performed on almost any type of property, including offices, apartments, even vacant land."

Policies can be written to provide indemnification for the buyer, seller, and lending institution during a real estate transaction.

As is the case in most situations where there is a unique need, the insurance market recognized an opportunity and additional insurance options became available, albeit in this case, they were unusual options.

"The coverage is claims-made with no retroactive date on the property in question," said Brown. "If subsequent pollution is discovered after the sale transaction, the policy could respond. Coverage is only for pre-existing conditions and is usually written on multi-year policy terms."

This coverage gives the lender and buyer comfort that they are not going to be saddled with an unexpected liability in such a transaction.

In addition, coverage is available to make it financially feasible to develop or redevelop a contaminated property. This helps solve the problem a property owner has in selling the property and not being held responsible for future environmental liabilities in the form of litigation and/or remediation costs.

Also, lenders today may require environmental impairment liability policies for transactions on distressed property, including foreclosures.

Surplus Lines Is a Major Player in Market Segment

For most of the coverages and products written, especially on small to mid-size risks, limits of $1 million are common and can easily go to $5 million; deductibles can be as low as $2,500.

Much of this coverage is written in the surplus lines arena, so it is often up to the carrier to supply forms and wording. "The GL is almost always written on an occurrence form, and can be ISO or a close variation," said Foering. "Professional liability and site pollution are written on a claims-made form, and contractors' pollution can be occurrence or claims-made."

As with any coverage, agents should read the documents carefully and if necessary ask the carrier or broker for help with coverage comparisons and claim examples.

One thing this market segment has in common with most others is that it is full of competitors. "The industry has changed over the past couple of years due to the increase in carriers and capacity," said Brown.

Eversull agreed, stating, "A few years ago, we had maybe 11 or 12 competitors, and now it is double that or more. In spite of that, the market has not been as soft as other coverages. Rates are off ten to 15 percent, if that much."

Foering expects it to continue to be more of a buyer's market, at least for the near future. "We are starting to see an increase in the rate base, but it is unlikely we will see any hardening of the market in terms of rates any time soon. This segment faces the same issues as most others, in that there seems to be plenty of capital. It will likely take several more years for the markets to shake out and for some carriers to decide this is not for them."