5 questions to ask commercial policyholders facing pollution liabilities

At some point in time, every commercial insurance agent or broker will face a situation where their client has a potential liability for claims that are excluded from coverage or where available coverage is insufficient. In such situations, breaking the bad news regarding lack of coverage can lead to disappointment and strained client relationships. Nevertheless, with a little ingenuity and gumshoe detective work, there often remain opportunities to find responsive coverage even for significant claims.

Long-tail pollution liabilities are some of the most concerning and difficult to cover risks for companies operating in the United States. In addition to the many state-driven initiatives to address long-standing pollution issues such as those in New Jersey and California, the U.S. Justice Department recently announced on May 5, 2022, a new comprehensive federal environmental justice enforcement strategy. In short, whether as a result of state enforcement, federal enforcement or third-party lawsuit, American companies will need to continuously consider their exposure to environmental liabilities for the foreseeable future. If your client is facing an environmental claim without pollution coverage (or if they are seeking additional coverage beyond that provided on a current pollution policy), here are five questions you should ask before sending them away without coverage and disappointed.

1. Does the pollution claim relate to activities that occurred prior to 1986?

You should operate under the assumption that general liability policies issued prior to 1986 would have made available coverage for at least some pollution incidents. In the history of insurance coverage for pollution liabilities, 1986 was a critical year. As the risks associated with pollution liabilities in the United States continued to mount, the ISO promulgated a new general liability form in 1986. The new form was named the “commercial” general liability form rather than the earlier name of “comprehensive” general liability. Critically, the new commercial general liability form incorporated an absolute pollution exclusion. As a result, unless your client purchased standalone pollution coverage, it is unlikely that your client would have general liability coverage available for alleged post-1986 pollution activities.

But the corollary is also true — if a potential pollution liability relates to pre-1986 activities, there may be general liability coverage available. Whether coverage will apply could depend on numerous factors such as the nature of the alleged pollution activities and the states where the alleged pollution occurred. If the alleged pollution liability relates to pre-1986 activities, your client may have recourse to insurance. Do not send them away without asking some additional questions.

2. Does the pollution claim relate to activities that occurred prior to 1970?

You should operate under the assumption that general liability policies issued prior to 1970 likely did not have any pollution exclusions. It was in 1966 that the national underwriting bureaus first promulgated the “occurrence” form, which made clear that the general liability policy was intended to cover slow developing claims such as pollution liabilities. For instance, G.L. Bean, a key drafter of the 1966 form has been quoted as stating that: “smoke, fumes, or other air or stream pollution have caused an endless chain of severe claims for gradual property damage … [manufacturers] need … protection … and should legitimately expect to be able to buy it, so we have provided it.” But as environmental awareness began to crystallize in the United States, some insurers began to attach pollution exclusion endorsements to their general liability policies in the late 1960s.

Indeed, by 1970, the insurance bureaus had drafted the so-called “sudden, accidental” pollution exclusion, which was then submitted to state regulators for approval as an endorsement to be attached to CGL policies. This endorsement language excluded intentionally wrongful pollution but left coverage available where the discharge, dispersal or release of pollutants was “sudden and accidental.” In 1973, the ISO incorporated such sudden, accidental wording into its revised general liability form under exclusion “f.” Much has been written about how the sudden accidental exclusion should be applied to different types of pollution incidents. U.S. courts are split on many of these interpretation issues. But most policies from prior to 1970, and some issued after 1970, will not have any pollution exclusion language — sudden, accidental or otherwise.

As a result, if the alleged pollution liability relates to pre-1970 activities, your client should carefully consider whether insurance assets from that time period can be located.

3. Does your client have copies of its historical insurance policies?

Even if the potential environmental liability relates to pre-1986 or pre-1970 activities, little can be done if your client does not have information about the insurance policies it purchased during that timeframe. Though it is more the exception than the rule, some companies do keep copies of their insurance policies going back decades. Alternatively, some companies may retain schedules of insurance reflecting the policies purchased over many years. If your client has such documents available, they should track them down as soon as possible and consider whether any of the identified insurance carriers should be placed on notice.

4. Does your client have access to historical corporate documents from the time period in question?

As noted above, it is an unusual circumstance where a company will have easy direct access to insurance policies purchased during and/or prior to the 1980s. Even if there are no insurance specific documents, many other corporate records can prove invaluable in helping to track down insurance policy information. Though this list is certainly not exhaustive, insurance archaeologists have had significant success locating and reconstructing insurance history through documents such as: certificates of insurance, legal files, accounting records, board of director meeting minutes and environmental health and safety documents. If your client maintains an archive or repository of important historical corporate documents, they should consider as soon as possible the best way to review that information for clues to their insurance history.

5. Has your client previously engaged in or should they consider insurance archaeology?

If there are no easy paths to obtaining historical insurance information, it may be well worth the investment to retain the services of an insurance archaeologist. In general terms, insurance archaeology is the process of tracking down lost, missing or unknown insurance policies. There are certainly costs and time associated with the service but the investment can lead to the discovery of millions of dollars of insurance coverage both for existing cases and for potential liabilities down the line. And even though a company can engage in its own search for insurance information, an insurance archaeologist can expedite the search and bring historical industry knowledge to efficiently locate relevant historical information.

If your client is facing an environmental liability with nonexistent, insufficient or inapplicable pollution coverage, don’t turn them away without asking these five questions. Millions of dollars of insurance coverage and an even stronger client relationship could be the result.

Dan Singerman serves as the director of complex claims at Risk International, based in Fairlawn, Ohio. Singerman’s practice focuses on insurance archaeology, historical policy reconstruction and complex claims recovery services. Singerman has also served as an expert witness in various historical insurance coverage disputes involving toxic tort, asbestos and environmental liabilities. Prior to working in the insurance/risk management field, Singerman earned his JD at Emory University School of Law in 2007 and practiced civil litigation until 2012. Dan earned his CPCU. designation in 2016 and continues to perform general insurance and risk management consulting work in addition to his claims advocacy work.

Opinions expressed here are the author’s own.

Related:

• 10 best practices for pollution insurance submissions
• Insights into the environmental liability insurance market growth trend
• Firefighting foam claims & the pollution exclusion