Best practices for writing environmental liability insurance
To understand the need for environmental liability insurance, just look around. Evidence is everywhere.
Think about the gas stations you pass each day. Underground storage tanks (USTs) lie beneath each station. There are approximately 542,000 USTs nationwide, according to the Environmental Protection Agency (EPA). Most of them store petroleum products. These aging fiberglass tanks, installed in the 1990s have now exceeded their 30-year lifespan, and many are failing structurally and mechanically. Consequently, UST-related environmental claims have increased.
Those claims don’t just involve gas stations.
“Environmental issues are a fundamental economic and reputational risk for businesses across all industry sectors,” PropertyCasualty360.com contributors Sarah Wirtz and Samantha D’Amico wrote in an April 2021 article. “A complex, continuously changing regulatory landscape and increased societal pressure for corporate social responsibility require businesses to adopt defensive postures and programs.”
Governmental initiatives play a pivotal role in addressing environmental risks and contaminated properties. The EPA recently announced that more than $1 billion allocated under President Biden’s Bipartisan Infrastructure Law will be used to clean up more than 100 Superfund sites.
Much of that funding has come from property owners, developers and tenants held liable for pollution. As the EPA states in its “Basic Information on Enforcement,” Cleanup enforcement gets property cleaned up by:
- Finding the companies or persons responsible for the contamination;
- Negotiating with them to perform the cleanup themselves; or
- Ordering them to perform the cleanup; or
- Having them pay for the cleanup performed by another party or EPA. Despite all of this, market conditions remain stable for environmental liability insurance — an outlier in the market for property and casualty coverage.
Case studies
As America ages, an increasing number of environmental risks are being unearthed in the ground. In the article “Environmental liability and your real estate portfolio,” senior AXA XL environmental underwriter Jenna Prettitore notes that environmental risks are common, adding, “there is no shortage of industries, from manufacturing to real estate holding companies” susceptible to environmental risks.
As evidence, AXA XL cites:
- A hotel liable for $1.1 million in remediation and business interruption expanses resulting from Legionella bacteria in its water system;
- A college forced to pay $2.85 million for carbon monoxide exposure to students in off-campus housing;
- The owner of an industrial warehouse responsible for $2.1 million to remediate and dispose of pallets holding industrial waste abandoned by a defunct tenant;
- The owner of a condominium building who was ordered to pay $500,000 to remediate solvent-contaminated soils and groundwater discovered during upgrade of an elevator shaft.
Presenting to underwriters
For the best possible outcome with environmental insurance underwriters, equip yourself with these fundamental elements of the application and renewal processes:
- A qualified team including an environmental insurance broker and an environmental consultant;
- Comprehensive site assessments;
- Detailed remediation plans for transforming contaminated land into usable and productive space;
- Documentation of remediation funding from government or private sources.
Underwriting preparation is key for managing expectations and cultivating a favorable reception in the marketplace.
The right partner
Partnering with an experienced environmental insurance broker is essential for organizations seeking broad and comprehensive coverage.
A proficient broker will have a history of successfully presenting contaminated properties to underwriters by crafting a compelling narrative that discloses any contaminated properties while also making the account appealing to underwriters.
Working with a broker who has established relationships and access to leading environmental insurance carriers is crucial.
Reviewing policy terms
The old adage, “the best defense is a good offense,” is especially true when selecting the broadest available environmental liability policy. Reviewing your organization’s environmental liability policy during each renewal proposal is a critical risk management step to understanding coverage terms before a potential claim arises.
Environmental risks are dynamic, and policy language evolves accordingly. A skilled broker will scrutinize policy terms with your organization at each renewal to mitigate potential coverage limitations or exclusions. Modified terms and conditions often restrict coverage rather than expand it, underscoring the significance of proactive policy evaluation.
Engaging a qualified environmental consultant is pivotal in developing a robust risk management strategy. Environmental consultants conduct site surveys, recommend preventative measures and ensure compliance with local, state and federal regulations.
What’s ahead
As the prevalence of environmental risks persists, Environmental Liability Insurance is a vital tool for transferring risk to insurers. For any organization, an enterprise-wide risk management assessment should also incorporate an environmental exposure review.
Gene Nosovitch (Gene.Nosovitch@aleragroup.com) is a consultant at HMK Insurance, an Alera Group Co. The original version of this article first published at aleragroup.com. The article is reproduced here with permission.
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