Environmental Insurance Coverage

Article excerpt

A clear and effective emergency management plan Is essential when faced with the loss from an environmental disaster. But it is only one part of an environmental disaster plan. Comprehensive environmental insurance coverage may be equally as important to mitigate the human and financial impact of such an event.

Environmental risks have two basic components: the policyholder's obligation to clean up contaminated property and the policyholder's potential liability to third parties injured by the environmental hazard. These risks lead to financial damages in the form of environmental cleanup costs, third-party bodily injury claims, third-party property damage claims, regulatory fines or diminished market share due to lack of environmental stewardship.

According to "A Users Guide to Real Environmental Insurance" by David J. Dyhdahl, environmental insurance can be broken down into five basic coverage forms. These are: 1) site-specific environmental impairment liability, including property transfer, secured creditor, storage tank and combined GL/EIL policy forms; 2) contractor's environmental impairment liability; 3) environmental professional errors and omissions; 4) asbestos/lead-abatement contractors and 5) remediation stop-loss.

To create a new policy form, these basic coverage components are combined and renamed for the particular client. To be certain that all aspects of potential environmental liability are covered, an expert insurance consultant should be retained to plan the program, analyze policy language and execute the purchase in the most cost effective way. A few aspects of two of the five types of coverage are relevant to our discussion of environmental disaster insurance.

Site-specific environmental impairment liability (EIL). EIL policies respond to losses arising from pollution conditions that require an active release of pollutants to trigger coverage. The definition of "pollution conditions" closely follows the definition of pollutants in the pollution exclusions found in general liability policies. EIL policies are often viewed as filling this coverage gap. EIL insurance is used to cover fixed-site exposures. This excludes on-site cleanup and claims from non-owned disposal sites (such as Superfund).

Underground/aboveground storage tank insurance. …