Insurance Coverage for Environmental Claims

By Flanigan, George B. | Risk Management, January 2004 | Go to article overview

Insurance Coverage for Environmental Claims


Flanigan, George B., Risk Management


The last 40 years have seen a quantum leap in society's attitude toward environment pollution. In the early 1960s, societal awareness of the problem had only started to develop. Only later did such consciousness permeate the business and insurance communities. This slow response cost American business billions of dollars. In the 1970s, the insurance industry developed exclusionary language designed to reduce its exposure to pay under the Comprehensive General Liability (CGL) policy, a standard created by the Insurance Services Office (ISO) and its forerunner organizations. The industry's response, was poorly executed and ultimately even as the insurance with the opportunity to recover even as the insurance industry intended otherwise. The industry did not truly amend the CGL until 1986 when, incidentally, it was renamed the Commercial General Liability (CGL) policy.

The new policy was a complete redesign. It contains an exclusion known as the absolute pollution exclusion, which specifically enumerates the sources of the pollution excluded: (a) from the premises, (b) from any other premises or location involved in the processing, treatment, storage or disposal of waste, (c) while it is being transported, stored or treated by someone the insured is liable for, or (d) off the insured's premises at a worksite. but only if the source (as opposed to the causation) of the pollution is the insured. In a separate part, it also excludes clean-up costs, mandated or otherwise. The only exception to the exclusion is for smoke from a hostile fire. In addition to the pollution exclusion, there is an aggregate that cuts off all recoveries from a policy once a total claims level is reached.

In 1996, the insurance industry gave back some helpful coverage for claims that had been previously excluded, although the absolute pollution exclusion remains. First it provided coverage for bodily injury claims arising from smoke, fumes, vapor or soot from heating equipment. It also expanded coverage available for additional insureds and for contractors.

Buying Environmental Insurance Today

The CGL's 1986 pollution exclusion and those that have come since have held up quite well in court. Unless one of the exceptions to the exclusion applies, risk managers must assume that recovery will be difficult for claims caused by occurrences after 1986. It is not uncommon for insurers to use an even more restrictive exclusion, called the "total pollution exclusion." that takes away any of the modest givebacks.

There are, however. several ISO endorsements that extend pollution coverage. CG 04 22 (Pollution Liability--Coverage Extension) provides coverage for bodily injury and property damage liability, leaving intact the exclusion lot clean-up costs. CG 04 28 (Pollution Liability--Named Peril Limited Exception) extends cover for short term pollution incidents caused by named perils For example, coverage is afforded if a fire damages the utilities in the building and causes a concurrent pollution incident. The incident must begin at a plainly identified time subsequent to the fire and end within 48 hours.

CG 04 29 (Pollution Liability--Limited Exception) is an open perils version of CG 00 28. CG 04 30 (Limited Exception for Designated Pollutants) provides coverage for the discharge, release or escape of scheduled pollutants, such as chemicals used by a dry cleaner.

Also, there are CG 22 78 (Hazardous Materials Contractors) and CG 24 15 (Limited Pollution liability Extension), which extend coverage to contractors working with hazardous products but not with regard to underground storage tanks.

More Options

Contemporary pollution-oriented insurance solutions, now known as Environmental Impairment Liability (EIL) insurance, comprise a last-growing and innovative marketplace. In the non-ISO environmental insurance arena, a handful of companies offer a variety of coverages.

Contractors Liability Coverage.

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Insurance Coverage for Environmental Claims
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