Environmental liability coverages are moving to the mainstream. Recent news articles have drawn attention to environmental insurance products, environmental insurance providers and the value of those products as a fairly new line of insurance. This focus is a radical change from the typical reporting of coverage disputes regarding pre-pollution exclusion general liability programs. It's refreshing to see the proliferation of information that will help U.S. business move forward in an arena where there is the potential for tremendous losses.
Yet this positive news shouldn't lead people to believe that the environmental liability insurance product is an off-the-shelf wonder that will cover everything. As with any other line of insurance, the product is not a stand-alone monolith but a framework for coverage that can be molded or crafted to specifically cover the environmental loss exposures at hand.
The creation, selection and placement of environmental insurance programs does not occur in a vacuum, and companies must take into account developments in environmental risk control and environmental risk financing programs. Also, loss control issues should not be separated from loss financing issues -- the interrelations of both disciplines need to be highlighted. Risk managers should take a second or even a first look at the potential program availability that now exists to transfer or fund a major portion of a firm's environmental liabilities.
Although this endeavor may be daunting, the time to look at this market is now. Companies should approach environmental risk management aggressively and strive to meet "good business" goals, although the appropriate measures will vary by company and industry type. However, as with any other operating risk or expense, environmental liability cannot be ignored; it deserves the same attention that one pays to more common loss exposures such as fire or hurricanes.
The first step in the environmental risk management process is recognition and identification of environmental loss exposures, which should draw upon the expertise of individuals at all levels from operations and line management up through the directors and officers. All aspects of the exposure, from material facts regarding the facility to the risk appetite and shareholder philosophy, must be factors in defining risk management goals. In the simplest terms, risk managers should explore the following: Does the facility generate solid or hazardous waste? Who handles it? How much? Where does it go? Does the facility emit contaminants into the environment via air emissions, pointsource discharges, storm-water runoff, sudden or accidental spill or gradual leaks? What were the former site operations and the surrounding operations? What is the level of environmental awareness in the community or amongst employees? If the company contracts for services (remediation, professional, construction or transportation), how has environmental liability been handled? Has any protection been granted in contracts or insurance? Does an environmental management plan exist and, if so, who executes it?
These questions are simple but provoking. And answers to them may reveal environmental loss exposures in past, present or future operations. Consideration must be made for the liabilities trailing from the past and those occurring today. Focus forward, but always look back.
Environmental liability is not unique to any one business. Loss exposures exist for contractors, consultants, manufacturers, distributors, financial institutions, health care providers, retail shopping centers, public maintenance facilities or any organization currently doing business in the United States. Awareness of a company's own exposures is sometimes less significant than identifying the exposure of those organizations with whom one's company chooses to do business. Track contingent exposures as well as primary exposures. …