For many corporations, no other class of liability poses a greater financial exposure than environmental claims. Consequently, risk managers faced with significant exposure for environmental claims against their companies are learning that effective management of these problems requires the development of an overall strategy for pursuing coverage.
Millions of dollars in defense and indemnity payments have been made by insurance companies to insureds for environmental problems. However, some insureds have spent millions trying to obtain coverage, only to come away empty-handed. The difference in results can be explained many ways, but successful efforts to obtain coverage have usually been the culmination of careful preparation, planning and analysis by the insured.
Environmental coverage issues are being decided in the courts on a scale that is almost without precedent. Inconsistent, disparate decisions on key coverage issues involving state contract law continue to be handed down by state and federal courts on a weekly basis. Since in most states there are few, if any, state supreme court decisions that provide definitive guidance on many of the key issues, it is difficult to predict the likelihood of prevailing in a coverage lawsuit in many jurisdictions.
Results in environmental coverage cases are fact-sensitive and subject to dramatic swings in the governing law. The outcome of negotiations, or any suit filed by an insured against its insurers, could easily be affected by cases now pending in which no decision has been rendered. They could also be affected by facts not fully ascertained about matters such as what the insured's officials knew about pollution problems at various sites and when they knew it.
Finally, the potential costs of environmental damages due to property damage and bodily injury are staggering. In some instances, the costs of defending and paying such claims may render healthy companies insolvent. These factors compel the insured to develop an overall strategy for its environmental claims at the earliest possible opportunity.
Before Developing a Strategy
There is no substitute for a thorough factual investigation of the underlying environmental claims and the insured's historical insurance program. The insured that begins its pursuit of insurance recovery without such an investigation is taking a serious risk. Keep in mind, of course, that timely notice is usually required by policy conditions and may sometimes have to be given before a complete investigation can be made.
Before developing a strategy and presenting a claim, all applicable carriers and policies must be identified, and all policies must be analyzed. It is especially important to consider the possibility of coverage under comprehensive general liability policies as well as environmental impairment and property policies. Depending on the particular situation, coverage may even be available under automobile or boiler and machinery policies.
Because many environmental claims involve continuous or repeated exposures to conditions that could have existed for decades before the discovery of actual environmental damage, coverage may be available under old policies that provided occurrence' or 'accident' coverage during those periods. Insureds should try hard to locate these old policies. Prior to the early 1970s, most general liability policies sold in the United States, including policies sold by London market companies and underwriting syndicates, did not include any exclusion for pollution. Its absence removes what may, on occasion, be a significant hurdle to coverage for environmental claims--even if only in the eyes of the insurer.
A small cottage industry of specialists known as insurance archeologists have developed the expertise necessary to assist insureds in locating lost or destroyed policies or evidence of such policies. With remarkable success, these specialists have found billions of dollars in aggregate limits for insureds by searching through the historical records of the insured and third parties. …