Insurance Coverage for Environmental Claims
Landow-Esser, Janine M., Spears, Kathleen C., Journal of Property Management
During the past ten years, most property managers or owners have been faced with environmental conditions that translate into cleanup costs and even lawsuits. Meeting these financial obligations and dealing with legal disputes can be devastating.
Until recently, few policyholders have looked to their insurance carriers for defense of such claims or indemnification for monetary damages incurred in connection with them. Lately, however, many property managers and owners have sought and won indemnification from their insurance carriers for a variety of environmental claims.
Policies covering environmental claims
Three basic types of insurance provide coverage for environmental claims: comprehensive general liability insurance, also known as commercial general liability (or CGL); first-party property; and environmental impairment liability (or ELL). Excess liability policies also may provide coverage beyond the limits of these primary insurance policies. The scope of environmental claims coverage afforded by each type of insurance varies significantly.
CGL policies. A CGL policy traditionally provides coverage for:
* damages caused to a third party's property;
* bodily injury to a third party arising from the use or condition of the policy-holder's property; or
* injury that results from the operation of the policyholder's business.
A typical CGL policy will have an "owned property" exclusion that may preclude the policyholder from obtaining indemnification for damages to his or her own property. For example, if hazardous waste generated and stored by Company A on its property migrates to neighboring land owned by Company B and Company B in turn seeks compensation from Company A for the damages caused, Company A may seek indemnification under its CGL policy for Company B's damages. To date, courts have disagreed as to whether Company A may recover costs to remediate damages suffered on its own property.
Property policies. A first-party property policy provides coverage for damages incurred as a result of a direct physical loss sustained by the policyholder's own property, but, unlike a CGL policy, does not provide coverage for damages caused to a third party's property.
The scope of coverage provided by the first-party property policies varies; some provide coverage for "all risks" (except those specifically excluded), while others cover only "named perils."
Accordingly, managers should review and, if necessary, negotiate language on a new policy to ensure that the policy:
* accurately reflects the identity and status of the property it is intended to insure (i.e., the correct address, the number of buildings or equipment covered); and
* provides coverage for appropriate risks and perils (fire, water, earthquake, tank defects or ruptures, etc.).
Although most CGL and first-party property policies do not explicitly identify coverage for environmental claims, the broad language they use has been interpreted to provide policyholders with environmental claims coverage. For example, many policies written before 1980 contain broad definitions of the kinds of "incidents" causing "damages" for which a policyholder may seek indemnification. Courts traditionally have interpreted this language as providing environmental coverage to the policyholder.
First-party property policies and CGL policies may be combined to guarantee coverage for the majority of losses incurred on both the policyholders' property and any third-party property.
If the presence of environmental hazards in a building adversely impacts another's property or health, building owners have recovered the costs of compensating the affected third party under their CGL policies. A number of courts have held that the bodily injury provisions of certain CGL policies provide coverage to property owners for injuries allegedly sustained by individuals as a result of exposure to asbestos. …