Risk & Business Magazine Capri Insurance Spring 2016 | Page 30

Environmental Insurance
What You Need to Know

BY: DAVID BARR, CLASS UNDERWRITER, ENVIRONMENT IMPAIRMENT LIABILITY, THE CHANNEL SYNDICATE, LLOYDS OF LONDON

E

nvironmental insurance, often also
known as Environmental Impairment
Liability (EIL) or Pollution Legal Liability
(PLL) insurance, is a specialist form of
cover against losses that can result from a
pollution or contamination incident. It is
increasingly being taken up by companies
alongside their traditional insurances, to
provide robust protection against the rising
costs of dealing with the effects of pollution.

Environmental Risks
Depending on its current and former
business activities, a company may face a
range of environmental risks such as the
following:

Operational Risks - On-going pollution
risks at a site, for example from
unanticipated discharges, leakages or
spillages from machinery, storage tanks,
pipes, effluent plant, waste disposal areas,
drains etc.

Contracting and Transportation Risks Pollution caused by contractor’s activities
such as construction, demolition and
refurbishment works, as well as the
installation, maintenance and repair
of plant and equipment at customers’
premises. Also could include pollution
incidents arising from the transportation
and loading/unloading of goods, such as
chemicals, fuel, waste and other hazardous
materials, as a result of auto, rail, waterway
or air accidents.

Legacy

Risks - Residual

liabilities
associated with pre-existing contamination
that may remain beneath a site, caused
for example by releases from previous
industrial operations or buried waste.
Concern over such issues often comes to
light during property transactions, where
environmental insurance can be used to
transfer such liabilities and remove this
potential roadblock from negotiations.

Pollution Coverage Under Standard
Insurance Policies
The suite of ‘standard’ insurance policies
that a company holds is likely to provide

30 SPRING 2016

limited, if any, cover for the above
environmental risks. Relying on such
insurances is therefore likely to be a false
economy, as gaps in cover are likely to
quickly become evident when pollution
occurs.
At best, commercial general liability (CGL)
policies may offer cover for third party
claims (although not necessarily clean-up
costs enforced by the regulator) arising from
‘sudden and accidental’ pollution events.
The costs of carrying out preventative
or emergency response measures before
a claim has been received would not be
specifically covered.
Property insurance may pay for the cleanup of debris following an ‘insured peril’
event such as a fire, but will typically
exclude the clean-up of underlying ground
contamination.
A consultant’s professional indemnity (PI)
insurance solely provides cover for losses
arising from the consultant’s negligence,
and is not therefore a substitute for
environmental insurance.

Environmental Insurance Coverage
Due to the above deficiencies in standard
insurance
policies,
environmental
insurance is often used as an ‘umbrella’
coverage, sitting excess of a company’s
underlying insurance but dropping down
on a difference in conditions (DIC) basis to
fill the gaps in coverage.
Whether environmental insurance is
used as primary or umbrella coverage, the
benefits of such insurance coverage can
include the following:
• Gradual and sudden pollution incidents;
• Historic (legacy) pollution and ‘new’
pollution incidents;
• Regulatory enforcement action and third
party claims;
• Costs of responding to an emergency, as
well as taking preventative action;
• Costs of cleaning up on-site pollution as

well as the off-site impacts;
• Natural Resource Damage (NRD), such
as the restoration of habitats affected by
pollution;
• Availability of coverage for pollutants
such as asbestos, mold and fungi;
• Cover extends to a company’s directors
and officers.

Indirect Losses
In addition to the direct impacts outlined
above, the indirect or consequential effects
of a pollution incident can also be costly for
a business. Examples of such losses that can
be covered under environmental insurance
policies include:
• Pollution investigation & monitoring
costs.
• Legal costs of defending claims.
• Restoration costs, such as rebuilding a
property that needs to be demolished to
allow remediation to take place;
• Diminution in the value of a third party
claimant’s property that is affected by
pollution;
• Business interruption costs, for example
loss of insured’s rental income, costs
of relocation to alternative premises,
increased cost of working and loss of
profits.

Claims
The environmental insurance market is
seeing a maturing claims experience as a
result of ever more stringent environmental
legislation and increasing third party
litigation, further serving to demonstrate
the value that such coverage can add to a
company’s insurance program.
David Barr joined Channel in June 2015
as Class Underwriter for Environmental
Impairment Liability. David has over 25
years’ experience of underwriting and broking
roles in environmental and general liability
insurance, as well as in environmental
consultancy and the petroleum industry.