Environmental Liability Insurance has been around for years, and the organizations that have protected themselves with it have used the product to good effect. Whether obtaining pollution coverage to fulfill a contractual requirement for a big project or calling on the policy to settle a claim, companies — especially those in the construction industry — have found Environmental Liability Insurance to be of great value.
Coverage for pollution damage is excluded in most General Liability (GL) policies, yet, until recently, Environmental Liability Insurance was widely regarded as a niche product – necessary only for parties working with pollutants or engaged in projects on property with known or suspected exposure to hazardous materials.
Thanks to a number of convergent factors, that’s no longer the case. Entities who never purchased Environmental Liability Insurance in past years now routinely have it written into their policies. Parties who have never obtained the coverage may soon join the ranks of those who have. Here’s why:
- When Congress passed the Infrastructure and Jobs Act in November 2021, it cleared the way for a construction boom fueled by a $1 trillion investment in the United States’ critical infrastructure. As Insurance Business magazine reported: “The landmark deal promises a huge surge in new construction, remediation, and ablation projects over the next eight years. Priority projects include: the rebuilding of America’s roads, bridges, and rails with a focus on climate change mitigation, resilience, equity, and safety for all users; the delivery of clean drinking water to all American families; and ensuring that all Americans have access to reliable high-speed internet.” Many of these projects will create exposures that necessitate — either by contractual obligation or pragmatic self-interest — protection in the form of Environmental Liability Insurance.
- Ongoing supply chain disruptions are causing or extending delays in construction projects, creating compressed schedules for developers attempting to maintain deadlines. Rushed projects are more likely to lead to errors, and errors frequently result in claims — including claims related to environmental liability.
- Like most American industries, the construction sector is feeling the effects of a significant labor shortage, forcing many contractors to work shorthanded or employ less-experienced workers. Understaffing and inexperience also increase the likelihood of errors that result in costly claims.
- Exposures that once would have gone unnoticed ignored are now receiving attention, thanks to heightened focus on pollutants such as PFASs — so-called “forever chemicals” that “build up in our bodies and never break down in the environment,” according to the nonprofit Environmental Work Group.
- Lawsuits involving pollution liability claims have increased in frequency, judgments have grown in severity, and penalties for regulatory violations have grown as well. As recently as July 2021, the National Association of Insurance Commissioners (NAIC) forecasted that this trend will continue.
Together, these developments have also increased awareness of Environmental Liability Insurance, as evidenced by the trade publication Engineering News-Record’s recent editorial “Contractors Should Update Their Pollution Insurance Coverage.” Here’s a sampling of what ENR had to say:
“Contractors in every field face environmental issues that can lead to costly pollution incidents with significant cleanup costs, injuries to workers or third parties and property damage as well as loss of reputation for the firm and the owner of a project site … (E)nsuring that all parties on a jobsite have adequate pollution liability insurance can buffer a project against potentially devastating financial consequences.”
That’s excellent advice.
Types of Coverage
At its most basic, Environmental Liability Insurance includes two categories. First-party liability coverage provides the insured with funding to clean up a spill or contamination from chemicals or hazardous waste. Third-party coverage provides protection against claims that contamination or pollution caused by your business has done harm to others.
Within those two categories is a vast array of specialized coverages. For example, Travelers – one of dozens of companies Alera Group works with to provide Environmental Liability Insurance solutions – offers products including Contractors Pollution Liability, Site Pollution Liability, Contractors Indemnity for Subcontractor’s Pollution Liability, Non-Owned Disposal Site Pollution Legal Liability, Contractors Asbestos Pollution Liability, Crisis Management Services Expenses for Pollution Liability …
You get the point. Environmental Liability Insurance is highly customizable – with policies available to cover the exact needs of your business and the projects in which you’re involved.
Market Outlook Entering 2022
In December 2021, Alera Group published the Property and Casualty 2022 Market Outlook. Here’s what we had to say in the whitepaper’s section on Environmental Liability Insurance:
“This market continues to be viewed as a growth opportunity and is served by a wide range of insurers offering more than 100 policy forms for numerous industry sectors.
- “Rates will continue to increase for virtually all risks, reflecting an increase in loss frequency and severity. While we forecast rate increases averaging +12.5%, larger, higher-hazard risks can expect substantially higher increases. Pricing pressure will apply equally to primary and excess layers.
- “Availability for most business classes remains stable. High-hazard risk classes, such as oil and gas, mining, chemical, habitational and hospitality, will find it more difficult and expensive to fill their excess layers and may require multiple insurers to secure desired limits.
- “Capacity remains stable but will be judiciously allocated to risks meeting underwriters’ risk guidelines. For the very large and superior risks, as much as $200 million in limits is available while small-to-medium risks may find it difficult to renew with the same level of excess limits.
- “Underwriting scrutiny will continue to follow the same disciplined approach to risk evaluations as underwriters seek to write the ‘best of the best.’ Risk control and safety programs are essential. Excess layers will receive the same level of scrutiny as the primary layer; habitational and hospitality risks will see restrictions for mold and be evaluated for the potential for Legionnaire’s Disease; and pandemic and communicable disease exclusions will be commonly included in coverage forms.”
Nothing in the first quarter of 2022 has significantly altered that outlook, though it is worth noting that catastrophic weather events have been both major contributors to the Property and Casualty hard market and the causes of large environmental liability claims in recent years. With Atlantic hurricane season fast approaching and meteorologists predicting another above-average number of named storms this year, more such claims can be expected.
What You Can Do
Because pollution coverage is so customizable, it’s especially important that you work with an agent or broker with extensive knowledge and experience in this type of insurance. Only someone who knows your business and your industry, and has a deep understanding of Environmental Liability Insurance, can deliver the comprehensive, cost-effective solutions required for your unique risks.
Working with an Alera Group representative gives you the further advantage of combining local service with national reach, as we’re able to tap into the resources of partner offices located around the country to deliver solutions other agencies simply can’t produce.
For a deeper dive into strategies for navigating P&C market conditions in general and Environmental Liability Insurance in particular, read Alera Group’s Property and Casualty 2022 Market Outlook. In the Outlook, you’ll also find valuable information on factors driving the current P&C market, along with analysis categorized by industry and lines of coverage.
To obtain the whitepaper, click on the link below.
GET THE MARKET OUTLOOK
About the Author
Commercial Insurance Consultant
HMK Insurance, aAn Alera Group Company
Gene Nosovitch has more than 35 years of experience consulting with and providing insurance solutions for contractors and other businesses.