Environmental Liability Insurance: Stable market for a growing need

To understand the need for Environmental Liability Insurance, just look around. Evidence is everywhere. 

Consider the gas stations you pass each day. Beneath each station lie underground storage tanks (USTs). Across the nation, there are approximately 542,000 USTs, mostly storing petroleum products. These aging fiberglass tanks, installed in the 1990s during a mass replacement effort after the passing of new regulations for spill-detection technology and corrosion protection. They have now exceeded their 30-year lifespan, and many are failing structurally and mechanically. Consequently, UST-related environmental claims have increased. 

And those claims don’t just involve gas stations. As PropertyCasualty360 reports, “Environmental issues are a fundamental economic and reputational risk for businesses across all industry sectors. A complex, continuously changing regulatory landscape and increased societal pressure for corporate social responsibility require businesses to adopt defensive postures and programs.” 

Governmental initiatives play a pivotal role in addressing environmental risks and contaminated properties. The Environmental Protection Agency (EPA) recently announced that more than $1B allocated under President Biden’s Bipartisan Infrastructure Law will be used to clean up more than 100 Superfund sites. In its announcement, the EPA noted that it has been able to “provide as much funding for cleanup work in the past two years as it did in the previous five years.”  

Much of that funding has come from property owners, developers and tenants held liable for pollution. As the EPA states in its “Basic Information on Enforcement,” “Cleanup enforcement gets property cleaned up by: 

• “Finding the companies or persons responsible for the contamination; 
• “Negotiating with them to perform the cleanup themselves; or 
• “Ordering them to perform the cleanup; or 
• “Having them pay for the cleanup performed by another party or EPA.” 

Despite all this, market conditions remain stable for Environmental Liability Insurance —  an outlier in a mostly hard market for property and casualty coverage. As Alera Group’s 2024 Property and Casualty Market Outlook reports, now is an excellent time to secure this valuable coverage, especially if your organization owns property that is or may be contaminated.  

Case studies 

As America ages, an increasing number of environmental risks are being unearthed in the ground. In the article “Environmental liability and your real estate portfolio,” senior AXA XL environmental underwriter Jenna Prettitore notes that environmental risks are common, adding, “there is no shortage of industries – from manufacturing to real estate holding companies” susceptible to environmental risks.  

As evidence, AXA XL cites: 

• A hotel liable for $1.1 million in remediation and business interruption expanses resulting from Legionella bacteria in its hotel water system; 
• A college forced to pay $2.85 million for carbon monoxide exposure to students in off-campus housing; 
• The owner of an industrial warehouse responsible for $2.1 million to remediate and dispose of pallets holding industrial waste abandoned by a defunct tenant; 
• The owner of a condominium building who was ordered to pay $500,000 to remediate solvent-contaminated soils and groundwater discovered during upgrade of an elevator shaft. 

Presenting contaminated property to underwriters 

For the best possible outcome with Environmental Insurance underwriters, equip yourself with these fundamental elements of the application and renewal processes:  

1. A qualified team including an environmental insurance broker and an environmental consultant; 
2. Comprehensive site assessments; 
3. Detailed remediation plans for transforming contaminated land into usable and productive space; 
4. Documentation of remediation funding from government or private sources. 

Underwriting preparation is key for managing expectations and cultivating a favorable reception in the marketplace. Offering a compelling narrative, along with a clear depiction of risks to underwriters, can positively influence rates and coverage terms.  

Partnering with an experienced environmental insurance broker  

Partnering with an experienced environmental insurance broker is essential for organizations seeking broad and comprehensive coverage.  

A proficient broker will have a history of successfully presenting contaminated properties to underwriters by crafting a compelling narrative that discloses any contaminated properties while also making the account appealing to underwriters.  

Working with a broker who has established relationships and access to leading environmental insurance carriers is crucial.  

Reviewing policy terms  

The adage “The best defense is a good offense” is especially true when selecting the broadest available Environmental Liability policy. Reviewing your organization’s Environmental Liability policy during each renewal proposal is a critical risk management step to understanding coverage terms before a potential claim arises.  

Environmental risks are dynamic, and policy language evolves accordingly. For example, consider the policy language shift to exclude some of the most common sources of environmental contamination: per- and polyfluoroalkyl substances, or PFAS.  

A skilled broker will scrutinize policy terms with your organization at each renewal to mitigate potential coverage limitations or exclusions. Modified terms and conditions often restrict coverage rather than expand it, underscoring the significance of proactive policy evaluation.  

Engaging a qualified environmental consultant is pivotal in developing a robust risk management strategy. Environmental consultants conduct site surveys, recommend preventative measures and ensure compliance with local, state and federal regulations. From recommending UST relocation to conducting environmental testing, environmental consultants play a vital role in minimizing environmental risks and optimizing risk management practices.  

What’s ahead for Environmental Liability Insurance   

As the prevalence of environmental risks persists, Environmental Liability Insurance is a vital tool for transferring risk to insurers. For any organization, an enterprise-wide risk management assessment should also incorporate an environmental exposure review, particularly if the organization owns the land on which it operates.  

For a broader look at navigating insurance market conditions, download the 2024 Property and Casualty Market Outlook. The report provides valuable information on factors driving the current P&C market, with analysis categorized by industry and lines of coverage.  

And for the best available guidance on protecting yourself from environmental exposures, work with an Alera Group expert on Environmental Liability Insurance. 

CONTACT AN ALERA GROUP SPECIALIST   

About the author  

Gene Nosovitch  
Commercial Insurance Consultant  
HMK Insurance, an Alera Group Company  

Gene Nosovitch has more than 38 years of experience consulting with and providing insurance solutions for contractors and other businesses. Specializing in Environmental Liability Insurance, Gene advises clients nationwide, offering tailored solutions for their unique environmental exposures. His expertise in Environmental Liability Insurance has been nationally recognized by industry publications including Business Insurance and PropertyCasualty360. 

Contact information:   

• Gene.Nosovitch@aleragroup.com 
• Connect with Gene on LinkedIn