July 2011: Pollution Liability

By July 16, 2011 July 18th, 2011 Business Insurance, Business Monthly Email

Business owners are increasingly aware of environmental liabilities due to changes in legislation and regulation, as well as increased pressure to behave in a socially ethical and environmentally responsible way.

What steps have you taken to identify your exposures at your premise, at job sites, at waste sites?

If your premise has a tank, are you in compliance with the Resource Conservation and Recovery Act?

Have you identified the financial resources needed to cover cleanup costs and third party liabilities that could occur?

Are you aware of the role and control that the DEP has in the event of a pollution incident?

Hazardous Waste Status

Your hazardous waste generator status determines how much waste you may accumulate at your site at one time, and how quickly you need to ship it off-site for recycling or disposal. Any business that generates any hazardous waste or waste oil is required to register with the Massachusetts Department of Environmental Protection (DEP) as one of following:

Very Small Quantity Generator (VSQG)
Generates less than 220 lbs. (approx. 27 gallons) of hazardous waste or waste oil per month and no acutely hazardous waste; can accumulate up to 2,200 lbs. (about 270 gallons) for an indefinite period of time.

Small Quantity Generator (SQG)
Generates between 220 and 2,200 lbs. per month (27 to 270 gallons), and/or up to 1 kilogram (2.2 lbs.) of acutely hazardous waste per month; can accumulate up to 13,200 lbs. (1,500 to 1,620 gallons) for no more than 180 days.

Large Quantity Generator (LQG)
Generates more than 2,200 lbs. (approximately 270 gallons) and/or more than 1 kilogram (2.2 lbs.) of acutely hazardous waste per month; can accumulate any quantity on-site, but must ship it within 90 days.

You can find registration forms at the MassDEP website.

Storage Tanks

The Resource Conservation and Recovery Act of 1986 resulted in the development of financial responsibility regulations for owners and operators of underground storage tanks. These regulations require that the owner and/or operators prove that they have the financial ability to clean up a site if a release occurs, including correction of any environmental damage and compensation of third parties for injury. The amount of coverage required depends on the type and size of the business.

The proof can be in the form of: environmental impairment liability insurance, self-insurance, guarantees, surety bonds, letters of credit, a trust fund administered by a third party, or a state financial assurance fund.

The cost of meeting financial responsibility depends on the means used to comply. State funds and insurance are the most common options used to comply. Details of the Massachusetts fund can be reviewed at: http://www.mass.gov/dep/toxics/ust/

A Storage Tank Liability Insurance policy provides coverage for third-party bodily injury and property damage as well as corrective action and cleanup as required by federal and state regulations from pollution conditions emanating from scheduled storage tanks. This policy is usually a “Claims Made” form providing coverage only for those claims filed during the policy period and occurring after the policy retroactive date. They typically have a limit per incident as well as a policy aggregate (the most the carrier will pay in any 12 month policy term). Finally a deductible is applicable and can range from as little as $1,000 up to $50,000+.

Premise Pollution

Premise owners or operators can be subject to environmental accidents and releases ranging in various degrees of pollution conditions requiring immediate response and action. These pollution events can be extremely costly, potentially shut down the premises, and result in financial loss due to cleanup costs and/or third party liabilities.

This exposure is excluded on the majority of general liability policies requiring a separate Environmental Pollution Liability insurance policy for protection. An Environmental Pollution Liability policy provides coverage for third party bodily injury and property damage resulting from pollution conditions on, under, or emanating from a covered location. The policy may also provide coverage for resulting cleanup costs.

For example…

  • Oil used to heat a commercial dwelling leaked into a nearby stream. The cause was corrosion of an underground pipe, arising from water from a collapsed field drain that had not been checked for seven years.
  • A massive fire at a local warehouse containing toxic substances led to a serious pollution incident after contaminated firewater entered the groundwater.
  • A maintenance department spilled chemicals used for cleaning and contaminated nearby wetlands.

Contractors Pollution

Many contractors have a potential pollution exposure arising from operations at their job sites–accidental release of fuel oil and chemicals; toxic gases resulting from broken pipelines, utilities, stationary or mobile tanks–some of which can result in contamination of soil.

Most standard general liability polices contain a pollution exclusion resulting in denied claims leaving you to face an uninsured loss. Contractors Pollution Liability insurance helps fill the void of a general liability policy by protecting against the following:

  • Third-party claims for bodily injury and/or property damage
  • Remediation costs including restoration costs
  • Cleanup costs

The following are some optional coverage considerations typically provided via endorsement:

Mold: Depending on your overall mold exposure, you may be required to complete appropriate training and develop a water intrusion or mold prevention program in order to secure this coverage. It may also be subject to sub-limit rather than having access to your full policy limits for mold claims.

Non-owned Disposal Sites: Since generators of waste may be liable for the cleanup of a nonowned disposal site, these sites that accept waste from generators can be added.

Naturally Occurring Hazardous Substances (NOHS): Contractors have been involved in situations resulting in lawsuits where they disturbed a mineral containing NOHS. Silica exists on almost every construction project.

Welding Fumes Manganism: A Parkinson’s-like disease that reportedly results from the inhalation of toxic levels of manganese(Mn) during arc welding and causes irreversible damage to the central nervous system.

Contractors of all sizes and trades can cause a pollution condition while performing their work as shown by the following:

  • A paving contractor sprayed an oil-based binding layer on crushed aggregate, planning to complete the asphalt roadway the following day. A heavy overnight rain causes the binding layer to run off into the groundwater supply, contaminating residential wells of the surrounding properties.
  • A general contractor who was building a “box store” hired a subcontractor to excavate and remove fill material from the job site. The subcontractor subsequently used the material as fill at three other project sites. The material they removed was soil containing remnants of an asbestos-containing mineral called Actinolite. They exposed third parties to asbestos, and they also exposed their own work force.

How we can help you…

The specific coverage and terms of a Pollution policy can vary from carrier to carrier so it is particularly important to understand if third party liability is included; if defense costs are within or outside the limits; if the deductible applies to defense costs; how the carrier defines an incident, claim, corrective action, etc. Price can vary substantially between carriers but it very well may be due to the coverage differences of their forms.

It is important to have the appropriate coverage because at the time of a loss, the Massachusetts Department of Environmental Protection will mandate the cleanup and restoration of the polluted site, at your expense.

Toole Insurance can help you understand what exposures you have, and the coverages available. riskmanagement@tooleinsurance.com

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