Too many companies face significant financial exposure by not having the right insurance in place when there is an environmental claim. General liability insurance policies and property policies exclude most fact patterns involving alleged or actual environmental or pollution damages. The decision to leave a gap in insurance and self-insure environmental exposures should be a thoughtful one, particularly when there are more emerging cancer-causing chemicals being studied and regulated, and a greater variety of detection equipment are being utilized.
My 2019 Environmental Claims Journal Editor’s Note addressed emerging contaminants 1,4 Dioxane, and Perfluoroalkyl substances (PFA’s) now the topic of a current movie Dark Waters, resulting in much more expensive remedial investigations and cleanups. The New York State Department of Environmental Conservation (NYSDEC) announced in 2019 they are requiring testing for this new class of chemicals for projects under NYSDEC’s supervision. In the past two years, New York State has set aside over $500 million to upgrade water treatment systems to include an Advanced Oxidation Process because these contaminants are, unfortunately, already in our drinking water. On December 9, 2019, Governor Cuomo approved legislation eliminating the sale of products containing 1,4-dioxane in New York State.
Prior studies by the USEPA estimated more than 25,000 prior dry cleaners had used perc/PCE which contaminated the dry cleaner’s site and neighboring properties. One tablespoon of PCE is enough to contaminate two Olympic-sized swimming pools. Pending toxic tort litigation often involves vapor intrusion from solvents such as PCE to the neighboring residences, schools and other buildings which are located above the soil and groundwater plumes. The spillage of solvents was common from storage leaks, transfers, equipment failures, septic systems and sewers, and improper waste disposal in backyards and dumpsters. While PCE testing and remediation is ongoing, numerous other contaminants are regularly detected in the process creating liability disputes among property owners.
For many large and small clients’ environmental liabilities have caused severe financial losses and some public relations disasters. In the past couple of years, we continue to experience claims frequency for asbestos exposures, fuel spills, mold contamination claims, lead ingestion and lead dust, carbon monoxide, legionella, sick building indoor air quality, vapor intrusion, chemical releases, silica and dust, PCBs, leaking sewer lines, midnight dumping of hazardous materials, and often offsite disposal based on waste manifests. In addition, a concern exists by many insureds, more than ever, regarding the intentional release of a bioterrorism agent, which can be a virus or bacteria, as there are more than 45 bioterrorism agents identified by the U.S. Center for Disease Control. The environmental insurance marketplace has evolved to cover the gap and provide specialized environmental policy forms for different sectors including health care, hospitality, universities and entertainment venues, oil and gas, contractors, mixed real estate portfolios, and even for manufacturing and distribution businesses.
For manufacturers and distributors, if they qualify, aggressive premium rates are used to cover environmental liabilities as part of their general liability insurance program. The “combined policy” written by more than a dozen insurance carriers combines the following exposures in one comprehensive policy form: general liability, onsite indoor and outdoor property pollution liability, products liability, products pollution liability, contractor’s pollution liability, and business interruption. These combined form policies offer greatly enhanced coverage without the typical pollution exclusions and broaden standard policy definitions to include medical monitoring claims and allegations of fear of illness and emotional distress. Combined forms not only expand coverage it often reduces insurance costs while being non-auditable, which means insurance carriers will not collect additional premium if the company’s revenue grows in a given year. Combined form policies provide legal defense and expenses for any claim; and cover the offsite disposal of waste generated from a property, business interruption from environmental issues, and bioterrorism from any intentional release of a chemical, biological and nuclear agent. Moreover, these programs provide emergency response for the mobilization of environmental professionals with 24/7 incident reporting via phone, web, and mobile device; and the coordination of claims services such as environmental engineers, consultants, contractors, attorneys, public relations firms, and specialized claims handling professionals.
For companies who do not qualify for combined form policies, standalone pollution legal liability (PLL) should be purchased and tailored to their exposure sector in order to cover the gap in coverage because of the total pollution exclusion and many specific contaminant exclusions. These PLL policies, written by more than three dozen insurers, cover liabilities associated with mold, legionella, lead and asbestos as well as hundreds of contaminants and chemicals which have been deemed excluded due to pollution exclusions. PLL covers the remediation of contamination from historic and new contamination present at the insured’s property, and cleanup costs for contaminants which migrates to or from an insureds’ property. PLL provides defense costs, expenses and indemnity costs for bodily injury and medical monitoring claims, and for claims involving the diminution in value of neighboring properties due to releases from the insured’s property. Certain insurers will even provide coverage for the insured’s own diminution in value attributable to an environmental claim. Insurers provide coverage for the restoration of the property, which often includes betterments entailing materials which are environmentally preferable. Business interruption covers associated losses which have included rental income, relocation, mitigation, net profits and payroll. For an insured with a low-exposure commercial property, the premium cost for $1 million in coverage can be less than $2,000 annually, and for real estate portfolios the cost has been as little as $300 per property. As such, most commercial real estate accounts maintain some level of PLL insurance as part of their insurance program.
General liability and property underwriters do not wish to provide coverage for any alleged contamination event, and commonly accomplish that by attaching the Total Pollution Exclusion (CG 21 49) or its equivalent to the policy designed to essentially exclude every pollution event. In one of my prior published articles, “Defining Pollutant”: What You Don’t Know Can Hurt You,” Environmental Claims Journal 21 (2009): 156, we reviewed many types of losses not covered by general liability policies and coverage denials were upheld when litigated. For a couple dozen more random additional examples (from hundreds of thousands of denied claims) below are reported cases for large losses where companies erroneously relied on general liability policies rather than purchase PLL:
Tar escaping from roof due to rain and washing into city’s sewer system and Lake Erie will not be covered for personal injuries and cleanup costs. 1
Claims for offensive odors from leaking sewer lines leading to an inverse condemnation of property will not be covered.2
Property damage and personal injury claims from toxic vapors during installation of polyurethane foam for insulation is barred by the pollution exclusion. 3
Pollution exclusion applied after large fire where cleanup costs incurred for mercury contamination even though “all risk” policy allowed coverage for soot and smoke.4
No coverage for building product claims and Chinese drywall giving off harmful gas emissions and causing significant property damage and corrosion damage to copper wiring. 5
Spraying of pesticide chlorphrifos causing a variety of ailments and illnesses as an “irritant” is excluded by the pollution exclusion.6
Insured’s infant formula was unsaleable due to the presence of melamine and disintegrated filter components with no available insurance as “contaminants” are excluded. 7
Listeria bacteria outbreak at insured’s food processing facility not covered as “contaminant” includes “inorganic material.”8
Serious injuries from oil-based paint fumes circulating through air conditioning system throughout building are excluded due to pollution exclusion.9
Widespread dissemination of silica dust as a by-product of sandblasting operation is excluded for personal injuries and cleanup costs.10
Placing dirt and rocks in a creek bed were deemed “irritants” and excluded from general liability.11
Disposal of methylene chloride into the public sewer is a form of environmental degradation and all resulting damages were not covered.12
Not entitled to reimbursement of damages, remediation, testing, ongoing monitoring and lost profits from the alleged discharge of toxic chemicals which contaminated the Coosa River in Alabama because the “pollution exclusion” barred coverage.13
No coverage for a wrongful death case involving two carbon monoxide poisoning deaths resulting from a car in the condominiums garage which traveled through HVAC because court found that carbon monoxide from vehicles is excluded, and no “heating or cooling” exception applies to allow coverage.14
All stormwater and stormwater runoff from a property qualify as “pollutants,” and a fertilizer application endorsement does not supersede a “pollution exclusion.”15
Liquid fertilizer runoff causing “noxious odors” plainly falls within the definition of “pollutants” and all claims by neighboring property owners are not covered.16
Black liquid soap, byproduct of article manufacturing, is a “pollutant” leaving no coverage for more than $2.6 million in remediation costs.17
Underlying plaintiffs’ damages from elevated blood levels and brain damage from lead-based paint in residential dwellings are barred by pollution exclusion even in the absence of a lead-based paint exclusion.18
Lead particulate is unequivocally excluded as an “irritant” and no coverage available where several plaintiffs claimed injuries from toxic pollution released from a property.19
A hole in the home heating oil tank caused 50-75 gallons to spill into basement and then led to a massive migrating soil cleanup of the oil, ethyl benzene, isopropyl benzene, naphthalene and toluene, with no available coverage as “oil” and other chemicals are “pollutants.”20
The “accidental fire” exception does not override the pollution exclusion when seeking defense and indemnification for multiple tenants’ carbon monoxide poisoning injuries from a furnace leak.21
Innocuous rocks became “irritants” and caused significant uncovered physical damages when accidentally discharged into a stream “changing the flow and contours of the stream.”22
Coverage denied where negligent construction caused leaking water, mold and trichothecene (‘pollutants”) in the residence rendering it uninhabitable and caused health problems.23
For legionella claims, commercial policies may further contain additional exclusions for bacteria or communicable diseases which might independently exclude coverage from the “pollution exclusion.”24
The Washington Supreme Court, like many states, ruled that carbon monoxide discharged from a hot water heater was acting as a “pollutant” and within the absolute pollution exclusion of the home builder’s liability insurance policy.25
The above pollution exposures and court decisions highlight the importance of making smart risk management decisions for transferring environmental losses. Environmental claims are regularly in the millions of dollars. These claims include money for defense, indemnity on settlements and judgments, investigation and remediation, natural resource damages, business interruption, loss of business and public relations, and medical monitoring costs. PLL Pollution Policies can broadly cover these exposures while all non-environmental intend to broadly disclaim coverage for environmental claims.
Editor-in-Chief, Environmental Claims Journal, SterlingRisk, 135
Crossways Park Drive, Woodbury, NY
[email protected]
Additional information
Notes on contributors
Howard M. Tollin
Howard Tollin is President of Sterling Environmental and Professional Services, and Executive Vice President of SterlingRisk. He consults with clients, and lawyers for clients, on unique risk management solutions to address manufacturing and distribution, real estate, gas station and other business concerns, which include environmental and professional exposures. He also coordinates risk management and insurance for architects, engineers, environmental consultants, construction companies, project owners and developers, which includes contract reviews. Mr. Tollin is an attorney, environmental risk consultant, and licensed property and casualty broker. Over the past 30 years, he has facilitated hundreds of property and corporate transactions in which the sale had died or remained on hold because of environmental concerns. He is the current Chair of the New York State Bar Association Environmental & Energy Law Section.
Notes
1 Mesa Underwriters Spec. Ins. Co. v. Myers, 2016 US Dist. LEXIS 108444 (W.D. Ohio Aug.16,2016).
2 South Carolina Ins. Res. Fund v. E. Richland County Public Service District, 2016 SC App LEXIS 32 (SC Ct. App. March 23, 2016).
3 Evanston Ins. Co. v. Lapolla Industries, Inc., 2015 U.S. App. LEXIS 22552 (5th Cir. Dec. 23, 2015)
4 Gerdes v. American Family Mut. Ins. Co., 713 F. Supp.2d (D. Kansas 2010)
5 Hutchings v. American Home Assur. Co., 2012 WL 13005549 (S.D. Fla. Feb. 27, 2012) and Travco Ins. Co. v. Ward, 736 S.E.2d 321 (Va. 2012)
6 Whitney v. Vermont Ins. Co., 135 A.3d 272 (Vt. 2015)
7 PBM Nutritionals LLC v. Lexington Ins. Co., 82 Vir. Cir. 94 (Va. 2011)
8 Landshire Fast Foods of Milwaukee, Inc. v. Employers Mut. Cas Co.,676 N.W.2d 528 (Wis. Ct. App. 2004)
9 AIX Specialty Ins. Co. v. William-Panton, 2019 WL 1107420, (S.D. Fla. March 4, 2019)
10 Garamendi v. Golden Eagle Ins. Co., 127 Cal. App.4th 480 (2005)
11 Ortega Rock Quarry v. Golden Eagle Ins. Co., 141 Cal. App.4th 969 (2006)
12 Company of Reading, PA v. Miller, 159 Cal. Sapp.4th 501 (2008)
13 Grange Mutual Casualty Co. v. Indian Summer Carpet Mills, Inc., No. 17-cv-1263, 2018 WL 3536625 (N.D. Ala. July 23,2018)
14 Colony Ins. Co. v. Great American Alliance Ins. Co., 317 F. Supp.3d 1181 (S.D. Fla. 2018)
15 Centro Development Corp. v. Central Mut. Ins Co.,720 F. App’x 1004 (11th Cir. 2018)
16 Recys Systems Southeast LLC v. Farmland Mut. Ins. Co., No. 17-cv-225, 2018 WL 2247247 (M.D. Ga. May 16, 2018)
17 Meridian Chemicals LLC v. Torque Logistics LLC., No. 18-cv-2, 2018 WL 4656396 (M.D. La. Sept. 27, 2018)
18 Brownlee v. Liberty Mut. Fire Ins. Co., 456 Md. 579 (Md. 2017)
19 Doe Run Resources Corp. v. American Guarantee & Liability Ins. Co., 531 S.W.3d 508 (Mo. 2017)
20 Barg v. Encompass Home & Auto Ins. Co., No. 16-cv-6049, 2018 WL 487830 (E.D. Pa. Jan. 19, 2018)
21 Foremost Ins. Co. v. Nosam LLC, No. 17-cv-2843, 2018 WL 5801312 (E.D. Pa. Nov. 11, 2018)
22 Great American Ins. Co., v. Ace American Ins. Co., 325 F. Supp.3d (N.D. Tex.2018)
23 Foley v. Wisconsin Mut. Ins. Co., 381 Wis.2d 471 (Wis. Ct. App. 2018)
24 See e.g., Paternostro v. Choice Hotel Int'l Servs. Corp., 2014 U.S. Dist. LEXIS 161157 (E.D. La. Nov. 14, 2014).
25 Xia v. ProBuilders Specialty Insurance Company RRG, No. 92436-8, 2017 Wash. LEXIS 443, 2017 WL 1532219 (April 27, 2017),