Source: http://www.ibamag.com, March 14, 2014
Editor’s note: In the fifth and final installment of this week’s In Focus series on environmental insurance, David Brereton, EIL Program Manager at Denver-based Freberg Environmental Insurance, provided the following case studies displaying the variety of businesses that are now seeing the need for environmental coverage.
Underwriters are often asked what’s “hot” in environmental insurance. Presently what’s hot is the ever-widening range of applicants seeking coverage that never saw the need for it five or 10 years ago. This change is not the result of a sudden heat wave; rather a gradual warming trend brought on by agents and brokers dedicating themselves to educating clients and the remarkable affordability of these insurance products.
Early on, demand for environmental insurance was largely contract-driven. Contractors performing work at client jobsites obtained Contractor’s Pollution Liability (CPL) if the contract required it. Tenants leasing commercial space obtained Environmental Impairment Liability (EIL) if required in the lease. Similarly, buyers of commercial real estate sought EIL coverage if it was a condition of the loan or sale.
No doubt, contract-driven pollution insurance will always be a big part of the market. The greatest growth right now, however, comes from those who elect to obtain coverage simply as part of their overall risk management strategies. These applicants (and their agents and brokers) recognize their operations’ potential to pollute and their potential to be drawn into pollution-related claims.
These new applicants represent not just an enlargement of the market, but a vastly broader spectrum of operational exposures than ever before. It’s no longer just about environmental contractors, bulk petroleum plants, hazardous waste processers and landfills. Underwriters’ new business in-boxes are filling with submissions from alternative energy contractors, strip malls, schools, food/beverage production, habitational, leisure and transportation, just to name a few.
Here are a few examples of the variety that we see:
Rooftop Solar Installer
A West Coast solar panel installer obtained CPL insurance. Installation of rooftop residential and commercial photovoltaic systems requires numerous penetrations into the roof and other building structures. Such work has the potential to disturb in-place asbestos or lead-based paint, or to allow water intrusion, which can lead to mold growth. The installer now considers its CPL insurance to be a selling point along with its warranty and other insurance coverages.
Winery
A wine production/bottling company obtained EIL insurance in part to be viewed as a “greener” wine producer. While wine is not a hazardous waste, spills of enough product in the wrong place can have costly consequences. In the case of this winery, EIL was a wise choice. During the policy term, a truck transporting product collided with piping to an aboveground tank, causing wine to spill into a nearby storm sewer and into a creek. The insured’s EIL insurance covered emergency response costs to contain and clean up the spill and pay for natural resource damage.
Condominium Association
A ski resort condo owners association included a wastewater collection and treatment system as part of its common elements. The insured recognized that a blockage or an unexpected failure of a sewage lift pump could result in a backup into occupied ground-floor units. The multi-year policy is in place to cover clean-up costs and property damage.
Charter Bus Company
A charter bus company sought coverage of several locations throughout the mid-Atlantic used for bus maintenance and fueling. While storage tank insurance was a no-brainer, this insured opted for broader EIL coverage after one of its drivers became otherwise occupied while fueling his bus. He realized his oversight in time to see diesel fuel flowing into a nearby storm drain.
Golf Course/Country Club
All across the country, EIL is becoming standard fare for golf courses, especially those located in country club communities where residences line the fairways. Storage tanks and onsite maintenance operations are only part of the story. The potential for claims arising from runoff or airborne drift of herbicides, pesticides, or fertilizers usually drives coverage.
Equipment Sales/Rental
A 3^rd generation family-owned dealer in the Midwest specializing in sales, rental and servicing of farm implements and heavy equipment recently bound pollution coverage for its three dealership locations and for its pollution exposure servicing equipment at customer sites. An EIL/CPL package with transportation pollution was put together to address their multiple exposures.
This is just a glimpse of the wide spectrum of risks that come across underwriters’ desks each week. With more and more environmental insurance coverage being sought because applicants understand and want it—not because they have to have it—and with broad, tangible coverage becoming more affordable than ever, the diversity of risks and market growth likely will only get hotter.