Source: http://www.mynewmarkets.com, April 13, 2011
By: Alan M. Parizo
Pollution coverage a necessary option for agribusiness? If that sounds like a contradiction in terms to the agribusiness agent, consider that the exposures his customers face in growing and servicing the food chain from farm to table involves a pollution exposure in every step of the process. What was once an exotic optional coverage should now be a standard recommendation. In this article, we’ll take a look at some important features to look for in agricultural pollution risk transfer.
First, it’s important to understand that standard commercial insurance policies deal with a pollution claim in a very limited fashion, if at all. Liability policies pay for only a third party injury under exceptional circumstances involving either a “hostile fire” or malfunctioning building service equipment. Property policies pay a limited amount, usually an aggregate of $10,000, if a cleanup is required following a covered loss to covered property. Farm liability my extend a small amount of property damage ($25,000 aggregate) for chemical drift from farm operations and may extend the “hostile fire” exception to include smoke from “crop burning”. None of these exceptions cover the big money, the consequences of an onsite clean up for the insured or the expense of remediating a third party’s property.
If the customer is transporting pollutants (and what agribusiness doesn’t?) then any cleanup response in a standard business auto policy is limited to the operational fluids of the covered vehicle. An endorsement that should be a standard request for any Ag account can extend this to include the cargo. Even then this is triggered only when there is a covered accident by a covered vehicle that causes BI or PD.
Where coverage ends, opportunity begins. It’s clear that Ag operations need an offer to close the gaps in standard coverage and address the operational and catastrophic risks of a pollution event. Since there is no such thing as “standard” pollution coverage, the difference maker will be the Ag agent’s knowledge and relationships.
First the knowledge. Understanding the client’s needs is the first step. For example, a Concentrated Animal Feeding Organization (CAFO) has more intense on and off site exposure than a bare root nursery, yet both have unique pollution and remediation liability exposures that need help.
Second, the relationships. Partnering with an insurance company that has dedicated resources in this specialized market can help the agent bring expertise to the table. With this in mind, what follows is a primer of what to consider for the Ag pollution risk:
This will be a claims made and reported policy. Pay attention to how a “pollution event” is defined and when it is covered by the policy. It will tend to be site specific so be sure transportation off site is accounted for in the schedule of limits. Understand the basic extended reporting period (tail) and get options that can be exercised by either the insured or the insurance company to extend this at a fixed rate in the contract in the event of non renewal.
Pollution legal liability pays for a third party BI or PD claim. Remediation pays for the responsibility for clean up whether or not there is BI or PD. Be sure the insuring agreement covers both pollution and remediation legal liability.
Negotiate for services: A good pollution underwriter can also offer value-added services to help the client manage their Material Data Safety Sheet compilation and reporting, employee training for haz-mat handling and storage, emergency spill response on site or in transit. All of these operations are endemic with any Ag operation.
Ask for claim examples and determine how they not only pay for, but help manage the consequences of a claim. This will always be a high profile event and claims management helps protect the client’s reputation.
Pollution and remediation liability combines both risk management and risk transfer and provides the agribusiness agent with the opportunity to help his client protect the enterprise from the consequences of a pollution event. Since this exposure is pervasive in Ag, ignoring it is not an option.