Q: What is environmental insurance?
A: Those who buy or sell property that is, or may be, contaminated risk having to pay for a cleanup to comply with environmental laws or to pay for damages caused by the contamination. A tool that can be used to deal with these potential liabilities is environmental insurance. Two of the most common types of environmental insurance are pollution legal liability (PLL) policies and cleanup cost cap policies.
Q: What do these policies cover?
A: PLL policies protect policy holders against third-party claims for property damage, personal injury and cleanup costs relating to the environmental contamination. Cost cap (or remediation management) policies can protect policy holders against cost overruns associated with a specific cleanup project for known contamination.
Q: Haven't policy holders and insurance companies fought over coverage issues relating to environmental insurance?
A: You may be thinking of the coverage disputes arising under “comprehensive general liability” policies issued before 1986. These disputes have been litigated in courts across the country because the insurance companies have claimed that such policies were never intended to cover claims relating to environmental contamination at third-party Superfund sites or the policy holder's currently or formerly owned properties.
The newer policies are designed specifically to cover certain specific environmental liabilities, so it is less likely that disputes will arise. However, policy holders should not assume there is no risk of future liability. A policy is a contract between the insurance company and the insured. The policies are lengthy and complex. Disputes are possible over the meaning of provisions and the intent of the parties. It is important to seek advice from an experienced attorney concerning the risks associated with the policies and to negotiate policy terms that are tailored to your particular needs.
Q: Who should consider these policies?
A: The policies may be of interest to businesses of all types and sizes (and certain individuals) that are concerned about environmental liabilities. Purchasers of old industrial properties (called brownfields) often purchase PLL and cost cap policies to protect against the uncertain and sometimes substantial liability risks. Also, policies may help minimize risks for small business owners (who may try to protect their children or partners as part of business succession plans), individuals who have owned gas stations or manufacturing companies, or very large businesses concerned about catastrophic liabilities.
Q: What must I do to get environmental insurance?
A: First, you would complete an application and provide the insurance company with information (such as the site history, hazardous substance usage, etc.). This information allows the insurance company to evaluate the risks and establish a premium and other terms. For a PLL policy, insurance companies generally require, at a minimum, a Phase I assessment by a qualified consultant. For a cost cap (or remediation management) policy, you would need to provide a detailed cleanup plan for known contamination. If you do not accurately complete the application, the insurance company may cancel the policy or deny a claim.
Q: How much do the policies cost?
A: Costs vary; they are usually expensive, but often not cost-prohibitive. The cost for a PLL policy depends on the market, the level of risk, the coverage and deductible amounts, and how long the policy is effective. The cost for a cost cap policy depends on how likely it is that that the cost of cleanup will be higher than predicted (based on newly discovered problems or other factors). Due to market conditions, it is very difficult to obtain cost cap policies at this time.
This "Law You Can Use" consumer legal information column provided by the Ohio State Bar Association. It was prepared by attorney Andrew L. Kolesar, a partner at Thompson Hine LLP in Cincinnati, Ohio and the leader of the firm's Environmental Practice Group.