Insuring Against a World of Environmental Risks

Environmental risks and liabilities resulting from the release of pollutants are often overlooked by risk managers and commercial insurance buyers. In addition to operational and transactional risks, natural catastrophes and other environmental and climate-related events are creating a higher level of awareness to environmental threats among businesses, citizen action groups and regulators. As a result, securing specialized insurance coverage for environmental liabilities is becoming a clearer necessity. To provide insight into the environmental insurance market, Brad Kuchinic, Head of Environmental at The Hartford, discusses the ways these policies can help organizations address pollution-related risks.

 

Established risk management decision-making processes apply to environmental exposures. The process breaks down into three steps, which must be repeated and reviewed on a regular basis: examining and analyzing loss exposures, examining alternative techniques for dealing with the exposures, and selecting and implementing the selected techniques. In addition to best practices and loss prevention measures used to reduce loss exposures, the purchase of commercial insurance to transfer environmental risks should be a high priority. Environmental professionals, including specialist brokers and environmental consultants, are invaluable in assisting organizations to identify overlooked exposures, and to evaluate options for addressing these exposures. At The Hartford, we work with insurance intermediaries to tailor insurance solutions to fit our insureds’ needs, whether with standalone pollution coverage or part of a package policy that offers pollution liability along with traditional general liability coverage in a combined form.

 

Pollution liability insurance is designed to provide coverage for third-party claims for bodily injury, property damage or clean-up costs resulting from a pollution incident.

 

Coverage may also extend to include first-party cleanup of pollution incidents on the insured’s own property, as required by environmental law. Policies can also provide for emergency clean-up costs in critical situations to minimize or curtail remedial or protective actions. It is critically important to recognize that the definition of “pollutant” is exceedingly broad and includes substances not typically considered to be hazardous.

 

Consider the example of a release of milk into a storm drain or river from a tanker truck accident. The release of milk is a pollution incident that may require cleanup or trigger a third-party claim. In a survey of over 300 commercial insurance buyers conducted by The Hartford, seven in 10 acknowledge at least one environmental exposure of concern, but only 52% have discussed standalone pollution coverage with their broker—and only 29% report purchasing coverage to address their exposures.

 

On top of that, more than half of the buyers interviewed mistakenly believe pollution liability coverage is included in their general liability policy. This often leads to the unintentional assumption of risks of pollution loss by commercial insurance buyers, and the associated and unrecognized risk to the organization’s financial health. Clearly, we in the industry can do a better job of bringing awareness to the proper treatment of pollution liability exposures.

 

Generally speaking, risk managers for real estate owners/managers, manufacturing concerns or contractors are not utilizing environmental insurance as effectively as they should. Even though 75% of our survey respondents said that environmental liability is part of their company’s overall risk management strategy, many assume they have sufficient coverage in other insurance products without fully understanding the coverage limitations therein. In the heavily litigious environment that U.S. companies find themselves, one of the most underrated benefits that environmental insurance products provide is access to legal defense protection for covered losses and while coverage is being determined. This allows for access to legal experts across the country that specialize in environmental matters. Certain environmental insurance products also provide access to resources the insured may retain directly for expert and cost-effective emergency clean-up activities prior to a coverage determination.

 

In addition, crisis management coverage is available that provides immediate access to media and public relation experts. The highly experienced environmental claims team at The Hartford is exceptionally well prepared to assist our insureds at the time of loss and in overseeing litigation and/or post-incident cleanup.

 

The Hartford’s environmental team consists of highly trained specialists with environmental engineering and consulting experience. They are able to craft standalone coverage for site pollution liability, contractor’s pollution liability, as well as policies which combine environmental insurance coverage with key non-environmental coverages, specifically for manufacturers, distributors, and other select industries.

 

We also have experienced underwriting staff with extensive field authority and can provide unsurpassed claims service and litigation management services. More than just providing coverage, however, The Hartford is a partner in navigating through the ever-changing environmental risk and regulatory landscape. The Hartford’s deep industry specialization allows us to design coverage and risk management solutions to meet an organization’s unique protection needs.

 

For more information on environmental risk insurance solutions, visit thehartford.com/env.