The recent chemical plant emergencies in the United States have brought new attention to pollution liability products and questions among insureds and brokers on coverage options for chemical exposure risks.
The accidents involved
The events in Washington and California have brought new attention to pollution liability products for the country's millions of chemical tanks. Since the news broke, insureds and brokers alike have asked about coverage options for chemical exposure risks. Here's what we've been telling them.
A thoughtful pollution liability strategy is clearer than ever
Because many eligible companies are not buying standalone pollution coverage today, there's a coverage gap that extends even into industries with specific exposures, like construction.
But solutions exist in the environmental insurance industry. While the recent emergencies on the West coast are unlikely to drastically shift the environmental insurance market, they do present an opportunity for renewed dialogue with insureds about their coverage needs and their risk tolerance.
Now is also an opportune time for the industry to further educate clients on their risk mitigation options. Much of the environmental insurance industry is composed of former environmental consultants — people who have dealt with these kinds of incidents, understand their human and environmental impacts, and can provide meaningful guidance on selecting coverage and risk management best practices. We welcome these conversations.
The three approaches to pollution coverage
The first option available to an organization is to forgo pollution coverage entirely, a path that is all too common among businesses with exposures. Many insureds assume that general liability alone is enough, but most GL policies contain full pollution exclusions. Insureds may not realize that this gap in their coverage exists until it's too late, and as a result, may not consider standalone pollution coverage until something goes wrong.
The second option is a blended general liability and pollution policy coverage. This provides better protection than forgoing pollution coverage entirely, but it is not without challenges. Coverage for both GL and pollution exposures will draw from the same aggregate limit, meaning that a large pollution claim (like one stemming from a chemical tank incident) can drain the entire tower. Further, pollution coverage on a blended form may be limited to Sudden & Accidental coverage, or the policy may lack other enhancements or coverage extensions.
This can be avoided with the third option: a standalone pollution policy that provides dedicated coverage in addition to a separate GL policy. Insureds that choose this option benefit from dedicated limits, broader coverage and the most robust protection in the case of a pollution claim.
Risk tolerance is central coverage discussions
While a standalone pollution tower provides the most comprehensive coverage, it obviously comes at a price, and insureds need to think about which option fits their needs best.
Brokers play a key role in advising and educating clients to help them make informed decisions, and the relationships between brokers and insureds should not be understated.
Each organization must decide for themselves how much pollution exposure risk they're willing to take and accordingly, which level of coverage is best for them. Incidents like May's chemical plants emergencies open the door to important conversations about their options. As an industry, we welcome the opportunity to engage, educate and hopefully get a little closer to closing the coverage gap.
