Pollution Liability Insurance

 A Comprehensive Guide

Pollution liability insurance is a type of commercial insurance that provides coverage for costs and damage claims associated with pollution caused by a business. Pollution liability policy includes coverage for costs resulting from pollution clean-up. In addition, it also provides coverage for liability claims for injuries, illnesses, or deaths caused due to pollution.  

Corporations like manufacturing, construction or repair, produce massive volumes of waste during their day to day operations or manufacturing process. The wastes that they produce might be hazardous for the environment. At the same time, businesses are well aware of this fact and are taking steps to minimize the emission.   

However, companies are facing claims for the damages they cause through such emissions. As per a recent report by The Guardianlarge companies like Coke, Pepsi, Nestlé, Mondelēz International, Colgate-Palmolive, Procter & Gamble, and other large corporations are being sued by a California environmental group. The group Earth Island Institute is suing these companies for creating plastic pollution on land and ocean. As of today, the lawsuit seeks these companies to pay for the damages they have caused by plastic pollution.   

Many businesses believe that general liability insurance cover pollution exposures. However, according to the Insurance Information Institute, general liability policies provide very little coverage for damages resulting from pollution. Moreover, other policies like commercial umbrella insurance, or commercial property insurance, specifically exclude pollution-related exposures. This highlights the need for a specific standalone pollution liability insurance for a business. Having a separate policy will enable businesses to receive a wide range of tailored coverages.  

In this article

What does pollution insurance cover?

Pollution liability insurance coverage broadly includes two forms of coverages: first-party and third-party coverage.

  • First-party coverage: Premises pollution liability included in pollution liability coverage provides coverage for the claims associated with a pollution condition on the property. The property can be a land or a building that the insured owns, rents, or occupies. The insureds receive coverage for clean-up costs if the property they own is in a poor pollution condition due to the actions of a previous owner or any other external sources. In other words, coverage is applicable if the property has contaminations or poor pollution conditions.
    For example, a company buys a new building to conduct business operations. However, the building was found in highly polluted condition with hazardous wastes lying inside the building’s premises. The business will now have to clean the entire building before they can shift there to begin their operations. In such a scenario, premises pollution liability will cover all the clean-up costs for the business.
  • Third-party coverage: Third-party coverage is a type of coverage available for the parties other than the business itself for the losses they face. Pollution liability insurance provides coverage for any third-party claims brought against a company. These claims are related to damages or losses caused to a third-party due to the operations of a business. Here listed are the different types of pollution insurance coverage provided for third-party claims:
  1. Coverage for contamination of the environment due to a business operation:
    The use of chemicals in the operations releases hazardous materials. This can have harmful effects on people, such as injury, illness, or loss of life. This coverage provides aid for the costs of pollution and bodily harm or injury. This pollution or injury can be a result of accidents or oversights. On the other hand, contractors pollution liability insurance is specifically for contractors. It covers bodily injury, property damage, and remediation cost resulting from pollution caused by a contractor.
    For example, a flooring business gets a new residential project. While working on the flooring, the workers accidentally spill floor sealant. This releases huge amounts of toxic fumes in the house. It further caused respiratory problems for other people in the house. Contractors pollution liability insurance will cover the costs resulting from claims of illness or injury made by the third-party.
  2. Coverage for clean-up costs:
    Sudden or accidental release of hazardous materials from a business’s site might lead to contamination. The release can be oil spills or gasoline leaks into the environment. Thus, the law requires the business to clean such contaminations. Pollution insurance coverage compensates the costs arising from the clean-up of contaminants. It also helps companies to minimize the effects they face as a result of the accident.
    For example, a company installed a septic tank at a private residence. After a few days, the tank cracked and contaminated the soil with hazardous materials. In this scenario, pollution insurance will provide coverage for the costs resulting from the clean-up of the contaminated area.
  3. Coverage for lawsuits and legal fees:
    Environmental liability insurance provides coverage for legal fees, investigation costs, and court expenses. These claims arise from claims made by third-party for the damage caused by pollution from the business.
    For example, a firm was blamed for the release of pollutants on the land near their building. The business incurred legal costs in terms of hiring attorneys to defend themselves. In this case, environmental insurance will cover all the legal costs.
  4. Coverage for errors and omissions:
    Pollution liability insurance provides coverage for losses resulting from wrongful acts performed while providing professional services. It also covers the costs resulting from addressing the damages resulting from the error. Such type of coverage is essential for architects, engineers, and consultants.
    For example, an environmental consultant advised a client about the state of the property. He declared that the property is free from any sort of pollutants or contaminations. However, later the client found that the information provided by the consultant was wrong. Moreover, he decided to file a claim against the consultant. Pollution liability insurance will cover the loss that the consultant incurs from the claim.
Looking for the best pollution liability insurance for your business?
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Common exclusions and endorsements of pollution liability insurance

Here are the most common exclusions of pollution liability insurance policies:

  • Intentional acts: Pollution liability insurance does not cover damages caused by intentional acts. It also excludes damages from events such as war or terrorism.
  • Negligence or non-compliance: This policy does not provide coverage for claims or losses resulting from pollution due to negligence or non- compliance with regulations.
  • Failure to maintain insurance: In case the insured fails to procure sufficient limit as specified in the insurance policy, a pollution liability policy will not provide any coverage.
  • Employer’s liability: This policy does not provide coverage for claims related to an employer’s liability, such as an employee’s injury caused by an employer’s negligence. Workers compensation insurance provides coverage for such employer’s liability claims.
  • Product liability: This policy does not cover any liabilities arising from the product of a business such as an injury or harm. Product liability insurance provides coverage for such liabilities.
  • Fine and penalties: Pollution insurance policy does not cover loss or additional expenses resulting from fines, penalties, or internal expenses.
  • Vehicles: This policy does not cover pollution resulting from operations or maintenance of any vehicles.
  • Known conditions: Pollution insurance policy excludes coverage if the insured is already aware of the hazards or fatal condition while applying for the policy.
  • Cross-liability coverage: This policy does not provide cross-liability coverage. In other words, pollution insurance policy does not provide coverage in case a contractor sues another contractor for damages, and both of them have the same policy.

Here are the endorsements you can add to your pollution liability insurance:  

  • Asbestos: Insureds can add coverage for pollution resulting from lead and asbestos in their existing pollution insurance policy with the help of an endorsement.   
  • Transportation and disposal of hazardous waste: Coverage for pollution claims for disposing of hazardous materials is available as an endorsement.

Types of insurance that include pollution liability insurance

Here are the types of insurances that include pollution insurance policy:

Factors that determine the cost of pollution liability insurance

The cost of a pollution liability insurance policy differs widely from one business to another. Here are the factors that affect the premium costs for pollution insurance policy:

  • The type of business: The type of industry in which the insured’s business operates, helps determine the premium costs of pollution insurance policy. Factors such as the type of work the business performs, and the volume of business are highly influential for the cost of the policy. Moreover, factors like the operational risk factors associated with the business, and the duration in the industry also affect premium costs.
  • Use of chemicals and hazardous materials: The type and the amount of chemicals and hazardous materials a business uses in its daily operations also affects the cost of the policy. A business that makes use of high amounts of hazardous chemicals will have higher premiums than a business that uses less.
  • The disposal method of hazardous waste: The method through which a business disposes of hazardous waste also affects the cost of the policy’s premium.
  • The geographic location of the business: The geographical location is necessary for determining the cost of the policy. It gives details about the business’s proximity to residential neighborhoods. Thus, a business that is located close to the residential area will have high premium rates. It is because such businesses have higher chances of getting third party claims for the harm they might cause to the neighborhoods.
  • Construction of the business’s building: The construction of the building also affects policy premium rates. A business is likely to have lower premium rates if the construction of a building is environmentally friendly and safe. Environment-friendly buildings helps mitigate first-party claims for the business.
  • Occupancy history of the property: The history of the property’s occupancy also has an impact on pollution insurance policy rates. If the past owner of the property did not maintain the pollution condition on the property, then the premium rates will be high. It is because the insurer will have to cover all the clean-up costs of the property.
  • Claims history: There are multiple factors in regards to claims history that affect the pricing of a pollution insurance policy. These factors include loss history, nature of loss, details of the past claims, and exposure to loss factors. The premium of the policy increases if the business has made multiple claims in the past.

FAQs about pollution liability insurance

What does the term pollution mean under pollution liability insurance?
Pollution refers to discharge, release, dispersal, or escape of any solid, liquid, or gaseous substance or material which might contaminate the atmosphere, waterbody, or any area. Some examples of pollutants are smokes, fumes, acids, chemicals, or hazardous wastes.
Why do businesses need pollution liability insurance?

Businesses need pollution liability insurance because most of the commercial insurance policies have specific pollution exclusions in the policy. Pollution-related exposures are excluded from general liability and commercial property insurance. According to the International Risk Management Institute, pollution liability insurance covers the gap in these policies. Thus, businesses should get a separate pollution insurance policy to receive coverage for pollution-related claims.   

Are all pollution insurance policies the same?
No, all pollution policies are not the same because different carriers have different coverage limits. Some carriers exclude the endorsements, whereas other carriers might include them in the policy. Thus, one should always have a close look at the coverages included in their policy.
What are the types of coverage available in pollution liability insurance?
There are various coverages available as per the client’s needs. Some of them are premises pollution liability, contractor’s pollution liability, environmental liability insurance and errors and omissions liability.
What is site pollution liability coverage?
Site pollution liability coverage is another name for premises pollution liability. It provides coverage for claims arising from pollution incidents at a specific location.
What does the bodily injury mean under pollution liability insurance?
It refers to physical injury, sickness, disease, mental stress, or anxiety sustained by parties other than the insured.
What type of coverage does a business need?
The type of coverage varies from one business to other. Here are some examples:

  • Property owners and tenants would require premises pollution liability and environmental liability insurance.
  • Contractors such as roofers need contractor’s pollution liability.
  • Architects, engineers, and consultants need errors and omissions liability.
Do clean-up costs include restoration expenses?

Yes, restoration expenses are included in clean-up costs. It is included only if the costs of restoration do not exceed the present value of the property.

Looking for the best pollution liability insurance for your business?
Get a personalized quote for pollution liability insurance for you today!