For years, the world-renowned Ivy League school, Dartmouth College, disposed of science experiments on a farm site located on their property, which included animal carcasses and the remains of human cadavers. Nearly 30 years later, the College was tasked with cleaning up 40 tons of waste on the toxic farm site, finding hazardous and radioactive materials that had leaked into the groundwater. Neighbors to the College had been drinking contaminated well water causing rashes, hair and skin loss, and dizziness. Dartmouth is now supplying bottled water for drinking and cooking and is constructing a system to clean the local groundwater. Thus far, the contamination from this site has cost $8.4 million.1
A school is not the first place you think a Site Pollution Liability policy is needed. In fact, many businesses think they do not have any environmental pollution concerns. Gina Jones, Director, Environmental Programs, Burns & Wilcox, and Jude Sutton, Senior Broker, Environmental Center of Excellence, Burns & Wilcox, explain the need for Site Pollution Liability insurance and reveal how brokers and agents can educate clients while increasing their book of business.
Who needs Site Pollution Liability insurance?
“Every business has an environmental exposure and needs Site Pollution Liability insurance,” said Jones. “Educating clients on the need and the potential for exposure is key.”
Site Pollution Liability (Environmental Impairment Liability) insurance is used to cover bodily injury, property damage, clean-up costs, and legal fees associated with contaminations for a person’s owned or permanently leased property.
The majority of costs are defense costs in these situations. If an event occurs in a strip mall, for example, a business may be pulled into the lawsuit by association – even if they had nothing to do with the contamination.
“Site Pollution Liability also covers contamination to additional off-site properties that may be affected from an exposure, as in the example with Dartmouth College. These additional properties could be next door or may extend for miles if the exposure hits the groundwater,” said Jones. “This also closely affects businesses that are located in strip malls and have close neighboring businesses.”
Case studies you may not expect
Site Pollution Liability is much more than just coverage for manufacturers or chemical companies. Jones described a four-story office building in a large metropolitan area, where a janitor poured a dangerous mixture of chemicals down a drain to unclog it. This mistake caused terrible fumes that traveled through the HVAC system, causing people to get sick. The area went on high alert and evacuated several city blocks around the building due to the overwhelming fumes. Many went to the hospital and businesses were interrupted for a half day. One small company now had a very large and expensive environmental exposure from an unplanned error.
Sutton has also experienced Site Pollution Liability exposures with apartment buildings and homeowners associations. “We wrote a Site Pollution Liability policy for one property owner after they experienced excessive mold cleanup due to a tenant not properly sealing the windows and doors before they moved out,” said Sutton. “Apartment buildings can also be susceptible to many other pollutants from tenants, including drug labs and misuse of everyday household items.”
Other examples of businesses experts cited with potential environmental exposures include: medical and dental offices, photography studios, swimming pool stores, dry cleaners, car dealerships, and college housing.
Even if a client is right, a defense can be costly
Jones recalls a potential exposure from a chicken farm. The farm had been in the same location for more than 100 years. As time went by and other farmland was sold off, a neighborhood built up around it. Neighbors began to complain and filed suit against the farm for the intense odor affecting the neighborhood. Since the homeowners had moved into the neighborhood knowing they were living next to a large chicken farm, the case was thrown out. While Site Pollution Liability was not needed this time for cleanup, it was needed to defend the client in court. “Even if a client is in the right, they still need to defend themselves in court, and fees can be costly,” said Jones.
Federal legislation is written in a way that casts a wide net, pulling many business owners into lawsuits. “The majority of costs are defense costs in these situations. If an event occurs in a strip mall, for example, a business may be pulled into the lawsuit by association – even if they had nothing to do with the contamination,” said Jones.
Strategic insight from the experts
In line with understanding clients’ surroundings, it is equally important to understand clients’ current property. Jones noted that one client had found high levels of arsenic in the ground when they sold their business. The arsenic exposure occurred years before they bought the property in 1993. The Environmental Protection Agency (EPA) required them to clean up this previous owner’s mess before selling, to the tune of $825,000.
Jones added, “In specialty lines, we write policies in a way that works with the ever-changing environment. The levels of acceptable contamination can go up and down depending on the government and current events. As long as the exposure is defined as a pollution condition by the federal, state, or local government, it will be covered.”
“Consider environmental discussions as a door opener for new accounts. If you go to them and talk about environmental coverage, potential clients will listen,” said Jones.
This increases the importance for brokers and agents to educate themselves on environmental exposures that may occur in businesses of all sizes. For brokers who decide not to talk about environmental, this may turn into a claim against the broker’s Errors & Omissions (E&O) coverage in the future.
“Businesses are generally unaware of environmental hazards and do not have the insurance to cover it, giving brokers and agents a unique growth opportunity,” said Sutton.