All businesses have their inherent risks but a potential environmental exposure is something that requires unique pollution insurance coverage. And even though there are perhaps dozens of types of business that could face environmental losses (excavators, HVAC companies, sewage pumpers, waste management facilities, fresh water delivery services, etc) most share the same questions when it comes to risk management and pollution insurance.

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Ottawa - October 14, 2014 - All businesses have their inherent risks but a potential environmental exposure is something that requires unique pollution insurance coverage. And even though there are perhaps dozens of types of business that could face environmental losses (excavators, HVAC companies, sewage pumpers, waste management facilities, fresh water delivery services, etc) most share the same questions when it comes to risk management and pollution insurance.

Questions like...

What’s Considered Pollution?
That’s a great question because it seems that the answer keeps evolving. Recently, one of our brokers returned from a session that examined court cases and the thought that he came back with was “Pollution is anything that shouldn’t be there.” While that may have been a bit tongue in cheek, it’s almost at that point. For example, water is considered a pollutant when it can do damage to the environment (or more specifically, the chlorine in the water). An Alberta incident a few years ago illustrated this when an excavator accidentally punctured a water main which resulted in chlorinated water spilling into a nearby river, killing some fish. In that case, a business was ordered to pay a fine of $15,000 along with $270,000 into an environmental fund.

Can Penalties And Fines Be Covered Under A Pollution Insurance Policy?
Yes and no. Not all insurance companies will offer to pay for fines and penalties that may be imposed on a company following an insured loss, however there are some that will. It’s important to point out that even if a defendant’s insurance policy will pay an environmental fine on their behalf, courts can rule that the pollution insurance policy will not be allowed to respond, leaving the insured on the hook to pay.

How Much Pollution Insurance Coverage Do I Need?
This is one of the toughest questions to answer as the litigation landscape keeps evolving. What was considered adequate coverage five or ten years ago is often no longer enough. Ultimately you need to consider “What’s the worst that could happen, what other risk mitigators do I have in place and what have the courts been telling us?”

Your broker should provide recent claim examples and court decisions to help lend some context to the decision making process.

What Should I Look For In A Pollution Insurance Policy?
Not all pollution insurance policies respond to a claim the same way and there are certain clauses that you need to be aware of. For example, some policies will include investigation and defence costs as part of the overall insurance limit while others offer those costs outside of the limit. That’s an important difference. Recently, I learned that one insured’s policy paid out more than $1 million in defence costs in less than six months and that was before the case even went to trial. Imagine if you had a $2 million policy limit with defence costs included inside the limit. In the case I mentioned, half of your limit would have already been eaten up even before you got to trial! If those costs are specified as being outside the limit of insurance, then that problem disappears.

Is There Any Good News Regarding Pollution Insurance?
Yes! Generally speaking, the cost of pollution insurance has been dropping over the past few years while at the same time coverage has been expanding. This has happened as more insurers have entered the arena, offering more supply. New policy features are also being offered. One insurance company provides their clients with access to a 24/7 Environmental Spill Centre which not only coordinates emergency responses for a pollution spill, but also handles all of the follow-up paperwork so that you can concentrate on your business and not bureaucratic headaches. Another insurer offers its clients risk management seminars which can lead to future reductions on their insurance premiums.

The Bottom Line
Regardless of the type of business you are running, there are plenty of insurance companies that offer broad yet specialized pollution coverage. If you’re not sure if you need pollution coverage, or if you have a pollution policy but would like to have it reviewed to ensure you have the right coverage, please feel free to contact me and I’ll be happy to discuss it with you.