Common Insurance Misconceptions
It is the responsibility of the company owner and the company’s insurance agent to make sure the company is protected. Be aware of coverage gaps as they may leave the company exposed to potential claims.
There are some common misconceptions regarding insurance for the waste industry. The most prevalent of which revolves around Environmental Insurance and who really needs this coverage. Many waste industry operators believe this type of coverage is only needed by hazardous waste haulers or entities engaged in landfill operations. While both of these operations would need environmental coverage, it is also true companies performing residential, commercial and C&D collection need this coverage, as do transfer stations, material recovery facilities and demolition contractors.
For the purposes of this discussion we will define “pollutants” as: any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.1 As you can see, this is very broad in scope and could identify almost any substance as a contaminant if dispersed in a location where it is not normally found.
A real life story regarding a pollution claim involved a company who manufactured flavored syrups. They had a tanker truck filled with their product, all of which was designed for human consumption, involved in an accident. The tank cracked and the liquid leaked into a nearby reservoir killing much of the fish and plant population. A pollution claim was filed by the municipality stating the company was responsible for cleaning up the water and restoring the fish and plant life back to a suitable level. The company immediately called their insurance agent to report the claim and seek coverage under their auto policy. The agent informed them the auto policy did not offer such coverage, so they turned to the General Liability policy only to learn the same news. When it was all said and done, the syrup company had to pay roughly $3,000,000 out of their own pocket to remediate the contaminated area and satisfy the local authorities.
The point of this example is twofold. First, just about anything can be considered a “pollutant”. Second, the company automatically assumed they had coverage in place to protect them from this type of accident. Now think about the number of roll off bins you have out there, or the number of commercial or residential clients you are servicing. As it is highly unlikely you have an employee sifting through every bin, dumpster or trash can, do you really know what you are picking up and transporting? How many times have you overheard someone say, “I was cleaning out my garage last weekend and found a bunch of old paint and pain thinner. I didn’t know what to do with it, so I found a construction site and tossed it in the dumpster.”
Many waste industry operators believe pollution coverage is built into their General Liability or Auto Policies automatically; however, this is generally not the case. It is the responsibility of the company owner (or person in charge of insurance for the company) and the company’s insurance agent to make sure the company is protected. If this subject is not addressed during the procurement process and the agent does not specialize in, or have a number of waste related clients, they might be unaware of this coverage gap leaving the company exposed to potential claims.
Checking Your Own Policy
You can easily and quickly check your own Auto and General Liability policies to see if you are covered. The first 3 or 4 pages of the policy are known as the declaration pages. After you get past the sections showing your company name, address premium, etc., you will come to a section containing letters and numbers with a brief description following it (example – CA 99 48 – Broadened Transportation Pollution Liability). If you see an item listing Exclusion – Total Pollution Exclusion and your policy does not have a separate form or endorsement listing Pollution back in as a covered item, you do not have coverage on that particular policy. If all your policies have this exclusion, you do not have pollution coverage. Standalone Pollution Policies are available, and in many cases you may be able to endorse your current policy.
Be aware that Sudden and Accidental Pollution coverage is not the same as Pollution Coverage. Sudden and Accidental provides coverage for fluids leaking from the engine, fuel tank or chassis after an accident, not for contamination caused by the loss of carried cargo. In addition, Sudden and Accidental coverage is generally limited to a time frame for discovery and reporting of a pollution incident.
Some states, such as New York, require carriers include some type of pollution coverage on their policy. The most common type of endorsement is the MCS-90 and is generally located on the Auto policy. This is actually not pollution coverage. This is a financial commitment from the carrier stating in the event of a pollution related claim, funds are available to have the spill cleaned up or remediated. What most operators do not understand is that under the MCS-90 the carrier will provide cleanup costs, however they will also then turn around and bill the policyholder for the cost of the remediation performed. Additionally, the MCS-90 does not provide any coverage for bodily injury claims as the result of a pollution incident.
The alternative to the MCS-90 is the CA 99 48 endorsement. This endorsement offers Broadened Transportation Pollution Liability and is generally located on the Auto policy. This endorsement will respond in a similar fashion to the MCS-90, but the policyholder will not receive a bill for the remediation costs upon completion. There is generally not a deductible associated with this endorsement unless there is a liability deductible attached to the policy. While this endorsement does not offer bodily injury coverage, the insurance carrier will not be sending you a bill for the cleanup costs.
There are some companies currently offering combined General Liability and Pollution coverage. Many of these polices offer what is known as “shared limits”. As an example, let’s use a standard limit policy of $1,000,000 per occurrence, $2,000,000 aggregate.
Under a shared limit policy you might have coverage for General Liability, Transportation Pollution Liability (comparable to the CA 99 48 described previously) and Environmental Impairment Liability (described below). If your company were involved in a claim piercing the threshold for both General Liability and Pollution Liability this one policy would respond to both claims; however, they would share an overall aggregate limit of $2,000,000, with both the General Liability and Pollution sections offering up to $1,000,000 in coverage each. Depending on your actual operations this type of policy could be very beneficial and cost effective.
Other Pollution Policies
Waste haulers are not the only companies susceptible to pollution claims. Any company engaged in waste related operations such as logistics, brokering, landfill liner installation/construction and consulting all have potential exposures, yet many owners of these companies are not aware this exposure applies to them.
Consulting companies in particular have a unique exposure for which they should purchase specialized polices for Professional Liability. In the same way the Auto and General Liability policies have a declarations section, so to does this type of policy. If your company is engaged in consulting to the waste industry, take a second to review your policy. If you can’t find a specific exclusion or endorsement addressing pollution coverage, take the time to speak with your agent.
Other common types of Pollution Polices include, but are not limited to, Environmental Impairment Liability, Contractors Pollution Liability and Non Owned Disposal Site Liability. Each of these types of polices could be applicable to a company engaged in waste, recycling or demolition depending on the actual nature of operations. These policies will typically include coverage for bodily injury and property damage in addition to pollution coverage.
Environmental Impairment Liability
Environmental Impairment Liability (EIL) provides coverage in the event a location used by the operator becomes contaminated. The contamination can range from oils and lubricants leaking into the ground to a liner failing in a landfill. These policies can provide First Party coverage, Third Party coverage or both.
Contractors Pollution Liability
Contractors Pollution Liability (CPL) is generally applied to contracting operations such as demolition where potential contaminants such as silica, asbestos, lead, toxic drywall or other carcinogens/hazardous particles are released into the environment with the potential of people becoming ill because of exposure. It could also provide coverage for septic waste firms who damage a tank, grease trap, drain field or other component while performing service and/or installation work.
Non-Owned Disposal Site Coverage
Non-Owned Disposal Site coverage applies to operators who take their loads to facilities they do not own that are later deemed to be contaminated sites. This can often result in the disposal site being deemed a Superfund (State or Federal) location. If this does occur, the regulatory agency will contact all companies who disposed of waste at the facility and state they could be liable for a portion of the remediation costs. This coverage provides defense and liability in such an event.
Additional Types of Coverage
There are a number of other types of coverage companies should consider, particularly in a down economy. This would include policies for Directors and Officers Liability, Employment Practices Liability and Employee Dishonesty. A package policy is available combining these three types of coverage (in addition to others). They can have separate limits or shared limits.
Directors and Officers Liability
Directors and Officers Liability provides coverage for loss and defense costs to the listed directors and officers of an organization when personally named in a lawsuit. It is important to note Directors and Officers can be held personally liable for their actions. This policy protects them directly, and/or reimburses the company for indemnification.
Employment Practices Liability
Employment Practices Liability provides coverage for claims such as discrimination, wrongful termination, sexual harassment, religious persecution and, in some cases, wage and hour disputes made by employees, past employees or potential employees. There are several articles out now stating claims for these types of incidents are on the rise due to employees being laid off, or looking for a quick payout. The most common are wrongful termination claims, or overtime wage disputes. A good Employment Practices policy will also cover allegations of discrimination or harassment for third parties other than employees.
Employee Dishonesty provides coverage for theft of company funds by an employee. There are various types of coverage available ranging from forgery/alteration to actual theft of cash or other assets.
Review Insurance Proposals
Insurance is typically the second largest expense for companies behind payroll. It is important to note the best/lowest premium is not always the best deal. Be sure to review proposals thoroughly and make sure you are getting what you pay for. The last thing you want is to pay a large premium and end up having an uncovered claim like the syrup manufacturer mentioned earlier.
No matter what the case, your current insurance agent should be able to answer and address any questions you have about any of the items listed in this article as well as items that are not covered here. If you are not certain of your current coverage, or want to explore adding in additional coverage, give them a call. After all, this is what they get paid for.
Nathan Brainard is Vice President, Environmental Division, at Insurance Office of America (IOA) (Longwood, FL). Nathan has been with IOA for six years and specializes in Environmental Insurance with an emphasis on insurance for the Waste, Recycling, Remediation and Demolition industries. He can be reached at (407) 998-5287 or via e-mail at [email protected].
As defined by Insurance Services Organization, Inc. CA 00 01 0306 Edition.