A few key questions and a general understanding of how the insurance policy sees your business—and not how you or regulators see it—can go a long way to protect the livelihood of a company dealing with waste.
Ross Fields
If one person’s trash truly is another’s treasure, there is a lot of ‘treasure’ being made in the business of managing waste and assets. With consumerism and environmental consciousness at simultaneous highs, business opportunities in the waste stream are booming—whether it is collecting and processing waste, or manufacturing equipment to be used along the way. So how then, can these companies ensure that they fully protect their ‘treasure,’ their livelihood, their employees and their reputation? There are, of course, a number of concerns to consider and a number of ways to address them. This article will concentrate specifically on the liability risks a company in the waste stream faces and how best to manage them. It might be worker safety, fleet safety or environmental liability but there are good approaches and products—especially insurance products—available to help enact and maintain comprehensive risk management and safety programs.
Are You Effectively Insured?
When it comes to evaluating if a company operating in the waste stream has effectively insured its facilities and operations, the biggest question to ask is: Have you discussed environmental liability with your risk management professional? If the answer to that question is “no,” then it is likely you have major coverage gaps in your risk management program. The reason behind this is, generally, a lack of knowledge on how insurance works. It very important to understand that standard general liability policies do not protect a company in the waste stream from its true risks; a general liability policy is tailored to a broad, similar group of risks that typical businesses face. A company in the waste stream is anything but typical. The risks in the waste stream are different and much more serious (see Unique Risks sidebar, page xx). A typical insurance policy will not—and will specifically say it will not—cover many of the risk exposures to these companies. This means that these risks can be extremely damaging to a company should they have to endure the financial costs alone.
Don’t Just Assume
Often, companies in the waste business rely on state and local permits, their lease, certifying bodies or DOT to determine what environmental risks they need to manage. In other words, the mentality is often: “If no one is requiring me to protect against it, I don’t need to worry about it.” It is wrong to assume that there is no need for special insurance simply because there is no need for special permits. Insurance does not care that the EPA says you don’t need a special permit. Insurance policies are contracts and insurance companies are only obligated to help their insureds within the terms of that contract. So when it comes to buying insurance as a risk management tool, it is more important to look at the terms of the insurance contract rather than permits and regulations. The main reason for this is what is known as the “total pollution exclusion” that exists in a majority of general liability policies. It is a building block of insurance contracts. In terms of insurance, “pollution” and “pollutants” are defined differently than they are by a regulatory body. Therefore, if a waste company has an accident, fire or some serious event, their insurance may not cover it. It is a safe assumption that these exclusions in the policy will preclude coverage because there have been numerous court cases upholding this position.
Regarding how insurance works, a “pollutant” does not have to be classified by EPA or any other regulatory body as a “pollutant,” “hazardous” or “universal” material. In fact, an insurance policy defines “waste” and “items to be or that have been recycled or refurbished” as “pollutants”. By an insurance policy’s definition, a company in the waste stream handles almost exclusively “pollutants.”Unless a waste company has specifically sought and placed environmental liability insurance, they do not have coverage for anything related to what the insurance policy defines as pollutants. Since the main body of work for these businesses is in the waste stream, nearly everything they touch is a “pollutant” as far as insurance is concerned. Their “product” is waste and will be considered a waste (from an insurance standpoint) until it reaches its final point of destruction or reuse. So, the provision in a general liability policy covering “Products and Completed Operations” would not cover bodily injury or property damage arising out of their products or completed jobs. A product could be waste, recycled materials or even something that has been refurbished. A job could have been haul-away services or even wiping and reselling electronics. This is also important to companies that manufacture products that are used within the waste stream. A failure of that product could result in a claim being denied due to the pollution exclusion, even though their product may simply be a bailer or even a steel or plastic container. If waste winds up somewhere it is not supposed to be, insurance companies have an easy way out with the total pollution exclusion. Remember, just because the insurance doesn’t cover it, doesn’t mean that a business will not be required to pay for it should something happen. This can be devastating to a company’s balance sheet.
Get the Job Done Right
With so many nuances to the waste industry, there are a number of additional circumstances that could result in a lawsuit, injury or event where coverage is easily denied by insurance and ultimately upheld in a court of law. Moreover, it could hurt other businesses both up and down stream if the proper insurance is not in place. The fact that a company operates in the waste stream exposes them to what is known in law as “joint and several liability.” The basic theory is that there does not need to be any negligence for a company to be held liable. Every company who is part of the chain of custody can be held liable for injury or damages regardless of who caused the damages or injury. The specific nature of joint and several liability is of high importance because it brings the risk management and safety practices of every business in the chain of custody into concern. Those businesses up and down stream are at risk because of your business and likewise, your business is at risk from their actions. Those upstream from you are at risk because of those businesses you choose to deal with downstream. In short: you are all in this together. Yet, so many choose not put appropriate risk management measures in place. Each individual business needs to thoroughly evaluate their risk management program and those programs of their sub-contractors. The right time to make these evaluations is as soon as possible, especially if you have not spoken to an environmental insurance professional. Insurance generally renews annually, but why wait to make sure that the insurance is accurate and adequate? As for sub contractors, every time they enter into a new contract they need to verify insurance and (usually but not always) a business wants to be listed as an additional insured on the sub’s policy. To date, the best solutions are specialized insurance products that are specifically crafted to handle the waste stream’s needs. The insurance companies have the legal and professional expertise, manpower and resources to tackle these issues head-on.
Insurance products that fill the gaps left by traditional liability policies should be weighed against the products and programs your business has in place now. Proper coverage like site pollution, transportation pollution and products pollution transfer risk and responsibility from your balance sheet to an insurance company. These specialized insurance companies have the knowledge and resources to navigate the process with legal and environmental authorities to get the job done right. Often, the pricing for policies like this are comparable to standard liability polices, but the coverage is much more valuable. The carriers that offer this type of coverage are large and financially stable. The programs are available in all 50 states as well as multiple countries globally. Finding the right insurance and risk management professional(s) to partner with on these programs is the key. The insurance products are not like standard insurance; they can be complicated and require a unique knowledge and approach to be effective (see Specialized Insurance Programs and Products sidebar, page xx). In the end, a few key questions and a general understanding of how the insurance policy sees your business—and not how you or regulators see it—can be a crucial step in protecting the longevity of a company dealing with waste.
Ross Fields is a risk management professional whose specialty is working with companies in the waste stream. He has worked on various industry standards and sits on the Technical Advisory Committee for the R2/RIOS certification. He oversees a national insurance specialty program for the recycling, hauling and handling of waste from his office at the Leavitt Agency of San Diego, CA. Leavitt Agency of San Diego is part of the Leavitt Group, one of the largest privately-held insurance brokerages in the nation, and provides clients with greater insurance market access, specialty products, and a wide range of insurance programs. Ross can be reached at (858) 519-3207 or via e-mail at [email protected].
Sidebar
Unique Risks
Because companies work in the waste stream, they have unique exposures like site pollution liability and products pollution liability. Most businesses have exposure to site liability, a slip and fall for example. With companies in the waste stream, however, the liability that stems from operating their site could be a pollution event. This could mean that it hurts one of their customers or impairs their neighbor’s property with possibly a spill or vapor intrusion. Any company that sells a physical product is exposed to the end user or general public being harmed by that product. In terms of insurance policies for companies in the waste stream, because the property damage or bodily injury came from something associated with or defined as waste, the insurance policy won’t cover the liability; the need specific insurance So it is not only that companies in the waste stream have unique exposures, it is that they need unique insurance to cover their exposures.
Specialized Insurance Programs and Products
- Site pollution insurance—Protects the company against claims related to the operation and maintenance of their facility.
- Products pollution insurance—With the language excluding coverage for waste in insurance policies, this coverage is the only way a company can get insurance for claims arising out of their products.
- Transportation pollution insurance—Even companies who don’t haul waste or have transport as a main operation of their business should consider the exposure to the loading, unloading and hauling of waste.
- Non-owned disposal site coverage—Protects companies who may be named as a potentially responsible party should something go wrong at a landfill or other disposal facility where they have sent waste … even if there were other parties in the chain of custody between the insured and the disposal site.