Lenders Guide to Environmental Insurance to Pollution Exclusions

By: David Dybdahl

Farms need real environmental insurance to fill the coverage gaps created by pollution exclusions in both property and liability insurance policies.
This fact became readily apparent on December 30th, 2014 when the Wisconsin Supreme Court in Wilson Mutual v. Falk determined that bacterial contamination in drinking water wells, as a result of spreading manure on fields, is an excluded cause of loss due to the pollution exclusion in the liability insurance policies commonly sold to farms. On the same date, the Wisconsin Supreme Court determined in a separate pollution exclusion case, that nitrate contamination in groundwater is also an excluded pollution loss in liability insurance policies. These groundbreaking decisions at a state Supreme Court level determined that pollution exclusions in insurance policies are in effect “contamination” exclusions.
With bacteria as an excluded “pollutant” in property and liability insurance policies, the need for environmental insurance in loan covenants has clearly been driven into main street businesses and the family farm.
The overall significance of these two Wisconsin Supreme Court decisions on how pollution exclusions operate cannot be overestimated:
1. The decisions make it perfectly clear that pollution exclusions exclude losses arising from operations which are unavoidable risks in farming operations.
2. Bacteria and nitrates are very common contaminates in farming.
3. Farm liability insurance policies offering what may appear to have some limited pollution coverage can be “useless” insurance in the opinion of a Supreme Court Justice.
4. These well thought out and rational decisions on how pollution exclusions operate coming from the Wisconsin Supreme Court will have a national impact on how insurance claims involving contamination in other states will be adjusted in the future

Now with the Wisconsin Supreme Court deciding that pollution exclusions actually apply to contamination as the operative word in a pollution exclusion, the need to require environmental insurance on farm loans to fill the insurance coverage gaps created by pollution exclusions should be clear to everyone.

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