EIL Coverage: Action and Reaction

By: David Dybdahl

This article explains the history of the EIL market, the industry concerns about financing Superfund site cleanups, the risk avoidance strategy used by the insurance industry, and alternatives to risk avoidance.

 

This article looks at why insurance companies have ceased to offer environmental impairment liability (EIL) insurance coverage in the U.S., as of December 1, 1985. As the insurance marketplace hardened, many carriers abandoned earthquake, product liability, and professional liability coverage, but almost no line of coverage suffered more than EIL insurance. As of May 1, 1985, only a handful of carriers continued to offer EIL insurance. Most blame the withdrawal of reinsurance capacity, but the real causes are much more complex. EIL involves many volatile social, legal, and political issues that are still being formulated by law makers and the courts. With the hardening of the insurance marketplace, most carriers do not have to depend on new and unproven product lines to provide them with desired premium growth. There might have been more insurance carrier participation in EIL coverage if past sales had been higher. Many potential buyers were not aware of the severe losses being paid and underestimated the significance of the ultimate loss exposure. Consequently, when insurers who were writing EIL coverage thoroughly explored the loss exposure, they developed premiums that risk managers thought were unrealistically high.

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