Avoid Common Mistakes That Lead to Uninsured Environmental Loss

By; David Dybdahl

It is time to pay attention to the effects of pollution exclusions and environmental insurance; the practices of the past 30 years are not working. There is no rational reason for so many pollution/contamination loss exposures to be uninsured today. The environmental insurance market is the solution to the most common mistakes made by insurance buyers on environmental/pollution/ contamination risks.


History proves that there is a pattern of mistakes made by insurance buyers that lead to an unnecessarily uninsured environmental loss. With a few simple corrections, the majority of uninsured environment losses over the past 20 years could have been insured, often at bargain-basement prices.

The most common mistakes made in commercial insurance buying decisions regarding pollution/contamination risks are the following.

  • Severely underestimating the dollar amount and duration of environmental loss exposures
  • Underestimating the effects of pollution/contamination exclusions in property and liability insurance policies.
  • Overestimating the amount and reliability of the coverage provided by exceptions to pollution exclusions
  • Not adjusting the insurance specifications in procurement contracts to reflect modern gaps in insurance coverage created by pollution/contamination exclusions

Ninety-five percent of commercial insurance buyers are needlessly uninsured or severely underinsured for any loss caused by, or in some cases even associated with, pollution or contamination. This situation has persisted for decades in the face of an oversupply of environmental insurance.

The pricing for pollution insurance coverage has been so low, on average, for so long, that the leading supplier of environmental impairment liability insurance for fixed sites for over 30 years found it necessary to abandon the business line entirely in 2016. History shows that environmental insurance was not expensive relative to the losses that are paid on average.

Oversupply has created a buyer’s market for environmental insurance for over 20 years. In an oversupplied market, which would naturally lead to a low price, how can it possibly be that 95 percent of insurance buyers today are not adequately insured for their environmental loss exposures? Why has historically underpriced environmental insurance been shunned by so many commercial insurance buyers?

Here are my observations gained from 35 years in practice.

By David Dybdahl | March 2017


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