The purpose of an environmental insurance policy is to fill the insurance coverage gaps created by pollution exclusions in liability and property insurance policies. Because pollution exclusions vary a great deal in property and liability insurance policies, environmental insurance policies vary a great deal as well. Virtually any legal business activity can be insured for a fortuitous pollution loss event under an environmental insurance policy.
Environmental impairment liability (EIL) insurance was first introduced in 1978 and has been in constant evolution since. AIG insurance company introduced its private label version of environmental impairment liability insurance under their brand name “Pollution Legal Liability” in 1980. Contractors environmental liability was first introduced by AIG under the brand name “Contractors Pollution Liability” in 1986.
There are well over 100 different genuine environmental insurance policy forms available in 2015. Market capacity exceeds $200 million in limits of liability for a single risk.
There are no industry standards for the coverages offered in an environmental insurance policy. As a result, the coverages offered between different environmental insurance policies vary a great deal, even within the same coverage line.
There is very little regulatory oversight of the coverage line because almost all of the environmental insurance policies are written in the excess and surplus lines insurance marketplace. Therefore, when evaluating different CEL options, for example, it is necessary to perform a coverage review of the actual policy forms and endorsements. Environmental insurance policies should not be evaluated on premium, deductible and limits alone. It is possible to purchase an environmental insurance policy that will not insure 90 percent of an insurance buyer’s loss exposure if a poor match of policy form to the particular customer’s insurance needs is made.
Essential Coverage Elements in a Genuine Environmental Insurance Policy
Genuine environmental insurance needs to have an insuring agreement that provides specific coverage for losses arising from the release or escape of pollutants. At a minimum, insurance coverage will apply to losses arising from:
- Bodily injury (mirrors and sometimes enhances the definition used in the general liability (GL) policy)
- Property damage (mirrors and sometimes enhances the definition used in the GL policy)
- Cleanup expenses (usually as required by environmental laws with available enhancements by class of business)
- Defenses costs (usually included within the limit of liability)
Common optional coverages include: