Last Updated: June 10, 2022

Mask Off: Everything You Need to Know About Pollution Liability Insurance 

TLTRPollution liability insurance provides coverage from a multitude of troubles such as ugly lawsuits, bankruptcy, and unwanted expenses. In this article, we discuss the basics, from coverage options to the average costs. 

Companies, however small or large, need to have their emissions and waste managed properly or they can cause irreversible damage to the environment. A recent study by the Proceedings of the National Academy of Sciences (PNAS) concluded that the air pollution emitted from farms causes 17,900 U.S. deaths annually.

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What is Pollution Liability Insurance?

Thankfully, a commercial pollution liability insurance policy will provide coverage for costs and claims associated with pollution caused by your business. If your business is held liable for polluting the environment, a pollution liability policy will cover the costs incurred from pollution clean-up. You will also be covered for pollution-related liability claims for illness, death, and injury.  

Most businesses rely on general liability insurance policies to cover for the pollution liability cases. However, the Insurance Information Institute states that most general liability policies will only cover the smallest portion of your expenses resulting from pollution liability.  

Or are you banking on your commercial umbrella insurance and commercial property insurance to save your business? Think again. These policies specifically exclude pollution-related exposures. Place your trust in a standalone pollution liability insurance policy for your business.  

What is Covered by Pollution Liability Insurance?  

Pollution liability insurance coverage provides a broad form of protection. There are two distinct forms of coverage: first-party and third-party. 

First-Party Coverage 

With this pollution liability coverage, your property is covered against claims associated with pollution. Your land or building may be affected due to the actions of a previous owner or any other external sources such as contaminated soil or toxic gas. Pollution liability policy covers your clean-up costs in that case.  

Or suppose your company has bought a previously owned building to conduct business operations. The former owner has left the building in terrible condition, with hazardous waste lying around the premises. Your company needs to clean the area before any work commences. It may take you a long time and cost a lot of money to get the new building ready. Luckily, pollution liability policy will cover all the clean-up costs for your business.  

what does pollution liability insurance coverage

Third-Party Coverage 

This coverage will protect your business if it causes pollution-related losses to others. This means that pollution liability insurance will provide coverage for any third-party claims brought against your company. 

The following are the different types of pollution insurance coverage provided for third-party claims: 

Coverage for Contamination of the Environment Due to a Business Operation 

Most manufacturing companies generate huge quantities of hazardous materials as a byproduct and discard them as waste.  If not disposed of properly, these chemicals can have severe effects on people, such as causing injury, illness, or loss of life. Pollution liability insurance covers the costs of cleaning up the environmental contamination caused by your business operations.  

Imagine you own a soft drink manufacturing company and you produce tons of chemical waste as a byproduct on a daily basis. One day, your waste drainage system malfunctions and a huge amount of chemical waste ends up deposited in a nearby pond. The local ecosystem has been destroyed as a result of a malfunction in your company’s operations.  

An environmental organization decides to file a lawsuit against your company. The judge rules that your company is responsible for cleaning up the contamination. Your pollution liability policy will take care of your costs for clean-up. 

Coverage for Lawsuits and Legal Fees 

Garlock Sealing Technologies was known for manufacturing seals for pistons on steam engines. The company was founded in 1887, and its products were widely used in the United States. However, for many years the company’s employees worked in close proximity with asbestos, which led to them being especially vulnerable to lung cancer. Thousands of people sued the company and asked for compensation. By 2010, Garlock was slammed with over 900,000 asbestos-related claims, and filed for bankruptcy. 

Clearly, pollution related claims have the potential to destroy your business. Thankfully, there’s pollution liability insurance which provides coverage for legal fees, investigation costs, and court expenses.  

Coverage for Errors and Omissions  

If your business is held liable for wrongful acts performed while providing professional services, pollution liability insurance will provide coverage for losses incurred due to it. 
It also covers the costs incurred from addressing the damages the error caused. This type of coverage is essential for architects, engineers, and consultants. 

For example, imagine a consultant is hired to advise a client about the state of their property. They declare that the property is free from any sort of pollutants or contaminants. However, the client later finds a black mold infestation in the property and it is determined that the infestation had been there when the consultant had inspected the building. The client decides to file a lawsuit against the consultant. Pollution liability insurance will cover the losses that the consultant will incur from the claim.

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Common Exclusions of Pollution Liability Insurance 

Here are the most common exclusions of pollution liability insurance policies: 

Intentional acts 

Pollution liability insurance does not cover damage caused by intentional acts. It also excludes damage from events such as war or terrorism. 

Negligence or non-compliance

This policy does not provide coverage for pollution-related claims or losses that are a result of negligence or non-compliance with regulations. 

Failure to maintain insurance

Oftentimes the insurer will specify a minimum limit of insurance the insured must maintain. If the insured fails to procure the sufficient limit as specified in the insurance policy, a pollution liability policy will not provide any coverage. 

Employer’s liability 

This policy does not provide coverage for claims related to an employer’s liability, such as an employee’s injury caused by an employer’s negligence. Workers compensation insurance provides coverage for such employer’s liability claims. 

Product liability

This policy does not cover any liabilities arising from the product of a business causing injury or harm. Product liability insurance provides coverage for such liabilities. 

Fine and penalties

 A pollution insurance policy does not cover losses or additional expenses resulting from fines, penalties, or internal expenses. 

Vehicles

This policy does not cover pollution resulting from operation or maintenance of any vehicles. 

Known conditions

Pollution insurance policy excludes coverage if the insured is already aware of the hazards or fatal condition while applying for the policy. 

Cross-liability coverage

 This policy does not provide cross-liability coverage. In other words, pollution insurance policy does not provide coverage in case a contractor sues another contractor for damages, and both of them have the same policy. For example, the founding partners of your company may sue each other for damages or injuries that each partner insists that the other caused. In such case, pollution liability insurance won’t cover any claims. 

what is contractors pollution liability insurance

Endorsements for Pollution Liability Insurance 

Here are some endorsements you can add to your pollution liability insurance:   

  • Asbestos: Insureds can add coverage for pollution resulting from lead and asbestos in their existing pollution insurance policy with the help of an endorsement.    
  • Transportation and disposal of hazardous waste: Transporting and disposing of hazardous wastes carries special risks. Coverage for pollution claims related to disposing of or transporting hazardous materials is available as an endorsement. 

Factors That Determine Pollution Liability Insurance Cost 

The cost of a pollution liability insurance policy differs widely from one business to another. Here are some of the factors that affect the premium for a pollution insurance policy: 

Pollution Liability Insurance and The type of business

The type of industry in which the insured’s business operates helps determine the premium. Factors such as the type of work the business performs and the volume of work performed are highly influential in determining the cost of the policy. Operational risk factors associated with the business and how long the company has been in business also affect premium costs. 

Use of chemicals and hazardous materials Affects Your Pollution Liability Insurance Rates

The type and the amount of chemicals and hazardous materials a business uses in its daily operations also affects the cost of the policy. A business that makes use of large amounts of hazardous chemicals will have higher premiums than a business that uses less hazardous chemicals.  

The disposal method of hazardous waste and Pollution Liability Insurance Rates

The method by which a business disposes of hazardous waste also affects the cost of the policy’s premium. 

A company can dispose of their waste by means of landfill, incineration, underground disposal, or dumping at sea. Of course, each method brings its own array of liability back to the company. However, if you were to dispose of your waste at sea or any nearby body of water, you’re likely to pay for higher insurance rates. 

The location of the business and Your Pollution Liability Insurance Cost

The geographical location is necessary for determining the cost of the policy. It gives details about the business’s proximity to places like residential neighborhoods. A business that is located close to a residential area will have higher premium rates. That’s because such businesses have higher chances of getting hit with third-party claims for the harm they might cause to the neighborhood. 

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Construction of the business’s building

A business is likely to have lower premium rates if the construction of a building is environmentally friendly and safe. Such buildings help mitigate first-party claims for the business. 

Occupancy history of the property

The history of the property’s occupancy also has an impact on pollution insurance policy rates. If the past owner of the property created high levels of pollution on the premises, then the premium rates will be high, because the insurer will have to cover all the clean-up costs of the property. 

Claims history and Pollution Liability Insurance

There are multiple factors in regard to claims history that affect the pricing of a pollution insurance policy. These factors include the loss history, nature of each loss, details of the past claims, and exposure to loss factors. The premium of the policy increases if the business has made multiple claims in the past. 

In Conclusion

In this day and age, all businesses need to protect themselves against pollution liability. If you’re not sure how to manage your liabilities, it’s time to talk to an experienced agent. Find a local insurance agent from Agency Height’s insurance directory today. 

what is pollution liability insurance

Pollution Liability Insurance FAQs

What does the term pollution mean under pollution liability insurance?

Pollution refers to discharge, release, dispersal, or escape of any solid, liquid, or gaseous substance or material which might contaminate the atmosphere, a waterbody, or any area. Some examples of pollutants are smoke, fumes, acids, chemicals, or hazardous wastes.

Why do businesses need pollution liability insurance?

Businesses need pollution liability insurance because most general commercial insurance policies have specific pollution exclusions in the policy. Pollution-related exposures are excluded from general liability and commercial property insurance. According to the International Risk Management Institute, pollution liability insurance covers the gap in these policies. Thus, businesses should get a separate pollution insurance policy to receive coverage for pollution-related claims. 

Are all pollution insurance policies the same?

No, all pollution policies are not the same because different carriers have different coverage limits. Some carriers exclude the endorsements, whereas other carriers might include them in the policy. Therefore, one should always have a close look at the coverage included in their policy. 

What are the types of coverage available in pollution liability insurance?

There are various coverages available per the client’s needs. Some of them are premises pollution liability, contractor’s pollution liability, environmental liability insurance, and errors and omissions liability. 

What is site pollution liability coverage?

Site pollution liability coverage is another name for premises pollution liability. It provides coverage for claims arising from pollution incidents at a specific location. 

What does “bodily injury” mean under pollution liability insurance?

It refers to physical injury, sickness, disease, mental stress, or anxiety sustained by parties other than the insured. 

What type of coverage does a business need?

The type of coverage varies from one business to other. Here are some examples: 

  • Commercial Property owners and tenants require premises pollution liability and environmental liability insurance. 
  • Contractors such as roofers need contractor’s pollution liability insurance. 
  • Architects, engineers, and consultants need errors and omissions liability insurance. 

Do clean-up costs include restoration expenses?

Yes, restoration expenses are included in clean-up costs. It is included only if the costs of restoration do not exceed the present value of the property. 

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Infographics Pollution Liability Insurance

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