When you think about environmental insurance, the first thing that tends to come to mind is Erin Brockovich. The story of a corporate conglomerate illegally dumping waste and unintentionally poisoning the residents of a small town, the Hollywood blockbuster acted as a social catalyst for change in environmental safeguarding.
Since the early 90s renewed media attention and social scrutiny on issues like pollution, forever chemicals and hazardous waste have led to more interest in environmental insurance – and have unintentionally revealed a dangerous coverage gap.
When dealing with commercial general liability (CGL), the insurance that many entities believe covers a multitude of possible losses, there’s widening gaps especially around pollution.
“There's all different types of limitations of the CGL,” added Christine Nauth, Vice President, Environmental Impairment Liability Practice Leader at SUM Insurance. “They have broad forms – some can include absolute pollution exclusions, others can provide insurance by giving sudden and accidental coverage. There's all these different levels that the CGL could or could not provide coverage for. And, depending on those gaps, that's where we at SUM step in.”
At SUM, their team of experts underwrites what has now become one of the leading Environmental Insurance programmes in Canada. In collaboration with first-class markets, SUM offers a full product suite, encompassing site-specific, non-site-specific and/or project-specific coverages. Because, as Nauth told IB, many businesses are still operating under a false sense of security when it comes to environmental coverage.
“Even if an organization is getting some pollution coverage under CGL, there are large exclusions that they may not be aware of. [For instance], if you're handling waste, even though you have this S&A coverage under the CGL, the handling of waste is excluded under most policies. And that's just one small example of where somebody would think they have coverage and they don't.”
It’s these hidden exposure gaps that can bring a business to its knees. Many companies still mistakenly believe that environmental risks only impact heavy industry, such as chemical plants of energy farms, when in reality any company can fall prey to an incident. And misconceptions around CGL are one of the most persistent gaps in the market right now – and subsequently the hidden costs associated with pollution too.
“There’s so many hidden costs here. There’s fines and penalties, there’s disposal site costs, auto policy exposures and emergency expenses too,” added Nauth.
And, going beyond the immediate costs, there’s the long-term financial repercussions with legal fees often impacting the total value of a pollution claim - especially if the insured isn’t found to be liable.
“I believe that really is the beauty of our line at SUM,” added Nauth. “While we don't have a ton of large claims or claims that come into fruition, the majority of notice of claims…have our legal team and adjusters involved from the off. There’s so many legal fees as well that go into a claim that the client or the insured may not even be aware of.
“As well as legal, there’s the remediation and long-term environmental monitoring costs. In Canada, there’s no industry standard for environmental policies. There's certain coverages that a policy provides and should be broad enough to include. [For instance], if remediation takes place, and the spill is contained, there are still regulations that could force an insured to monitor that site for six months afterwards, if dealing with soil, just to ensure the site meets the acceptable levels. And for water that period increases to a year. Those are costs that the insured would have to incur if they don't have these broader types of coverages under an EIL policy.”
At SUM, they tackle a variety of risks in this realm, from contractors and remediation operations, to tanks, to products and completed operations hazards, the transportation sector and environmental consultants - placing them in the perfect position whatever issues arises.
“At SUM, we ensure that the agreements we offer into the marketplace are pretty broad,” added Jeff Somerville, MD at SUM Insurance. “The selection of risks is a little narrower. We don’t write all comers, so to speak. [With environmental], this is somewhere in which underwriting thoroughness and competency are key contributors to the outcome.”
And, as Nauth said, there’s no industry standard policy for pollution – meaning that coverage here is bespoke and specialised too.
“It’s a smaller marketplace,” added Somerville. “The coverage has been sliced and diced into something more niche. That means when brokers are presented with any commercial insurance risk, they ought to be considering their pollution exposure. Because the ‘off the shelf’ mainstream coverages are excluding it.”
And while general liability insurance policies have standard pollution exclusions, there may also be other endorsements to further restrict any coverage provided under a general liability policy. Nowadays, firms like SUM are offering specialized coverages to suit individual needs.
“One of our value propositions at SUM is sustainability and continuity” added Somerville. “We’ve been offering this coverage for a long time. We know what we’re doing, we understand the marketplace and we offer what we offer because we know it really provides value.”
This article was created in partnership with SUM Insurance.
