By Samantha Wright
The environmental insurance business is largely driven by the pollution exclusion in the regular standard lines general liability policy.
That exclusion applies to anything that could meet the definition of a pollutant, be it solid, liquid, gaseous, or a thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals or waste.
What qualifies as a pollutant frequently gets hashed out in the courts, where some game-changing case law has come out over the past year.
One recently litigated case in Wisconsin involved bacteria contamination in drinking water wells stemming from a dairy farm’s practice of spreading manure on a field. The Wisconsin Supreme Court ruled that it should be an excluded cause of loss under the common pollution exclusion used in liability insurance policies.
On the same day, the court also ruled that nitrates in groundwater (also stemming from spreading manure on a field) should be an excluded cause of loss.
In an expert commentary column for International Risk Management Institute, David J. Dybdahl, President of American Risk Management Resources Network, LLC, called the decisions a “game changer” for insurance agents and brokers across the United States. The decisions, he said, underscore the uselessness of coverage extensions to general liability policies for losses associated with contamination, as well as the need for small businesses and family farms to buy genuine environmental insurance.
“A lot of people thought maybe they didn’t have coverage, and now they know they really don’t have coverage,” reflected Garick Zillgitt, Senior Vice President Environmental at Rockhill Insurance Group of Kansas City, on the significance of these and other recent court rulings. “Case law varies from state to state, but the bottom line is, if there is an incident that causes bodily injury or property damage and the proximate cause is tied to a pollutant, then the agent really needs to think about buying special coverage.”
According to Bill Pritchard, President and CEO of Beacon Hill Associates, Inc., the recent court rulings are really nothing new. Pollution exclusions have always been held up very broadly in the courts, he said, reinforcing the fact that agents “really need to pay attention to the environmental exposure their clients have. The expectation that you were going to have pollution coverage under a GL policy or standard policy should always have been tempered anyway.”
Multi-state exposures are another big lesson coming out of current case law. Not only do agents need to know what’s going on in their own jurisdiction, but just as importantly, they need to know what’s going on in the jurisdiction where the insured is doing work, because it’s likely that will be where the policy will be interpreted.
As Pritchard put it – “If the insured is a Louisiana contractor doing oil and gas roustabout work in North Dakota, he’s got to worry about the interpretation of that law in North Dakota, not Louisiana.”
