As businesses throughout Canada direct more attention and resources towards their ethical and social responsibilities for minimizing their environmental impact, environmental impairment liability insurance has become an important tool for helping manage the legal and reputational consequences associated with pollution events.
Environmental damage can occur at any time; despite a company’s best efforts at prevention, the reputational and financial effects can be disastrous. Businesses of all sizes should be taking the appropriate steps to identify pollution exposures and protect themselves by investing in environmental impairment liability.
What is environmental impairment liability insurance?
Environmental impairment liability insurance provides coverage for unknown pre-existing environmental liabilities. It is also designed to cover sudden and gradual pollution events, cleanup costs, bodily injury and third-party property damages, legal costs and expenses as well as business interruption.
A wide range of businesses and contractors are susceptible to pollution risks, especially if they are handling potential pollutants as part of their daily operations. Environmental impairment liability is a key coverage for sectors most exposed to these types of risks such as oil and gas, construction and transportation.
There are three policy types for environmental impairment liability:
- Contractors’ pollution liability: Covers your ongoing operations and potential third-party claims that result from the release of pollutants through work being done by or on behalf of a contractor.
- Premises-only pollution liability: Protects against gradual pollution releases at a fixed location, such as a gas station that has fixed underground storage tanks for fuel.
- Transportation pollution liability: Offers coverage for pollution resulting from products or materials during loading or unloading while being transported, shipped, or delivered by the customer or by a carrier on their behalf.
Why environmental impairment liability coverage is essential for all businesses
In recent years, companies of all sizes have been and will continue to be scrutinized for their environmental, social and governance (ESG) practices and corporate policies. Consumers, businesses and governments alike are becoming increasingly environmentally conscious and acutely aware of the consequences of our environmental footprint for future generations.
Pollution events can be incredibly impactful to the business at the centre of them and the local community affected. They can include:
- Spills and accidents during transport
- Leaks from machinery and storage tanks
- Fertilizers, herbicides and pesticides
- Project site run-off
- Asbestos, mold and dust
- Noise
- Underground resources and utilities causing contamination
Given the scale and variety of risk exposures, this is why environmental impairment liability is a vital component in the development of a robust risk management strategy, regardless of the size of your business.
Filling the coverage gaps you didn’t know you had
A lot of businesses assume that their commercial general liability policy already covers environmental damage. What many don’t realize is that most commercial general liability policies have pollution exclusions for both third-party bodily injury and property damage.
While sudden and accidental pollution coverage can be purchased as part of the commercial general liability policy, it is quite limited when compared to an environmental impairment liability policy. It only provides coverage for third-party exposures and is restricted by specific detection and reporting timeframes. This could potentially leave your business vulnerable to risks that could result in paying massive fines and penalties as well as reputational harm.
Environmental impairment liability is intended to cover pollution incidents and unknown pre-existing conditions, regardless of whether they happen suddenly or gradually. It’s important to note that there are some instances where businesses would not qualify for coverage, such as:
- Known pre-existing conditions (but you can qualify for coverage again once a site has been remediated and deemed clean).
- Non-compliance with environmental laws.
- Abandoned properties or deliberate dumping of pollutants.
- Misrepresentation of current pollution conditions.
The right environmental impairment liability coverage will serve as a risk management tool and communicate to stakeholders that your company is committed to environmentally sustainable practices and operations.
If you’re ever unsure about what your insurance coverage includes and what exclusions apply, talk to your Acera Insurance advisor. They can walk you through your policy’s terms and conditions and identify any risks and gaps in coverage.
Kaare Odegard is senior partner and National Practice Leader for Acera Insurance’s Natural Resources team. With over 12 years experience in the energy sector, Kaare has extensive experience in both placement and management of complex risk solutions. Kaare is committed to understanding and knowing his client’s business and works directly with their teams to find the best options and solutions for their needs.