Pollution Legal Liability insurance: Not just for brownfields

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Pollution Legal Liability insurance: Not just for brownfields

By David A. Kelm

The image of a polluted property that leaps to mind is that of a hulking industrial complex belching smoke, oozing bubbling gunk and draining black runoff into the nearby stream. Likewise, a “brownfield” is imagined as a shuttered factory with a rusty, padlocked chain link fence with a faded “For Sale” sign hanging loosely by a bit of wire.

However, as aggressive environmental cleanup legislation is passed each year and governments at all levels seek to redevelop “dirty” sites, property owners and facility managers in more business sectors are facing the reality and costs of environmental remediation and litigation. As such, many owners are turning to Pollution Legal Liability insurance as one tool in dealing with current pollution and legacy contamination.

Insurance coverage for ongoing contamination and for previous or legacy pollution has been around for a while. Policies have been known by names such as “premises environmental coverage,” “premises pollution liability,” “site specific pollution liability,” and “site incident pollution liability.” Many of these insurance vehicles entered the marketplace in the mid-1990s. Generally, environmental insurance coverage is known as Pollution Legal Liability (PLL) insurance.

Property owners have long relied upon comprehensive general liability (CGL) policies to cover a host of business and property issues. CGL policies are not intended to cover an insured for environmental concerns and often exclude coverage and defense for claims and legal action resulting from hazardous materials.

Some CGL policies, though, exempt such exclusions if the claim is made for a “sudden and accidental” incident including hazardous materials. Most claims, though, are in response to environmental contamination that is years and decades in the making and insurance companies across the country have pursued litigation to protect denial of coverage under a CGL policy.

Property owners of sites and facilities that may have included environmentally hazardous operations or that have on-going operations, such as manufacturing and industrial facilities, may be able to avoid pollution-related risk with the assumption of a PLL policy.

PLL coverage is intended to address three broad areas: 1) third-party claims for bodily injury or property damage; 2) legal defense costs related to such claims; and, 3) first-party clean-up and business loss costs resulting from contamination.

PLL policies are much better suited for environmental hazards but they do carry some important exclusions. For instance, PLL coverage generally includes costs associated with legal defense but there is not a “duty to defend”, as in many CGL policies. Legal costs that tend to be covered are those associated with an investigation and settlement of a claim.

Additionally, PLL policies usually do not cover all hazardous contamination and generally exclude asbestos, lead paint, undisclosed pollution known to the insured and radioactive material. PLL policies also do not cover underground storage tanks but there are stand alone policies available.

It is important to note that PLL policies are “claims-made”, meaning that a claim must be made against the insured during the policy period in order for the insured to access the policy’s coverage. Allowable claims usually must come from a pollution condition that includes some legal or regulatory action. Coverage may also be triggered at any time when an insured discovers an environmental incident during the coverage period.

The pollution spewing factory or the run down industrial site are no longer the sole target of environmental lawsuits and government regulation. Small businesses such as dry cleaners, golf courses, gas stations, contractors, apartment and corporate complexes and strip malls are facing suits and regulatory crackdowns. The hospitality industry – hotels, restaurants and bars – are subject to increasing environmental regulation. Hospitals are also not exempt and must be cognizant of their environmental footprint.

Local, state and federal governments are also increasing their desire to see brownfield sites redeveloped into revenue producing properties. While there are a number of government programs to assist with the costs of revitalizing a shuttered facility or vacant property, a private business must still take on the risk of developing a new venture. Such risk often time includes the cost of remediating legacy waste and the possible liability that such pollution may have migrated off the property.

Given the increasing scope of environmental regulation and the litigious nature of the United States’ society, there is a surge of interest in pollution legal liability insurance policies. Hazardous waste clean-up used to be reserved for big industrial and manufacturing facilities. However, small businesses across the area are being swept up into new environmental laws and regulatory rules. Property owners and facility managers would be wise to give PLL policies another look.

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David A. Kelm is an attorney from Chatham with experience in environmental law.

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