The environmental impairment market is very active right now. According to Gregory K. Steinman, vice president of Crump Environmental Services, a division of Crump Insurance Service, Inc., “There has been an influx of new carriers into the marketplace. There are currently more than 30 carriers writing environmental liability compared to 15 or so at this time last year.” Gina Jones, director of specialty programs at Burns & Wilcox Ltd., agrees and identifies a number of strong carriers, including ACE, American Safety, Century, Chubb, C.V. Starr, Everest, Hudson, Ironshore, Navigators, and Zurich. Ms. Jones adds: “There are many more solid carriers in the market.”
This class of business is primarily written on nonadmitted paper because of its flexibility. Mr. Maroukian explains: “Like most in the industry, we use nonadmitted paper for this type of coverage. In certain cases, we are able to use admitted paper through the New York Free Trade Zone or the New Jersey Exportable List.”
John Rich, environmental underwriting manager for James River Insurance Company, believes most businesses have an environmental exposure. He says, “Any business should make a thorough assessment of the environmental risk to its business a part of its risk management strategy. That includes site owners; those who lease a facility; any contractor; and any professional consultant who may render opinions in areas that involve the environment. If they are not sure what their potential environmental liability is, they should find a qualified retail agent who can help them assess their risks and exposures.”
Our other experts fully agree with Mr. Rich. Mr. Maroukian notes that, while most environmental contractors and industrial/agricultural risks have purchased coverage, “Due to the changing regulatory climate, increased awareness of environmental exposures, and the high litigation costs associated with claims resulting from pollution events, we are seeing increased activity from non-environmental contractors, real estate, educational institutions, hotels, warehousing/distribution, etc."
Ms. Jones provides some examples; “The owners of an office building need coverage if they have a boiler room, have any tanks on site, or have a potential mold situation. In medical facilities like hospitals and clinics, employees and patients may become infected by Legionella in the water supply. The owner of a storage facility doesn’t know what customers put in their storage spaces. Toxic substances can leach into the water supply and cause illness and property damage.”
To sum it up, Mr. Steinman says, “Every operation and contractor has environmental exposures. The key is defining them based on the type of risk.”
This coverage is mostly prone to severity exposure, especially at site locations. However, according to Mr. Rich, “Carriers that choose to write contracting accounts are likely to see a frequency of liability losses.” Overall, the claim activity varies based on the type of operation and is difficult to categorize.
Mr. Steinman says, “The most common coverage gaps on the environmental side are typically discovered in the insured’s commercial liability and property program. A typical CGL policy contains – or is endorsed with – an absolute or total pollution exclusion. Interpretations of the exclusion and the definition of pollutants have been very broad, often leaving the insured without coverage for pollution-related loses.” Ms. Jones adds, “Clients often think they have the coverage because their CGL has a $10,000 or $100,000 sublimit. That’s not even going to cover their defense costs.”
One of Zurich’s products providing pollution liability coverage is called Z Link. According to Mr. Maroukian, “Z Link offers insurance protection in the event of commercial general and pollution liability claims arising from the insured’s locations and/or operations. By combining both types of coverage in one policy, Z Link helps to reduce the confusion and eliminate potential coverage gaps that may result from multiple carriers and policies.”
Mr. Rich agrees that combining coverage with one carrier is very important. He says, “Anytime an insured can write its general liability and pollution liability with the same carrier, it mitigates the potential for finger pointing in the event of a claim to which the extremely broad language of the pollution exclusion may apply. Having the coverages with different carriers takes the chance of delaying settlements and thus increasing the claims cost.”
There can still be significant gaps in coverage when pollution or environmental impairment liability coverage is purchased. Ms. Jones and Mr. Steinman comment that individual risk assessments are required to determine the risk's specific needs. Ms. Jones points out issues such as non-owned disposal sites, mold, asbestos, lead, and silica that a basic pollution policy may not cover. In addition, bioterrorism, transportation-related pollution, and new versus existing exposures may exist for some operations. Thanks to the BP oil spill, another major exposure being discussed today is business interruption.
James River offers EIL limits up to $5 million. Zurich, using Z Link and excess liability, will write up to $50 million and more. Burns & Wilcox can layer limits up to $100 million, all in domestic markets. Crump has $300 million easily available, with the possibility of another $200 million for the right risk.
The market for EIL is extremely soft at this time, especially because of the added capacity and new players in the industry. Mr. Steinman states, “We are seeing as much as 20% to 50% reductions in premium at renewal, and new business mirrors those rates.” Ms. Jones says, “Minimum premiums with many carriers begin at $2,500, where they used to be $10,000, and that’s for a comprehensive policy. Some carriers refuse to go down as low as $2,500 and stick with $5,000.”
The total impact of the BP oil spill has not yet been felt in the writing of pollution business. Restrictions are being placed by some carriers writing in the Gulf region. Some of our experts felt that the impact might be restricted to only the energy industry as opposed to having an overall impact on pollution coverage. They agreed that the oil spill will have a long-term impact on Gulf Coast residents and businesses, but there was no consensus as to the long-term impact it will have on the broad market for EIL.
Our experts all believe that this is an excellent time for retail agents to discuss environmental impairment liability coverage with their clients. The price is right, the coverage is needed, and the recent oil spill provides a great opening to begin this important conversation. |
|
