Pollution coverage gaps your clients may not know about

The cost of cleaning up after spills of petroleum, oil, or other contaminants may not be covered under your client’s liability or property policy, a managing general agent warns.

Many clients are exposed to pollution risk but are not necessarily aware of it, said Christine Nauth, assistant vice president for Strategic Underwriting Managers Inc. Examples include contractor and manufacturing operations.

A spill of fuel or other contaminants could bring about a loss that may be excluded under commercial general liability or standard property policies, said Nauth.

This makes it important for some clients to carry separate pollution coverage, said Nauth.

In a recent interview, Nauth cited two recent examples in the construction industry. In one example, a contractor was operating a piece of heavy equipment on a job site when the vehicle ran over a sharp object and punctured its fuel tank. As a result, fuel spilled.

Although the machine was a motorized wheeled vehicle, it was unlicenced equipment and therefore not considered an automobile under provincial law. The heavy equipment was not covered under an auto policy.

In another example cited by Nauth, a contractor was working on a high-rise condo building, which was at the concrete forming stage. Oil for the tools and equipment was stored onsite in a barrel. During the night, high winds knocked the barrel over and the oil spilled on the street and cars below.

Until the late 1970s, pollution cover for third parties tended to be included as endorsements in CGL policies, said Rick DeGrace, senior vice president of environmental at Strategic Underwriting Managers.

In the mid 1980s, those were modified to become either more restrictive or to absolutely exclude pollution.

The basic auto policy in each of the provinces does not have a pollution exclusion, explained DeGrace.

Some inconsistency exists in environmental coverage offered by the insurance carriers across the country. The scope of coverage can be quite different when comparing one insurer to another, DeGrace reported. So it is important that the broker review the wordings carefully when they are discussing the client’s coverage needs.

Even if a client had some sort of limited form of pollution coverage under the CGL, it is still an absolute exclusion with respect to handling of “waste,” said Nauth.

For example, a contractor who pumps out septic tanks could have a pollution exposure because the contractor is handling or storing or otherwise involved in waste. Depending on that contractor’s policy wording, a leak from the hose or truck, or the installation of the septic tank, may not be covered, said DeGrace.

Feature image via iStock.com/Cylonphoto