The CGL Is the Wrong Place to Look for Pollution Cover

by William Kronenberg III

In light of the affordability and flexibility of today's environmental insurance coverages, why should risk managers even look to the CGL for pollution cover? Just because the insurance industry is feeling bold enough to offer some kind of pollution protection under the CGL, corporate America should not blindly follow. Risk managers report that they are not happy with the environmental protection they are finding in today's pollution-enhanced CGL policies. Nor should they be.

The lessons of the past should make any business skeptical about relying on the CGL for pollution coverage. First of all, offering pollution coverage on standard liability policies was something the insurance industry swore only a decade ago that it would never do again. In fact, many insurance companies turned their backs on offering complete pollution coverage, leaving many businesses to cover environmental losses out of their own pockets.

The older GL policies with their "sudden and accidental" pollution wording continue to create problems. What constitutes a pollutant? What is considered a "sudden and accidental" incident? Tested in state courts, these questions continue to be answered and re-answered with no consistency. As the new pollution endorsements in today's CGLs are put to the same tests, it is likely that they, and the companies that rely on them for pollution insurance coverage, will not be able to escape the courtrooms either.

There are too many reasons not to rely on the CGL for pollution protection. The fact of the matter is that environmental risks are complex and constantly changing. While environmental cleanups and asbestos were the primary claims of the past, new environmental hazards are uncovered daily and spark new coverage debates. Take current debates over indoor air quality claims. Some indoor air quality conditions are the result of a "natural" pollution condition when mold builds up in a building's ventilation system. While a natural condition might not fall for some under the typical definition of pollutant, we all know that definitions -- for any word -- can take on new meanings over time. The changing definition of what constitutes an environmental risk will continue to result in businesses grappling over coverage thought to be inclusive in pollution-enhanced CGLs.

Then consider how environmental risks are constantly influenced from various outside sources -- regulatory changes, court room decisions and public opinion. As more states have taken over environmental regulatory control, various industries have found themselves regulated by new environmental standards, from fast food restaurants in California to dry cleaners in Florida and North Carolina. Few of these industries would have even predicted that they would ever need pollution coverage. On the other hand, some industries that have had to deal with environmental risks in their day-to-day operations have been placing their own stringent environmental risk management guidelines on their suppliers and vendors. The chemical industry, for instance, is imposing insurance and other risk management requirements on warehouses and transporters that store or haul their products.

To meet the needs of all these industries, environmental insurance providers have equipped themselves to handle environmental risks. While insurance underwriters overall have become more knowledgeable and sophisticated with regard to environmental risks, the core of this underwriting experience still exists in a handful of specialized environmental insurance providers. With experience in the environmental professions, these underwriters have been trained to perform the specialized brand of environmental underwriting which allows insurers to properly assess and quantify a client's environmental risks. The most beneficial result of this on-staff expertise has been that environmental insurers have managed to stay ahead of the customer demand curve. They have provided the specialized environmental insurance programs which customers either have needed to meet regulatory requirements or demanded to meet their own high standards of environmental risk management.

Clearly, businesses uncover and face new environmental challenges every day. Environmental insurance products and services, therefore, can by no means simply adequately meet their risk management needs, but must meet them in an exceptional manner. Because of the urgency in handling environmental incidents, the cost of remediation and fines, and the risks they pose to environmental protection or public health, they have to. New flexible coverages, appropriate liability limits, affordable premiums and, of course, high standards of service that can appropriately handle the distinctiveness and diversity of environmental risks, are the reasons why more risk managers are not relying on CGL pollution coverage, but utilizing the environmental insurance specialists.

Today's property and casualty insurance market has been deemed the most competitive market ever. For risk managers, this condition offers a valuable opportunity to stop relying on the CGL policy for all the risks they face and to look outside the traditional lines of property and casualty coverages. Better yet, risk managers should discover the other risk management products and services available that can bring additional value to their insurance programs. Nowhere can more of this value be found than in the current offerings of the environmental insurance marketplace. If businesses explore the expertise and other useful services available from their insurance company that can provide value beyond the policy, they will find that there is plenty to be had. For every insurance dollar spent what is really being received in return? With an environmental insurance policy, the return includes risk control and claims management services that incorporate environmental auditing, employee training and contract review assistance. Part of managing an environmental risk for any company is keeping a constant check and correcting possible exposures to avoid creating a pollution condition. Don't look for this expertise and assistance to accompany a CGL's minimal pollution protection. It would be a waste of time.

Companies of all types and sizes are recognizing the advantages of using environmental insurance, and its accompanying risk control products and services, as a risk management tool. In light of the extensive line of currently available and affordable pollution coverages in the environmental insurance market, businesses should be reluctant to operate in the vast "gray area" of pollution protection that the GL policy may purport to offer. Businesses are well-advised to consider if they are willing to play Russian roulette with the future of their enterprise. Knowing the potentially catastrophic implications of environmental exposures, that should be an easy question for any prudent business to answer.

William Kronenberg III is president and CEO of N/A, leading providers of environmental risk management services to business and industry worldwide through environmental insurance, risk control services and claims administration. The ECS Companies, headquartered in Exton, PA, recently received the first Arthur Quern Quality Award from RIMS and the QIC for their commitment to quality in ECS products and services.