On Aug. 5, 2015, workers with the Environmental Protection Agency entered the Gold King Mine in Silverton, Colorado with the goal of removing and treating contaminated water that had accumulated in the mine shaft. Instead, they accidentally unleashed one of the largest environmental disasters in Colorado’s history—releasing a toxic plume of lead, arsenic, cadmium, beryllium and mercury into the nearby Animas River. Within hours, the river had turned a sickening shade of gold.
The EPA took full responsibility for the disaster, which spilled an estimated 3 million gallons of contaminated water into the Animas River and affected waterways as far away as Utah and New Mexico. The agency quickly began a massive cleanup effort and, within 10 days, reopened the river and declared the water safe. The long term effects of the spill on local residents, livestock and groundwater will not be known for some time.
The EPA had the full resources of the federal government at its disposal when its workers accidentally let loose an environmental catastrophe. It quickly contained the damage and avoided (to date) regulatory penalties and a costly lawsuit.
Unfortunately, if you are a typical contractor, it is highly unlikely that your firm would fare as well if something of this nature were to happen on your watch.
How Environmental Impairment Liability Insurance Protects Your Firm
Environmental impairment liability insurance is a type of insurance policy designed for companies that work with, store or have the potential to come in contact with hazardous substances that can harm the environment. There are two basic types of environmental impairment liability insurance:
- Premises environmental impairment liability insurance: This coverage is designed for property owners and location-specific hazards, such as a waste facility that stores or treats toxic, pharmaceutical or biological waste.
- Contractors environmental liability insurance: This coverage is designed for operations-based hazards, such as those encountered by construction firms on job sites.
Environmental impairment liability insurance coverage typically extends to environmental damage caused by the release of pollutants such as gas, smoke, and toxic waste and includes associated regulatory fines and cleanup costs. Some policies also cover legal costs, such as court costs and attorney’s fees.
What Environmental Impairment Liability Insurance Covers
Environmental impairment liability insurance covers personal injury and property damage caused by the release of pollutants into the ground, water or air. This typically includes:
- Mandated clean-up costs, such as those required by a government agency
- Voluntary cleanup costs, if there is an imminent risk of environmental damage or bodily harm.
- Compensatory damages awarded by the courts
Environmental impairment liability insurance policies are written on a claims-made basis, which means that the polluting event must occur during the policy period for the insured to be reimbursed for its costs. However, because many such events are not detected until after the fact, policies also include a retroactive date.Claims are generally paid if:
- The injury or damage occurred after the retroactive date on the policy.
- The claim is made against your company while the policy was in effect.
- You report the claim to the insurance company within 15 days of termination of the policy.
Additionally, most insurers allow companies to buy an extended reporting option that extends the reporting period for up to 12 months. This additional reporting period prevents insurers from mitigating the cost of paying a claim by canceling a policy after a polluting event occurs.
What Environmental Impairment Liability Insurance Excludes
Environmental impairment liability insurance is comprehensive coverage, but it does not apply to every event. For example, many insurers specifically exclude coverage for property damage or bodily harm caused by “naturally occurring substances,” such as arsenic, lead, mercury and silica, if they occur in their “unaltered form.”Other policies exclude damages that result from exposure to fungi, including mold, and bacteria.
Additionally, environmental impairment liability insurance typically excludes coverage in the event that:
- The damage was intentional or should have been anticipated by the insured
- The damage occurred due to malicious or unlawful acts by the insured
- The damage was to the insured’s property
- The incident resulted in bodily injury to an employee of the insured
If you are a contractor, don’t assume that your commercial general liability coverage is enough to protect your company in the event you accidentally pollute or damage the environment. Further, don’t make the mistake or thinking that all environmental impairment liability policies are alike. Talk to one of our business insurance experts to get a thorough assessment of your company’s risk. Just call 516-292-3780 to set up an appointment for your insurance review, or request a free consultation online now.