Weather related events and pollution policies

When the wind and rain begin, the most pressing issues facing our clients during a hurricane are their devastating impacts. When the water recedes, however, environmental clean-up or mold remediation may be required. While property insurance can be an initial source of coverage, please do not overlook reporting a hurricane to your pollution policies.

When considering the different types of pollution policies, there are primarily two “families” of pollution policies available: (1) those that address fixed-site pollution exposures (pollution conditions either on, at, or migrating from a fixed site – and associated waste and transportation exposures); and (2) those that address pollution exposures caused by, or arising out of, contracting operations (and associated completed operations). The first category of pollution coverage is generally referred to as a site pollution policy; the second category is referred to as a contractors’ pollution liability policy. For purposes of hurricane risk, site pollution policies will mostly likely be implicated, and will be the focus of our discussion.

Carriers that offer site pollution coverage generally do so on their own unique policy form – which means no “one” carrier’s form is like another’s. With that said, there are some common characteristics between carriers’ forms:

• Coverage is triggered by a pollution condition – which means some sort of release or discharge of a pollutant
• As noted in its title, coverage is somehow tied to a fixed “site”. Carriers will either schedule the fixed “sites” onto the policy, or provide coverage on a “blanket” basis (often locations that the insured owns, leases, or occupies as of policy inception)
• While insuring agreements differ between the carriers – most forms will include the following coverage grants:
  • Cleanup costs – for the insured’s first party “out of pocket” costs, as well as cleanup costs that result from a third-party claim made against the insured. The standard of “cleanup” is generally “as required by environmental laws,” or in the absence of environmental laws, as recommended by an environmental professional.
  • Third-party claims for bodily injury and property damage (encompassing loss of use or natural resource damage), including legal defense expense.
  • Business interruption and extra expense solely resulting from a pollution condition.
  • Transportation of the insured’s products, goods, material, or waste – typically to and from a covered location.
  • Waste disposal activities at a non-owned disposal site – where the waste is from a covered location, or
  • Crisis management / image restoration
• Site pollution policies are written on a claims-made and reported basis

When an insured business experiences flood, wind or other damage caused by a hurricane or other intense storm –the first “insurance-related” phone call is usually to its property insurance carrier. At that point, the full extent of damage may not be known, or will not be known until days or weeks afterward. When the water recedes, insureds often find that chemical inventory has been impacted, or waste material has been released from storage areas. While property policies frequently include coverage for resultant pollution-related damage (i.e., land and water contamination, debris removal, mold), coverage is typically sublimited, or subject to a significant hurricane deductible. It’s not uncommon for an insured to rely on the property policy to respond but fail to consider that the pollution-related costs may exceed the available sublimit.

The insured may not realize this potential “shortfall” in coverage until months later, at which point the insured may have inadvertently impacted the ability to recover under its pollution policy.

Pollution policies are valuable assets that often respond to weather-related events. Unlike property policies that require a covered “cause of loss”, pollution policies are triggered by the release of pollutant – with limited exceptions. To protect whatever coverage may be available under the pollution policy, it’s critical that the insured place the pollution carrier on notice of the hurricane/water damage – at the time of the event. While “water damage” is NOT covered under the pollution policy, placing the carrier on notice will alert the carrier that there may be a pollution claim forthcoming and preserve the insured’s ability to access the pollution coverage should the need arise.

Some key coverage issues to note for pollution policies:

1. Claims made and reported. Pollution policies (particularly site pollution policies) are written on a claims-made and reported basis. Therefore, timely reporting is critically important to preserve whatever coverage may be available under the pollution policies.
2. Mold coverage limitations and reporting requirements. For certain industries (particularly residential, hospitality, K-12 schools, colleges/universities, and healthcare) – many carriers eliminated or significantly limited coverage for mold to “named peril” and/or “time element”. For instance, some carriers require the insured to give notice within 21 days of discovery of a “water intrusion event”, which includes flood and named storms. Please be mindful of these types of endorsements.
3. Consent. Pollution policies are notoriously strict when it comes to the application of the CONSENT provision (or voluntary payments). Outside of an emergency response situation, the pollution policy language clearly requires the insured to obtain the insurer’s consent prior to incurring costs. Make sure the pollution carrier is informed of any anticipated mold remediation or cleanup prior to commencing work.
4. Emergency response coverage and reporting requirements. Most pollution policies include emergency response coverage – which allows the insured to incur costs for an initial period without obtaining the carriers consent. Typically, the emergency response coverage requires reporting within a very short window.

For instance, one carrier has a 96-hour window to report, while others require reporting within 14 days.

When an insured incurs damage from a hurricane or water event, the “notice” process should begin with a quick inventory of all potentially available policies – not just property. For pollution coverage in particular, the critical time to notice the carrier is at the time of the event – even if notice serves as a “placeholder” or includes a comment that the property policy is on notice. At best, the pollution carrier acknowledges receipt, and the property sublimit is sufficient to cover all potential pollution exposures. Alternatively, failing to notice the pollution carrier could result in late notice and the insured running “afoul” of the pollution policies’ strict provisions. The bottom line is to protect whatever coverage may be available for these types of losses – and it starts with noticing all carriers at the time of the loss.

Disclaimer

Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, Willis Towers Watson offers insurance products through licensed entities, including Willis Towers Watson Northeast, Inc. (in the United States) and Willis Canada Inc. (in Canada).

Author

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Robin Kelliher

National Environmental Claims Director, WTW

With over 15 years of experience in the insurance industry, Robin is part of the WTW environmental team, focusing on complex coverage issues and claim resolution.

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