Although a certificate of insurance may make a general liability insurance policy look like genuine pollution insurance at a glance, coverage for contamination losses under a general liability policy is likely an illusion. It is fairly common to see Certificates of Insurance (COIs) claiming that an exception to the pollution exclusion in a general liability policy fulfills a contract requiring that a party maintain pollution insurance. But in reality, it's a bad idea. General liability insurance is not, and never has been, genuine pollution insurance—and no exception to the pollution exclusion can fix that simple fact.

Issuing COIs that materially misrepresent the actual coverage in the policy is like using counterfeit currency. It works very well until you get caught. Trying to pass off either one as genuine is like living on the edge. There are major differences between general liability insurance and genuine pollution insurance, and it is important to know the differences before falling off the cliff’s edge.

In a continuing education class, a show-of-hands survey indicated that half the retail agents in attendance affirmed this statement: “I think it is OK to certify that my client has contractors pollution liability insurance if I get a job site pollution coverage extension on the general liability policy."

However, the correct response would be to reject that premise. Why?

It is common to see naïve insurance requirements that ask for “pollution liability” but do not clarify what that actually is. In most cases, the drafters of these insurance requirements are anticipating genuine pollution insurance, not a counterfeit. Therefore, stating on a COI that pollution insurance is being provided by exceptions to an exclusion in the general liability policy could be misleading—or even fraudulent depending on the perspective of the beholder in the face of a loss.

While insurance coverage can be found by exceptions to exclusions, there are often better ways to insure contamination loss exposures. Utilizing a genuine pollution insurance policy to transfer contamination exposures and meet contractual insurance requirements is not difficult and is often overlooked by well-intentioned agents.

WHY A POLLUTION EXTENSION LEAVES CLIENTS EXPOSED

The mishandling of pollution coverage extensions is still fairly common, even though genuine pollution insurance has been readily available for over 30 years. This is likely because insurance purchasers often think the cost of pollution insurance is too expensive—until they have a contamination or pollution loss.

Coverage can be afforded by exceptions to exclusions, but most insurance educators teach that the exclusions section of an insurance policy is used to exclude certain causes of loss and to help clarify the insurance carrier's intent of coverage. With that uniform background, it is disheartening to see how many mistake certifying exceptions to pollution exclusions as genuine pollution insurance.

A typical pollution coverage extension to a general liability policy only provides exceptions to the longest exclusion in a policy. Pollution coverage extensions vary, but in general, a pollution coverage extension is insufficient in the following areas:

• Does not include its own insuring agreement for losses arising from irritants or contaminants
• May not provide coverage for cleanup or restoration costs
• Shares limits with the general liability policy
• Potential coverage may be sublimited
• No affirmative coverage for natural resource damages
• Excludes pollution losses on the property of the insured
• Excludes pollution losses if the insured or if others on their behalf show up to test, monitor, remove or otherwise interact with pollutants
• Provides no coverage for biohazards, mold, or bacteria
• Often limited to time elements, sudden & accidental pollution events

The insurance coverage in a general liability policy is materially defective to cover most environmental loss exposures. For example, general liability policies cover property damage, while most environmental losses involve cleanup costs and natural resource damages. The applicability of defined property damage in a general liability policy to cover those exposures has been subject to decades of litigated coverage disputes.

WHAT QUALIFIES AS GENUINE POLLUTION INSURANCE?

Determining where coverage is being granted for pollution causes of loss is important to establish if the coverage is genuine pollution insurance or not. Genuine pollution policies state that the release or escape of irritants or contaminants is a covered cause of loss in the insuring agreement. General liability policies rarely include pollution as a covered cause of loss in the insuring agreement. In the very simplest form, a genuine pollution insurance policy insures against the emissions, discharge, release or escape of irritants or contaminates in the insuring agreement.

There are broadly two basic building blocks for pollution coverage: site pollution liability, which insures specific sites; and contractors pollution liability, which insures the operations of a contractor. The most common pollution liability requests appear in the insurance requirements for contractors. It is also the area where most bogus COIs are issued, certifying contractors pollution liability (CPL) insurance when in actuality there is only a general liability policy with a job site pollution coverage extension in place. Genuine CPL policies were initially created to provide insurance to contractors who were cleaning up areas established by the Comprehensive Environmental Response, Compensation and Liability Act of 1980, informally known as Superfund sites. Today, modified versions of the CPL policy are needed by any contractor that can contaminate something in their operations.

That contaminant does not have to be a hazardous material such as oil, harmful chemicals, or heavy metals. For example, CPL is needed for any loss associated with contractors decontaminating, mold, bacteria, or sediment. CPL policies have been available for decades and have continued to evolve over time to insure anything from a carpet cleaner to the contractors remediating atomic bomb manufacturing facilities.

Wholesale brokers specializing in environmental insurance placements, place many CPL policies. Many of these placements are on firms typically not associated with needing pollution insurance, including janitorial firms, carpet cleaners, HVAC companies, electricians, and excavation contractors.

Many clients hire thousands of contractors every year under a set of very explicit insurance requirements that include CPL coverage. Wholesale brokers specializing in environmental coverage review hundreds of general liability and CPL policies. The failure to meet the insurance requirements upon an actual audit of the in-force insurance policies is astounding. Typically, nine in 10 insurance placements fail to meet the insurance specifications, even when touting an insurance certificate that represented that all the needed coverage to meet the insurance requirements is in place.

CPL policies are not standardized, which explains some of the failures. Genuine CPL coverage is available through any environmental insurance market. At last count, there were over 60 different versions of CPL policies available. One example of a misplaced CPL policy was a mold abatement contractor who had purchased CPL insurance coverage that excluded any mold work. Because the original CPL policy was designed to insure contractors cleaning up Superfund sites, most CPL policies need to be modified for indoor exposures. The loss exposures of a Superfund contractor and a trade contractor are vastly different; therefore, CPL policies need to be designed to fit the insurance needs of the purchaser. The good news is all the tools needed to accomplish that have been developed.

While all CPL policies have coverage variations that clients must be careful of, most include the same core coverages:

• An insuring agreement for losses caused by pollution
• Limits of insurance not shared with general liability insurance
• Coverage for bodily injury
• Coverage for property damage
• Coverage for cleanup costs
• Coverage for cleanup required by environmental laws
• Coverage for natural resource damage
• Completed operations
• Coverage for work performed by a subcontractor

Other common coverages include:

• Transportation pollution liability
• Non-owned disposal site liability
• Defense outside of the limits
• Restoration costs
• Affirmative coverage for fungus and bacteria

BOTTOM LINE

There are major differences between pollution coverage extensions in a general liability policy and a genuine pollution insurance policy. Unless confirmed to be otherwise, the party requiring pollution liability is expecting a policy with the above features, not a counterfeit. Insurance agents are living on the edge by verifying pollution insurance on COIs if the only coverage is being provided by a general liability policy that has an endorsement making some exceptions to the pollution exclusion. It can be disastrous if the expectation of insurance coverage depends on the features that could have and should have been provided by a genuine pollution insurance policy. Any time insurance agents see the term “pollution liability" in an insurance specification, it would be wise to stop and seek out a knowledgeable resource well-versed in handling environmental insurance on a daily basis to find genuine pollution insurance. Reach out to your local CRC Group Producer today to learn how we can help ensure that your clients are protected against pollution risks.

CONTRIBUTORS

• Dustin Helmenstine is a Broker with CRC Group’s Denver, CO office where he specializes in Environmental coverage. He is also a member of CRC’s Environmental Practice Group.

END NOTES

1. Environmental Insurance, NAIC, June 23, 2022. https://content.naic.org/cipr-topics/environmental-insurance
2. Why the Built Environment? Architecture 2030. https://architecture2030.org/why-the-building-sector/#:~:text=The%20built%20 environment%20generates%2040,for%20an%20additional%2013%25%20annually.