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What Do I Want Covered in an Environmental Insurance Policy?

What a Pennsylvania company should look for to protect itself

Climate change is a global issue. But for many Pennsylvania businesses, it is also a local problem. In recent years, there has been a noticeable increase in pollution-related claims (i.e. damages related to the release of pollutants or other forms of environmental contamination). Most general commercial liability insurance and property insurance policies will not cover pollution or other environmental liability claims. That is why Pennsylvania firms are increasingly purchasing, along with general liability policies, separate environmental insurance or pollution insurance coverage.

When Do You Need Pollution Coverage?

You might think that environmental and pollution liability insurance is only something your company requires if it handles radioactive materials or operates high-risk facilities. However, just about every Pennsylvania business may face some form of environmental risk. For example, there may be groundwater contamination on your property caused by leaky pipes or serious damage arising from a fire or flood that is not covered by your existing insurance products.

First-Party vs. Third-Party Coverage

Environmental insurance policies are typically distinguished based on whether it provides first-party or third-party coverage. With first-party coverage, your company receives funding from the liability insurance policy if it needs to fund a cleanup of environmental contaminants on your property. Third-party claims in contrast, deals with damages arising from your company’s release of pollutants, which in turn affect the lives and property of others.

Even within the broader categories of first- and third-party coverage, there are often multiple different types of policies that may be applicable to your company’s situation. Some policies provide long-term coverage that address contamination that occurs over an extended period of time. Other environmental liability insurance policies are more narrowly tailored to deal with “sudden and accidental” events, such as an explosion.

What Damages Can Environmental Insurance Cover?

A basic pollution insurance policy should cover bodily injury, property damage, and cleanup expenses associated with an insurable event. Depending on the nature of your company’s business, you may also need to consider purchasing optional coverage, along with commercial insurance, to deal with other potential damages, such as business interruption, transportation of pollutants, additional cleanup costs for non-hazardous materials, and paying for third-party waste disposal sites.

Avoiding Mistakes When It Comes to Environmental Insurance

The biggest mistake a Pennsylvania company can make with regard to pollution insurance is assuming their existing general liability coverage will protect them. As discussed earlier, most general policies contain specific pollution exclusion language. Some companies mistakenly believe these exclusions only apply to certain hazardous materials. But the insurer often drafts such exclusions broadly to cover any form of contamination and/or cleanup situation.

It is therefore important to consult with an experienced Pennsylvania insurance attorney, experienced in environmental law, who assists business clients in determining the appropriate type and amount of pollution coverage for their situation. Not only do you need to review your existing general liability insurance to find the gaps in your coverage. You also need to ensure that any pollution coverage you do purchase is appropriate for a business of your type and size.

For more information on this area of law, see our overview of insurance coverage.

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