Article

Environmental insurance — A good time to consider

August 17, 2017

by Anthony Wagar, National Sales Leader, Willis Towers Watson Environmental Practice

With environmental claims on the rise (particularly in the mold, Legionella and indoor air quality arena) and the marketplace offering ample carrier choice and appetite, there’s never been a better time to consider how you’re managing your environmental risk. Property owners, real estate managers and developers face a host of environmental exposures that can be devastating to their businesses. Whether resulting from their operations, their position as owners, their contractual obligations or the actions of contractors, they may find themselves liable for conditions they had little to do with or knew little about. Such environmental risks as historic contamination or operational issues (e.g., mold, lead paint, asbestos, Legionella or indoor air quality), and the stigma attached to these issues, are intangible, hard to quantify and therefore very hard to effectively manage. Here are some common exposures/risks to consider:

Indoor air quality

Commercial buildings have many enclosed spaces especially vulnerable to mold or Legionella, which can form in HVAC and plumbing systems as well as in other parts of the structures. Some residential facilities include swimming pools, which produce the humid conditions that can foster mold problems. Increasing claims based on mold and indoor air quality issues in the hospitality/real estate/health care space have resulted in carriers attempting to mitigate this exposure with per door/room deductibles and other coverage limitations. When high concentrations of customers, workers, residents and delivery persons are exposed, even a single release of pollutants can have far reaching impact and yield extensive claims. The same would be true in the case of Legionella with sources including hot tubs, water systems incorporating an evaporative condenser, extensive plumbing systems or scenarios which may release a spray or aerosol of water droplets, such as shower heads, faucet aerators, spas, air conditioner/cooling tower units, fountains and other exposure pathways.

Acquisition of sites with historical contamination

Sites previously used for other commercial purposes can pose a range of unanticipated exposures for owners, occupants and even lenders and investors. Pollutants may be encountered when land is disturbed, and this discovery may trigger regulatory notification requirements and cleanup obligations. Another issue is exposure to bodily injury claims, including those related to the intrusion of volatile vapors, which is now a priority enforcement target for regulators. Older facilities may also contain lead paint or asbestos.

Storage of hazardous materials

Storage tanks above and below ground are frequently used to store potential pollutants, such as fuels, heating oil, lubricants and chlorine or other pool additives. Smaller volumes of materials, such as pesticides, herbicides and cleaning agents are often stored or used onsite. Property owners must also consider any hazardous materials that may be stocked for sale by retail tenants.

Potentially hazardous tenant operations/activities

Potentially hazardous operations include dry cleaners, gas stations, car repair facilities, photography development centers — essentially any businesses that may use or store significant quantities of hazardous chemicals. Any of these can translate into significant environmental liabilities for building owners depending on terms of lease agreements.

Development/renovations

Development of property, be it surface or subsurface and/or soil grading scenarios, has resulted in new releases of contaminants as well as the spread or exacerbation of existing contamination, making these scenarios far worse. It’s important to have your contractors carry the proper contractor’s pollution liability insurance to provide a primary (or in some cases, additional) layer of protection. Renovations are typically done in one part of a facility while other sections remain operational — increasing the risk of third-party exposure from spreading contaminants. This can be caused by demolition or removal of materials containing lead, asbestos and other hazardous substances or by vapors or gasses emitted by newly installed materials.

The risk outlined above could pose a range of exposures for owners, buyers, sellers, developers and even lenders and investors, such as third-party claims, discovery of contamination/pollution conditions, government/regulatory “reopeners,” contractor-caused pollution, financial defaults and consequential losses.

There are more than 40 environmental markets with varying degrees of risk/product appetite, but that changes regularly depending upon loss/claims trending and the balance of their overall book of business in terms of the types of deals/risks making up their portfolio. The majority of markets have limited appetite today with policy terms more than five or even three years on new/operational risk, but many markets will make exceptions to provide five- and 10-year terms on certain pre-existing/historical risks. For a single fixed premium, environmental insurance can be used to protect against the risk of unknown/unanticipated pollution losses, providing more certainty and comfort.