In the last decade, environmental, or pollution, insurance has become an important part of real estate insurance programs. The rapid growth in environmental insurance for real estate owners and developers has largely been driven by the exposure to catastrophic loss caused by property damage and third party claims resulting from indoor pollutants.
Consider the following true claims stories:
A newly-constructed residential high-rise exhibited systemic mold conditions in multiple units within the first year of occupancy, resulting in a $1.2M remediation/restoration.
A shopping center discovered dry cleaning chemicals in ground water, generating $1.3M in remediation costs.
A large hotel and hospitality company had a Legionella outbreak causing customers serious injury that resulted in hospitalizations and a death; the total costs of liability exceeded $5M.
These and many other real life exposures may not be insured under an “absolute pollution exclusion” included in 98% of General Liability (GL) policies. The pollution exclusion was designed to deny coverage for any type of environmental-based event. The unfortunate reality is that virtually any substance that could possibly be considered hazardous and is involved in a contamination event could be used by an insurer to deny coverage under the pollution exclusion.
Environmental claims costs are often significant. They can include a victim’s bodily injury claims, clean up and facility remediation costs, business interruption, defense costs and more.
Pollution insurance coverage is the solution
Because the pollution risk is so great, and uninsurable on most Property and GL policies, a dedicated environmental insurance policy provides coverage for risks excluded by the absolute pollution exclusion.
Dedicated environmental, or pollution, insurance coverage is triggered when a previously-unknown pollution condition is first discovered and a claim is made during the policy term. Therefore, provided the pollution was unknown before the policy went into effect, cleanup coverage applies even if the pollution release occurred before the policy was effective.
In some situations, known pollution conditions can be covered as long as they are not yet actionable by law. Put another way, if a real estate owner knows that they have pre-existing pollution beneath the footprint of their property, but the conditions are not yet the subject of regulatory activity or third party litigation, an environmental carrier can offer coverage for those conditions.
Pollution insurance covers both first and third party damages arising out of the release, escape or dispersal of an irritation or contamination event, including:
- Cleanup costs at, or emanating from, the insured’s location
- Bodily injury and property damage claims
- Legal defense costs and non-criminal fines and penalties
- Business interruption costs/loss of rent due to the pollution condition
- Remediation costs to bring the facility back to normal conditions
- The definition of “pollution” will include: Mold, Legionella, Microbial Matter and Fungi – areas of risk that are major concerns in real estate and hospitality
In addition to protecting financial assets, pollution insurance will also provide the specialized technical and legal expertise required to respond to pollution events and lawsuits that are typically not available to owners and managers through their professional advisors.
Because environmental or pollution insurance does not have a standard policy, it is critical to work with an experienced broker who can negotiate appropriate definitions of “pollutant” and limit exclusions based on your business’ activities and it’s unique pollution risks.
Contact your HUB Real Estate expert for more information on how you can secure pollution insurance for your business’ risk.