Things That Go Bump in the Night

In 35 years of handling environmental insurance placements, one constant has been the scariness of environmental insurance policy forms.

As no two carriers use the same form, every placement comes with the potential nightmare of missing a detail. For more than three decades, a misplaced “and,” a comma in the wrong place, or failing to read and comprehend every word of a pollution policy has been the thing that goes bump in the night in my broking career.

One miss for an agent and the best-case scenario is a disappointed client—the worst-case scenario is facing a professional liability claim.

My hope is that through this article, we can look under the bed together and confirm that the enlightenment of knowledge has chased away those policy monsters in at least a few policy areas.

Claims-Made, Coverage Unmade

My first nightmare is that site pollution policies have always been issued on a claims-made basis. With a claims-made policy, an improperly placed retroactive date can mean the difference between a covered and an uncovered claim. It is essential that any retroactive date matches the client’s coverage expectation or that it be well documented why the client’s desired retroactive date cannot be met.

For example, I once consulted on a claim situation for a mining site that had operated for nearly 90 years. The new owner wanted an environmental policy that protected them from past, present, and future environmental liabilities. However, the placement had a “policy inception” retroactive date. Clearly, the client’s coverage desires were not met, which resulted in a very frustrated client. 

This also becomes an issue when there is a location schedule change on site pollution policies. On more than one occasion, I have received a request from a client to remove a covered location from a site pollution policy. Agents must remember that when a location is removed from a claims-made policy, it is as though that location never had coverage, regardless of how long it was covered on any prior policy. The same concept applies to a change in retroactive dates. If a current policy moves a retroactive date forward on a location by 10 years, it is as though that location has lost a decade of previously purchased coverage.

Know Your Exclusions

My second nightmare comes from the “known conditions” exclusion present in every site pollution policy. However, every policy does not handle this exclusion in the same manner; some policies use verbiage that would exclude any known issue, no matter how insignificant, even if it has been disclosed to the carrier during the underwriting process.

For example, the known conditions exclusion in some policies will read, “any known conditions at the covered location is hereby excluded from coverage regardless of whether it has been disclosed to the carrier or not. For coverage to apply, the known condition must be endorsed as covered onto the policy.” The wording is designed to act as a blanket exclusion, which means that if the underwriter is given an environmental site assessment that lists 10 items, and nine of those items are de minimis, pollution events from all 10 items are still excluded.

Agents make the mistake of getting a quote back from the underwriter and doing a happy dance because the quote lists no “known condition” exclusions, only to realize later that there was an exclusion within the basic policy language all along to make their nightmares come true.

Cooperating on Claims

Finally, on a broad scale, my placement nightmares come from trying to ensure that our pollution policies and coverage granted through other policies, such as commercial general liability (CGL) or marine terminal operators policy, work in concert and not in conflict. It is imperative that our pollution policies, whether they are site pollution or contractors pollution, define if they will pay before or after the CGL and whether payments made under the CGL will be credited against the pollution policy deductible.

In a large claim, even when the wording seems abundantly clear, it has been my experience that the CGL carrier will advocate that the pollution policy should also act as the primary insurer. This happens even when the CGL and pollution policies are with the same carrier, so making sure that it is crystal clear how general liability and pollution policies work in concert is essential to ensure a better claims experience for our clients.