The current configuration of environmental insurance owes muchof its structure to a series of legal calls that occurred 25 yearsago. Prior to the mid-1980s, it was not uncommon for a judgmentregarding pollution to go against a carrier providing generalliability coverage when the event causing the claim could be shownto be other than "sudden and accidental," then the common wordingto exclude coverage.

All of that changed in the middle and late 1980s. "Over time,attorneys challenged the pollution exclusions in the GL forms inuse at the time. The majority of those exclusions did not hold upin court, so eventually carriers strengthened their exclusions,"said Jeff Foering, vice president of Everest Insurance in LibertyCorner, N.J. "Ultimately, the GL carriers amended the wording untilthey arrived at something we now know as the absolute pollutionexclusion. That's when the opportunities really began forunderwriting and rating environmental risks."

Trenton Eversull, vice president of NECC Environmental inSlidell, La., believes that the rise in environmental coveragestarted with asbestos. "That's what really kicked things off. Therehas always been a market, but it really started booming there. Thatwas followed by contractor's pollution, then lead, soilremediation, underground storage tanks, and mold."

The unique aspects of the environmental market, combined withconstant change, make it a challenging coverage for most insuranceprofessionals. "It's tough for agents or brokers to stay current onall of the nuances — it's a very specialized niche," said Foering."Agents and brokers looking at a risk may not realize all of theexposures involved, or may only be asking for one coverage part,when others might be needed."

A Large, Complex Market

Agents and brokers agree that the current coverages are greatlyimproved from the earliest days of what was very basic coverage inmany offerings. As an example, said Eversull, "On contractor risks,carriers now have the ability to include contractors' pollution,errors and omissions and CGL on almost every type of job. Inaddition, we can write contractors' pollution stand-alone or perproject or per client."

The current domestic environmental insurance market is generallyconsidered to be in the range of $1.5 to $2 billion in annualwritten premium nationwide. Individual state statistics aredifficult to pinpoint. However, according to the market datareports section of the Florida Surplus Lines Service Office website, 2008 surplus lines written premium in the category "Pollutionand Environmental" totaled just under $35 million for the SunshineState.

These numbers are not large compared to other segments of theproperty and casualty industry in Florida and across the nation,but the market is every bit as complex as other coverages. Thereare a wide array of products available, numerous coverage options,and hundreds of classes of business to which those coveragesapply.

To help sort out the most common classes of environmentalinsurance, Foering offered a simplified listing:
Environmental contractors and consultants, such as thosespecializing in abatement, lead or mold.

Manufacturers or distributors.
Real estate — many exposures and options, including contaminatedsites.
Non-environmental — artisan (plumber, electrician).
Transport — motor vehicle, ocean, and the like.

Some of the more recognizable exposures are remediation/clean-upwork and disposal hazards, including chemicals from dry cleaningrisks, grease recycling or disposal from restaurants, oil disposaland recycling from auto repair facilities, and roofers and othersdisposing of a long list of building materials. Add to that oil andgas spills, and removal or abatement for asbestos, lead and moldhazards, and this market's size and complexity become even moreapparent.

Of interest to Florida producers particularly, both Foreing andEversull confirmed that mold is the area with the highest claimfrequency. Eversull said that out of every five claims he sees,perhaps four are for mold.

While mold claims are more frequent, underground storage tanks(USTs) and remediation are areas more likely to produceseverity.

According to Stacy Brown, president of Freberg EnvironmentalInsurance in Denver, USTs are a major concern in Florida. "A fewyears ago the state mandated that all single-walled USTs must beremoved and replaced with double-walled tanks by year-end 2009,"Brown said. "Many stations are mom-and-pop, and most USTs leak(connections especially) and all businesses with USTs have to haveinsurance. Carriers will not write single-walled tanks, so anyonewho has not removed them will virtually be out of business."

The much-in-the-news Chinese drywall has not become a majorclaim issue yet. Most carriers believe that their existingexclusions apply, and until those wordings are tested in court, itis anyone's guess as to how it will turn out.

Artisans Contractors Is a Growing Nich Market

Other environmental exposures may not be as obvious or aswell-publicized, but the need for adequate protection is just ascritical.

Eversull said that artisan contractors is a class with exposureand a growing requirement to carry coverage. "We focus on smallermom-and-pop risks, along with new ventures," he said. "Artisancontractors (contractors' pollution) has been a big push for us inthe past four to five years. For the most part, it is the result ofinsurance requirements by contracts, usually from large homecontractors."

Examples of exposures for artisans vary. "It could be anelectrician taking out old transformers that include PCBcontaminants" said Foering. "A plumber could have exposureinstalling an underground storage tank, but more likely theexposure is from poor or improper installation of householdplumbing fixtures and the resulting mold growth due to a waterleak. A contractor doing excavation could strike an undergroundtank or utility."

Coverage cost is usually very affordable, which also adds bulkto the growing market segment.

"Contractors' pollution coverage is frequently a fraction of theGL premium," said Eversull. "For example, a risk that is paying$25,000 for GL can probably get the pollution coverage for$2,500."

Site Pollution Encompasses a Broad Array ofProducts

Another area of the environmental market encompasses a broadarray of products generally described as site pollution. Many ofthese fall under the heading of environmental impairmentliability.

"These are typically lender-driven policies," said Brown. "Oncea lender takes possession due to default of the loan, it isfinancially responsible for all liabilities, includingenvironmental. The lender will not lend on a property due toconcerns that there is a potential latent contamination issue.

"Starting in the mid- to late 1990s, many banks started takingthe extra step of having an environmental consultant examine theproperty before they would lend money on the property," Brown said."Typically this is done for industrial real estate transactions,but can be performed on almost any type of property, includingoffices, apartments, even vacant land."

Policies can be written to provide indemnification for thebuyer, seller, and lending institution during a real estatetransaction.

As is the case in most situations where there is a unique need,the insurance market recognized an opportunity and additionalinsurance options became available, albeit in this case, they wereunusual options.

"The coverage is claims-made with no retroactive date on theproperty in question," said Brown. "If subsequent pollution isdiscovered after the sale transaction, the policy could respond.Coverage is only for pre-existing conditions and is usually writtenon multi-year policy terms."

This coverage gives the lender and buyer comfort that they arenot going to be saddled with an unexpected liability in such atransaction.

In addition, coverage is available to make it financiallyfeasible to develop or redevelop a contaminated property. Thishelps solve the problem a property owner has in selling theproperty and not being held responsible for future environmentalliabilities in the form of litigation and/or remediation costs.

Also, lenders today may require environmental impairmentliability policies for transactions on distressed property,including foreclosures.

Surplus Lines Is a Major Player in MarketSegment

For most of the coverages and products written, especially onsmall to mid-size risks, limits of $1 million are common and caneasily go to $5 million; deductibles can be as low as $2,500.

Much of this coverage is written in the surplus lines arena, soit is often up to the carrier to supply forms and wording. "The GLis almost always written on an occurrence form, and can be ISO or aclose variation," said Foering. "Professional liability and sitepollution are written on a claims-made form, and contractors'pollution can be occurrence or claims-made."

As with any coverage, agents should read the documents carefullyand if necessary ask the carrier or broker for help with coveragecomparisons and claim examples.

One thing this market segment has in common with most others isthat it is full of competitors. "The industry has changed over thepast couple of years due to the increase in carriers and capacity,"said Brown.

Eversull agreed, stating, "A few years ago, we had maybe 11 or12 competitors, and now it is double that or more. In spite ofthat, the market has not been as soft as other coverages. Rates areoff ten to 15 percent, if that much."

Foering expects it to continue to be more of a buyer's market,at least for the near future. "We are starting to see an increasein the rate base, but it is unlikely we will see any hardening ofthe market in terms of rates any time soon. This segment faces thesame issues as most others, in that there seems to be plenty ofcapital. It will likely take several more years for the markets toshake out and for some carriers to decide this is not forthem."