No, that question is not a lead-in to a tasteless joke. Infact, for those who have reason to buy, sell, litigate, orunderwrite environmental insurance, the question is profoundlyrelevant. And the answer—“more than you might think”—may come as ashock to those who have never considered insuring their potentialliabilities for contamination.

Consider the stories of two different schools. The firstinvolves Jefferson County Open School, a Denver-area institutionthat last April saw multiple students hospitalized after an unknown substanceprovoked a severe allergic response in at least 30 attendees.Administrators promptly evacuated the entire facility and cancelledclasses for the remainder of the day. When firefighters andhazardous material response teams arrived, their investigationfound the culprit was a handful of habanero peppers on theplayground. Naturally occurring oils in these peppers (typicallymeasuring more than 100 times hotter than a jalapeno pepper) werebelieved to have contaminated both outdoor playground equipment andinterior building surfaces. After undergoing a thoroughdecontamination process, the school re-opened the following day. Nolong-term negative health effects were reported for any of thosehospitalized.

In contrast, parents of students attending a Dallas-area school,Wallace Elementary, last week received the alarming news thatthree children with possible exposure to the deadly Ebola virushad been removed from the school for monitoring by healthauthorities. Because these students were asymptomatic, theassociated health risk was deemed extremely low, with the removaland monitoring implemented only as precautionary measures.Additionally, the school district assured parents that they hadalready begun increasing custodial cleaning schedules at all areaschools, including supplemental nightly cleanings at WallaceElementary in particular. Nonetheless, parents continued to voiceconcerns over allowing their children to attend.

It has been observed that people who are concerned hireinsurance brokers, while those who are alarmed hire lawyers. Thequestion that concerns them both is whether any insurance productexists that might respond to either of the all-too-real situationsoutlined above. The answer is yes. But it is a contingent yes, asthe environmental insurance marketplace continues to respond andadapt to emerging contaminants of concern.

Before we examine one readily available product—site-specificpollution coverage—with a long track record of success inprotecting insureds against contamination liability, it might beuseful to briefly re-visit what constitutes contamination. In thepopular imagination, this term may conjure up images ofDay-Glo-colored drinking water or oil-soaked sea birds. Althoughnot incorrect, these images fail to encompass the breadth ofpollution exposures that today’s policies might cover.

Because competition has increased significantly in theenvironmental insurance marketplace, coverage terms have beenbroadened to capture market share, so current definitions of apollutant tend to be much broader than they were even five or sixyears ago. A quick simplification is to consider any substance thatis out of place in concentrations sufficient to cause either bodilyinjury or property damage, or to result in clean-up costs, is acontaminant. Under this very general definition, either habaneropepper oil on playground equipment or Ebola virus on schoolproperty could fall within the realm of a pollution event, asneither is naturally occurring nor expected in those environments,and either could result in compensable damages. In the cases above,each event clearly resulted in both clean-up costs and medicalcosts.

Let’s assume that each school had a site pollution policy inplace prior to these contamination events, with coverage for newconditions included. What policy provisions need to be reviewed tosee if coverage might apply? A primary place to start would be thepolicy definitions. These might include a specific definitionfor pollutant, pollution condition, microbialsubstances, or perhaps biological contaminants.Because pollution policies are typically written on a surplus linesbasis, policy language is not standardized and must be evaluated onindividual terms, preferably by a qualified attorney or experiencedinsurance broker familiar with environmental liability policies.These definitions may specifically grant coverage for liquidirritants (e.g., habanero pepper oil) or viruses (e.g., Ebola),they may exclude it, or they may be silent on the subject. Ifbiological contaminants are explicitly covered, is their definitionrestricted to only mold and mildew, or is it broad enough toencompass a wide range of biohazards? Whether narrowly or broadlydefined, must the contaminant be associated with a “discharge,dispersal, release, or escape,” or is the mere “presence of” suchcontamination sufficient to trigger coverage?

Another policy definition that must be scrutinized carefully isthat concerning bodily injury. The Denver school incident resultedin multiple children being hospitalized, while the Dallas schoolsituation has to date resulted in no more than the medicalmonitoring of a few individuals. However, although theseriousness of the first case was relatively low, the severityassociated with the second could potentially prove fatal. Thatknowledge alone could result in allegations of mental anguish,shock, or emotional distress in students, staff, parents, orneighbors. Are these kinds of harm included in the policydefinition of bodily injury? If so, must they be associated withdirect physical injury, or can any individual claim suchpsychological damage? Are medical monitoring costs included in thedefinition of bodily injury? Each of these questions should bemethodically answered when determining the value offered by aparticular site pollution product.

Furthermore, policy provisions concerning property damage mustalso be evaluated and compared between carriers. Of special note isthe feature commonly known as “diminution in value,” or DIV.Sometimes known as “stigma damages,” DIV is the financial harmsuffered by a property owner when their investment is no longerworth what it was prior to a contamination event—even after allcleanup has been completed—generally because of lingering publicperception that the property is unsafe or otherwise less desirablethan comparable properties.

In our case studies, this perception might manifest in parentsremoving their children from a particular school and enrolling themelsewhere, or in neighbors and business owners who find theirproperty has declined in value due to their proximity to anaffected school. Because diminution in value is often not a definedterm within the policy language, its interpretation is generallysubject to extensive precedent in case law and is best reviewed inconcert with qualified legal counsel.

Other key provisions that should be examined in detail includeany linked to the definition of cleanup costs. Does it contain arequirement for the insurer’s prior written consent before suchcosts are incurred? Does coverage apply only to the extent thatcleanup is required by law? Particularly in high-profile cases suchas those involving harm to schoolchildren, a prompt response is ofparamount importance. As such, an optimal site-specific pollutionliability product will include automatic coverage for emergencyexpenses incurred to remediate a pollution condition whichrepresents an imminent threat to human health or the environment,unrestricted by any necessity to obtain prior approval from theinsurer. Such protection not only encourages timely action, butalso ultimately minimizes the extent of loss.

Because these objectives are in the best interests of allparties concerned, a coverage extension for such emergency expensesis most desirable when it is not subject to any sub-limit butrather carries the same limits as the policy as a whole. Broadenedprovisions that allow exceptions for cleanup in the absence of anyapplicable environmental regulations are also preferable to thosethat are tied strictly to environmental laws such as CERCLA,RCRA,or their state equivalents.

Because contamination may sometimes arise in an unanticipated orunprecedented manner, both breadth of coverage and flexibility instructuring policy terms are keys to a successfulplacement. After all, there is no more a standard for habaneroremediation than there are training certificates for Ebolaabatement--yet. Check back in six months. It is exactly because nounderwriter can foresee (or price for) all eventualities thatexpected losses will never match with actual outcomes. Thiskeepsthe insurance marketplace constantly in flux: what might be coveredtoday could be widely excluded next week, while last week’s sourceof fear may be next month’s target market. For those not in aposition to keep abreast of the latest developments in theenvironmental insurance arena, partnering with an experienced andknowledgeable specialist is always a winning strategy.