'Environmental Coverage: Why Its There For the Taking

Environmental insurance products are a relatively new class of business, having been around for only the past 25 years. But the opportunities for agents to capitalize on this growing segment have only begun to be explored. In this class, there are two major categories:

The first category offers products for the environmental/pollution industry. Included in this industry group are risks such as contractors that remove asbestos, lead or hazardous waste; environmental consultants; landfills; waste clean-up facilities; and recycling centers. These types of entities carry commercial general liability (CGL) with specific protection for pollution, including contractors' pollution, pollution legal liability, and environmental professional liability, among others.

The second — and larger — category is what we refer to as “everybody else.” This can be, quite literally, any entity with any kind of environmental or pollution exposure. It could be any non-environmental contractor (such as a road contractor, excavation contractor, or painting contractor), a dry cleaner, a manufacturer, a real estate developer — virtually any entity with an environmental exposure. This second category is where many agents are leaving business on the table and their insureds' with a potentially uncovered exposure.

For example, a real estate developer might purchase a property on which to develop an apartment complex. Unbeknownst to the developer, the previous property owner may have deposited some hazardous material on the grounds, undiscovered until after the developer purchased the land. In this case, even though the real estate developer is not in the pollution business per se, the developer can be held strictly liable for the environmental risks that go along with the property. State and federal government statutes may hold the developer responsible regardless of fault, even if they purchased the property the day before the pollution was discovered. This is the nature of strict liability.

Environmental regulations are very strict. One does not even need to show negligence on the part of the liable or responsible party in order to file suit. In essence, if you bought it, it does not matter who “broke” it.

One of the largest groups with environmental/pollution exposures is the construction/contracting class. This would include non-environmental classes, such as painters, excavators, plumbers, artisans, and street and road contractors. Each of these groups (and those professionals like them) should buy contractor's pollution liability (CPL) coverage and/or environmental professional's liability coverage because this exposure is clearly excluded in their CGL policy.

In this case, contractors may be able to save premium dollars by negotiating with their clients for lower pollution policy limits based on a better understanding of their own environmental risk profile and how it can be accommodated by an appropriate environmental insurance policy.

Even though agents aren't technically risk managers, they often find themselves in the position of managing risk for the client. With respect to environmental issues, the agent must often put on the hat of risk manager, transitioning from a reactive attitude toward environmental insurance to a consultative and proactive interaction with insureds.

The critical first step in this process is for agents to understand and believe that they are assisting the insureds in making an informed business decision as to whether environmental insurance is necessary for their enterprises. As illustrated previously, the category defined by “everybody else” could very well be just about any insured a given agent is working with at present. Agents should work on informing and educating the client about environmental risks and exposures, and not necessarily on selling the policy or coverage.

Once clients are informed about the inherent risk they potentially face, the environmental policy virtually sells itself, as the insureds properly assess pollution risk and potential third-party requirements for coverage. The key is for the agent to approach the issue from a risk management perspective, with insurance considered as part of the process rather than the primary focus.

In terms of actually marketing and selling the coverage, one word comes to mind: proactive. Agents must be wary of the “send me an application and I'll get back to you” approach, as the quote will likely miss either the coverage and/or premium target.

In other words, if you wait for the business to come to you, you might be waiting for a while. But if you proactively pursue it, it may very well turn out to be much easier to place than many agents realize. This is likely true of many of our products and markets, but environmental and pollution coverage in particular lends itself to this educational approach. Most of our insureds likely don't realize that they fall into a category even so broad as “everybody else.”

Lucille Tavares is branch manager of the Daytona Beach office of Burns & Wilcox, the nation's largest independently-owned specialty insurance wholesaler, underwriter and managing general agent. Lucille can be reached at (800) 342-5621 or via e-mail at latavares@burns-wilcox.com. Kenneth Schneider is vice president, director of product development for Burns & Wilcox. Kenneth can be reached at (800) 521-1918 or via e-mail at kaschneider@burns-wilcox.com. Visit http://env.burnsandwilcox.com for Environmental coverage information and applications.