Identifying clients' environmental loss exposures

Now let's consider some less obvious environmental risks. Colleges, universities and high schools buy environmental impairment liability insurance because they have exposure arising out of laboratories that house many extremely hazardous chemicals and materials. Over the past several years, a number of educational institutions have discovered old spills and materials in storage rooms. Campuses also have trash-collection operations, recycling facilities, power generation facilities and in many cases hospit-als–all of which can give rise to environmental exposures.

Hospitals and other medical facilities face a variety of environmental risks. For example, underground storage tanks are present to provide fuel for required emergency-backup electrical generators. Many hazardous chemicals and materials are stored at hospitals, including mercury and radioactive material. Hospitals must manage infectious waste, including suction canisters. They also have incineration facilities, cleaning chemicals, disinfectants and solid waste. Our nation's hospitals produce almost 7,000 tons of solid waste per day. According to the U.S. Environmental Protection Agency, medical waste incinerators are the third largest source of dioxin and the fourth largest source of mercury released into the environment.

Other less obvious candidates for environmental impairment liability insurance include country clubs and golf courses. They have exposures created by above-ground and underground storage tanks, and the storage and use of herbicides and pesticides. Per acre, golf courses use between four and seven times the average amount of pesticides that is typically used in agriculture. It has also been demonstrated that private golf courses use far more pesticide than public courses.

When you work with a high occupancy client like a hotel, nursing home, apartment complex, casino or office building, you should consider the existence of mold, asbestos and lead-based paint. Fluorescent light capacitors may contain PCBs. Above-ground or underground tanks may be present if a facility has a backup power generator.

Facilities that process food also are candidates for environmental impairment liability coverage. Food processing can create large quantities of liquid waste. Certain raw materials associated with food processing can kill fish if accidentally introduced into streams, because they remove oxygen from the water. A recent claim of this sort involved a railroad tank car containing molasses. The tank car used pressurized steam to keep the molasses in liquid form, so it would flow from the tank car into a food processing plant. The tank car exploded when a pressure-release valve failed. The explosion spewed hot molasses over several acres. While molasses is not toxic to humans, it will kill fish if washed into lakes and streams and so can becomes an environmental pollutant. The food processor has environmental impairment liability insurance, so the claim was covered.

Real-estate buyers and sellers purchase environmental impairment liability coverage to satisfy lending institutions' requirements and to protect themselves against unknown pollution conditions at a site that are not discovered until after it is sold. This coverage, typically known as "property transfer," is written on a claims-made form with no retroactive date. Consequently, coverage is provided for unknown pollution conditions that may have been created many years ago. This coverage also can be written for facilities that have known pollution problems, if environmental regulators have deemed the facility to be in compliance with current regulations.

"Cost cap" and "secured creditor" are two environmental-insurance forms less frequently used in real-estate transactions. Cost-cap coverage is used to cover cost overruns during the cleanup of a hazardous waste site. It can be complex and must be arranged by experienced underwriters with environmental engineering skills. The few companies that offer cost-cap coverage typically require cleanup costs to exceed $1 million before they will consider the risk. Minimum premiums are in excess of $100,000, and self-insured retentions are 10% of the estimated cleanup cost.and switches. Some experts estimate that 70% of the mercury and cadmium discarded in the United States each year comes from e-waste.

Now let's consider some less obvious environmental risks. Colleges, universities and high schools buy environmental impairment liability insurance because they have exposures arising out of laboratories that house many extremely hazardous chemicals and materials. Over the past several years, a number of educational institutions have discovered old spills and materials in storage rooms. Campuses also have trash-collection operations, recycling facilities, power generation facilities and in many cases hospit-als–all of which can give rise to environmental exposures.

Hospitals and other medical facilities face a variety of environmental risks. For example, underground storage tanks are present to provide fuel for required emergency-backup electrical generators. Many hazardous chemicals and materials are stored at hospitals, including mercury and radioactive material. Hospitals must manage infectious waste, including suction canisters. They also have incineration facilities, cleaning chemicals, disinfectants and solid waste. U.S. hospitals produce almost 7,000 tons of solid waste per day. According to the U.S. Environmental Protection Agen-cy, medical waste incinerators are the third largest source of dioxin and the fourth largest source of mercury released into the environment.

Other less obvious candidates for environmental impairment liability insurance include country clubs and golf courses. They have exposures created by above-ground and underground storage tanks, and the storage and use of herbicides and pesticides. Per acre, golf courses use between four and seven times the average amount of pesticides typically used in agriculture. It has also been demonstrated that private golf courses use far more pesticide than public courses.

When you work with clients like hotels, nursing homes, apartment complexes, casinos or office buildings, you should consider the existence of mold, asbestos and lead-based paint. Fluorescent light capacitors may contain PCBs. Above-ground or underground tanks may be present if a facility has a backup power generator.

Facilities that process food also are candidates for environmental impairment liability coverage. Food processing can create large quantities of liquid waste. Certain raw materials associated with food processing can kill fish if accidentally introduced into streams, because they remove oxygen from the water. A recent claim of this sort involved a railroad tank car containing molasses. The tank car used pressurized steam to keep the molasses in liquid form, so it would flow from the tank car into a food processing plant. The tank car exploded when a pressure-release valve failed. The explosion spewed hot molasses over several acres. While molasses is not toxic to humans, it will kill fish if washed into lakes and streams and so can become an environmental pollutant. The food processor had environmental impairment liability insurance, so the claim was covered.

Real-estate buyers and sellers purchase environmental impairment liability coverage to satisfy lending institutions' requirements and to protect themselves against pollution conditions that are not discovered until after a site is sold. This coverage, typically known as "property transfer," is written on a claims-made form with no retroactive date. Consequently, coverage is provided for unknown pollution conditions that may have been created many years ago. This coverage also can be written for facilities that have known pollution problems, if environmental regulators have deemed the facility to be in compliance with current regulations.

"Cost cap" and "secured creditor" are two less-frequently used forms in real-estate transactions. Cost-cap coverage is used to cover cost overruns during the cleanup of a hazardous waste site. It can be complex and must be arranged by experienced underwriters with environmental engineering skills. The few companies that offer cost-cap coverage typically require cleanup costs to exceed $1 million before they will consider the risk. Minimum premiums exceed $100,000, and self-insured retentions are 10% of the estimated cleanup cost.

Secured-creditor coverage protects lending institutions from the consequences of discovering environmental liabilities on foreclosed properties held as loan collateral. A secured creditor policy typically has a dual trigger. For the policy to respond, a loan must be in default and a governmental authority must require clean-up of the property. Secured creditor policies may either pay the loan balance or the cost of cleanup. Few insurers currently offer this coverage.

Service firms, especially contractors, also may be held liable for environmental damage. Most obviously, environmental remediation contractors, underground storage tank contractors and gas station builders need contractors pollution liability insurance. It's appropriate for other contractors and engineers, too. Any contractor that excavates, grades or drills may strike a hazardous material, an underground storage tank or a utility. Spills caused by these encounters can lead to serious contamination, resulting in costly clean-up projects.

Paving contractors have an environmental exposure created by the oil-based layers sprayed on surfaces, especially if rain causes the material to run off and contaminate nearby land or water. Contractors who perform sandblasting, demolition and roofing have exposure to asbestos, lead-based paint and PCBs in fluorescent light capacitors. They also may face other exposures unique to certain facilities. Fire and water restoration contractors are exposed to mold, asbestos, lead-based paint and PCBs, as are contractors involved in disaster cleanup operations, like those now going on now in hurricane-ravaged parts of the Southeast. HVAC, electrical, plumbing and carpentry contractors face environmental exposure typically created by disturbing asbestos, lead-based paint and PCBs. They also may create a condition that leads to water intrusion and subsequent mold growth.

All of these environmental exposures are present for developers and general contractors who hire many, if not all, of the aforementioned service contractors in the course of their construction projects. Large construction projects covered by wrap-ups also should have contractors pollution liability insurance.

Other contractor-related environmental exposures include cleaning trucks at job sites; fueling and greasing heavy equipment; transporting fuels, paints, coatings, solvents and other potential pollutants to and from the job site; improper hose or coupling hook-up; and mishandling of a situation once a spill has occurred.

If you work with engineers and consultants, you should also review their exposures to environmental claims. Not only environmental engineers and consultants should have coverage; any engineer or consultant that hires drilling or excavation subcontractors should consider it. Coverage also should be considered if a firm's work might involve changing the grade or drainage of a site.

Working with underwriters
Ten or 11 insurers provide the coverages mentioned in this article. Agents can access some of them directly and approach others through managing general agents, program managers or specialized wholesale brokers. No matter how you approach a market, you will need the same general information to receive a quote. If you want a quote for environmental impairment liability insurance, you may want to start by calling an environmental underwriter. Environmental underwriters are accustomed to helping agents through unfamiliar territory, and developing a relationship with someone you feel comfortable calling for advice is a great first step. Many underwriters who provide coverage for facilities or property transfers formerly were environmental engineers or consultants themselves. Because these people have been to many of types of facilities and have been trained to identify their environmental hazards, they can help you through the submission process and give you insight into the environmental issues that a given client might have. If you are preparing to meet with a client, call your underwriter first and get his or her input on what questions to ask and what documents to obtain.

Your underwriter will want to know about the site. What is manufactured, refined, stored or processed through the facility? What raw materials are used? A standard environmental impairment liability application usually is sufficient to give the underwriter a good understanding of the risk. Materials that have been prepared for your client by environmental service firms also can provide important information. These documents include emergency response plans, environmental permits, and Phase I and Phase II environmental assessments.

In addition to plans, permits and assessments, standard underwriting information includes financial statements, loss runs and a company profile (which may already have been prepared for a publicly owned company's annual report, for advertising material or for a statement of qualifications). Financial statements are important because they reflect an applicant's ability to meet financial obligations, properly maintain facilities and implement preventive measures. Loss runs are always important, even if your client has not prev- iously bought environmental impairment liability insurance. General liability loss runs alone can give your underwriter important insight.

If your client is a contractor or an engineer, the application process should be a little less daunting. Generally, markets will accept a comprehensive contractors pollution liability application to start the process and then require a company-specific application to be completed to bind the account. Underwriters also will request current financial statements; a standard form 254, which describes recently completed projects; a standard form 255, which provides details about the qualifications of your client's employees (or r?sum?s of the principals and key employees should be provided); and a copy of your client's standard work contract. Reviewing the contract will help the underwriter understand how much risk your client routinely assumes on projects. Frequently, information about previous projects and employee qualifications can be found in your client's statement of qualifications, or SOQ.

How you choose to work with the environmental insurance market will depend on your individual situation. As previously mentioned, you can approach some insurers directly and access others through intermediaries. Whatever route you take, you will be protecting your clients from the risk of what can be very expensive environmental remediation.

Michael Hill is the president of Freberg Environmental Insurance, a program administrator that he founded in 1991. He has more than 20 years of underwriting experience, 15 with environmental coverages.