Environmental Insurance Protection: Sudden & Accidental Liability vs Environmental Impairment Liability

The discovery of an unexpected pollution condition on your property can be very costly and time consuming. Fortunately, there are insurance products available to protect property owner’s from losses arising from a pollution event.  Specifically, Owner’s can purchase an Environmental Impairment Liability (“EIL”) policy to cover first party clean-up of the pollution condition and any third party liability that may result.  Alternatively, if Owner’s do not wish to purchase a full EIL policy, limited coverage is available by purchasing the Sudden and Accidental Pollution Liability extension under a Commercial General Liability policy.

The majority of Commercial General Liability (CGL) policies in Canada contain some form of exclusion surrounding pollution. A prudent insurance Broker will negotiate the inclusion of a Sudden and Accidental Pollution (S&A) extension, which provides third party liability coverage for bodily injury and property damage resulting from a pollution event. Coverage provided under this extension is quite limited when compared with Environmental Impairment Liability insurance, as the policy only provides third party coverage and is restricted to a specific time period of detection and reporting of an incident, hence the name, “Sudden and Accidental”.  To be clear, the S&A extension typically excludes the insured’s own site remediation (known as ‘first party’ damages), waste management activities and government clean-up orders.  It is important to note that CGL policies generally do not contain this extension in the base wording, so coverage is often overlooked.

Comparatively, Environmental Impairment Liability (also referred to as Pollution Legal Liability), provides both first and third party cover for unknown pre-existing conditions as well as new pollution events, whether they occur suddenly, or gradually over time. Although known pre-existing conditions are generally excluded, coverage can be reinstated after remediation of a site has been completed and the site is deemed ‘clean’. Policies typically include coverage for third-party property damage and bodily injury claims (including defence costs) as well as ‘first party’ remediation coverage.  Standard Environmental Liability policies are written on a ‘claims-made’ basis (as opposed to occurrence basis) meaning claims must be made/reported during the policy period. In recent years, Insurers have conveyed a marked increase in claims activity as pollution conditions are identified through financing, redevelopment or as a result of contamination migrating from an adjacent site.

Placement of environmental insurance protection can be complicated, with a constantly evolving market and a high degree of variability between policy wordings from participating insurance carriers.

For more information on the insurance options to protect your company and balance sheet from pollution events, please contact:

JANET REEVE
Director, Risk & Insurance Services
jreeve@intechrisk.com

About INTECH

INTECH Risk Management (“INTECH”) is an independent insurance consulting company involved in the analysis, design, development, implementation and management of insurance programs. INTECH does not sell insurance, nor is it affiliated with any insurance company or brokerage.  This unique independent position in the marketplace enables our consultants to avoid conflicts of interest and provide our clients with unbiased, expert advice. INTECH has been the 2015 and 2016 winning recipient of the IJGlobal Americas Due Diligence Provider of the Year Award.

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