Pollution Solution Don't let pollution damage lead to financial damage.

The insurance industry calls them "pollutionincidents," and they could mean financial devastation for yourcompany. The reason? Your property and general liability insurancepolicies probably contain a pollution exclusion, which means"any damage that results from a pollution incident, eithergradual leakage or sudden release of chemicals, or anything betweenthose extremes, is an excluded cause of loss," says RobertRosenfeld, director of the environmental risk management practiceat Canon Insurance Service in Beverly Hills, California.

Of course, any coverage that insurance companies exclude fromone policy, they'll offer in another-hence the introduction ofpollution liability insurance. Rosenfeld says the coverage evolvedsoon after the tremendous amount of asbestos litigation in the1970s. At that time, insurers decided to remove pollution liabilityfrom basic commercial policies and instead offer it separately."This meant they could draft contracts that address pollution,and develop underwriting and rating models that specificallyconsider those issues," Rosenfeld says.

The most common use of pollution insurance is to protect buyers,sellers and lenders in commercial property transactions.Traditionally, buyers have hired environmental consultants toconduct site assessments, which usually take three to four weeks tocomplete at a typical cost of $3,000 to $5,000. In addition to thedelay involved, another drawback of site assessments is theyexpress the consultant's opinion of the condition of the siteat the present time and do not consider future discoveries orincidents.

By contrast, pollution liability insurance protects thepolicyholder for the term of the policy (typically up to 10 yearsand renewable) for any future incident or discovery of previousdamage. And it's generally less expensive than performing asite assessment. For example, Rosenfeld says, environmentalliability insurance on a $2 million office building will costapproximately $2,500 for $1 million of coverage for a five-yearterm.

"This is such a useful, flexible, economically advantageousway to manage environmental risks that I expect that within a fewyears it will become as common as title insurance in real estatetransactions," Rosenfeld says. It's also an inexpensiveway to manage pollution liability in other circumstances, he adds."Any business whose ongoing operations involve the storage,handling or transportation of materials that, should they bereleased into the environment, would be considered pollutantsshould look into this type of coverage."

The insurance protects you when the pollution event occurs onyour property, as well as when you suffer damages because ofpollution at a nearby property. So if your neighbor's chemicalspill migrates to your property, your insurer takes care of thecleanup and then takes the responsibility for recovering costs fromthe party that caused the problem. By the same token, if you causedamage to other property, your policy pays. Policies also coverbodily injury caused by pollution and may even be written to coverloss of business income due to a pollution incident.

Environmental coverage is a relatively new product, so checkwith your insurance agent for details on coverage in your area.

Contact Source

• Canon Insurance Service, rnrobert@canoninsurance.com