Pollution can come from a variety of industries and businesses, including some sources that are not necessarily considered to be a risk. While certain industries, such as health care, manufacturing and chemical industries, have the biggest risk factors and need specialized coverage, “every commercial insured has some form of a pollution exposure," says Daniel Drennen, environmental practice leader, Amwins.

“Manufacturing and chemical mix or blend companies are certainly being impacted the most with environmental activity, especially with per- and polyfluoroalkyl substances (PFAS)," says Kari Dybdahl Kohal, president, American Risk Management Resources Network LLC (ARMR). “Communities are becoming more aware and concerned about the potential contamination of their groundwater and the potential of negative health effects on the population."

Additionally, both the healthcare and hospitality industries are experiencing rising environmental claims. “When it comes to healthcare facilities, in nursing homes, for example, Legionnaires' disease is a concerning issue," says Gina Jones, vice president and director of environmental programs, Burns & Wilcox. And in the hospitality industry, “because of the historic water issues that we've been having countrywide, we're definitely seeing a lot of mold claims on hotels and apartment buildings," Jones says. “We're seeing some increases and some changes in coverages when you're talking about habitational units."

“When it comes to contractor's pollution liability coverage, pollution exposures are a function of the amount of construction currently underway," says Canaan Crouch, managing director, Jencap Specialty Insurance Services. “There's a straight-line correlation to exposure for pollution incidents from construction projects. For example, consider exposure to mold and legionella, the chance that water intrusion from a construction defect event could develop into mold is directly tied to the amount and type of construction projects underway. As we notice and expansion of construction projects, it will be inevitable that we will observe an increase in pollution incidents leading to claims." 

Increasingly, industries whose products have a risk of pollution impacting humans are experiencing increased scrutiny on their product's pollution coverage. “A practical way to identify if there is an environmental risk for a company is: 'Could their operations, whether at an owned or operated location or at a job site, cause the release, escape or dispersal of something that shouldn't be there in a high enough quantity to bodily injury, property damage, clean-up costs and or natural resource damages?'" Kohal says. “If the answer is 'possibly,' then they have an environmental risk that needs to be managed."

Here are four tips agents can provide clients to help them identify, mitigate and proactively manage their environmental exposures:

1) Understand your exposure. “People have to be educated about their environmental exposures," Drennen says. “A lot of insureds have never experienced a pollution claim, and don't think they have exposure to these claims. In reality every insured has exposure to pollution and it is important to address what those exposures are. We pollution claims happen they are expensive."

“Working with clients that are buying or selling commercial real estate, there's an exposure," Crouch says. “Any time you have a contractor that's on-site doing vertical construction—especially when it's habitation or hospitality—or when a contractor is doing horizontal construction and grading, there's a potential for a pollution exposure."

For clients “that are in the manufacturing and distribution industries, those making liquids or other hazardous materials, there is a pollution exposure," Crouch says. “The exposures are not just derived from a release on their own property but also the products themselves. Or in other words, a pollution condition that is created by the product after the manufacturer/distributor has sold the product to the end user. Clients that do those things should have pollution coverage."

2) Mitigate and proactively manage. Agents can best assist their clients by “helping them incorporate enterprise risk management (ERM) into their organization," Kohal says. “Include looking at their process flow and approaching it with the mindset of, 'Could the raw or end products go somewhere it shouldn't be?' This is where they need to focus on developing processes within their ERM protocol to discover the release or escape of the material, contain it as fast as possible, and notify the right people."

In underwriting a risk, “carriers want to know that [clients] have a plan," Jones says. “So, when you're talking about water intrusion, we're going to want to see that clients have a property manager and they've got a water intrusion plan in place."

3) Avoid coverage gaps. “Taking a pollution policy at face value is the biggest thing to avoid while working with environmental insurance," Kohal says. “Coverage is typically written in the excess & surplus market and coverage can wildly vary from carrier to carrier, even from policy to policy underwritten by the same underwriter."

Additionally, agents should be wary of differences in “definitions of a pollutant—no two policies are the same," Drennen says. “Does it include all types of waste? Does it include viruses, Legionella and mold? How is bodily injury defined? And, in a chemical type of situation, you could have a big latency between when an issue occurs and when it shows up."

4) Work with the experts. “Depending on the amount of environmental risk, an agent teaming up with a wholesale broker that is an expert in the environmental insurance market and also has resources and services will be helpful in assisting the insured to mitigate and proactively manage their environmental exposures," Kohal says.

Make use of the services offered by environmental insurance carriers, which may include an environmental consultant who can “help put together an emergency response plan," Kohal adds.

Olivia Overman is IA content editor.