Do I Need Environmental or Pollution Liability for My Business?

Environmental insurance, also called pollution liability insurance or environmental impairment liability insurance, is commercial coverage that safeguards businesses against claims alleging harm to the local environment or residents. Usually excluded from general liability policies, environmental insurance will pay for site cleanup costs, damages to third parties and legal fees if the company is held liable for environmental hazards.

Read below to see how an environmental policy works, what’s excluded and how much it costs.

On This Page

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  What Is Environmental and Pollution Liability Insurance?

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  How Does Environmental Insurance Work?

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  What Is Covered By Environmental and Pollution Liability Insurance?

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  Who Is Environmental Insurance and Pollution Liability Insurance For?

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  How Much Does Environmental and Pollution Liability Insurance Cost?

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  How To Get Environmental and Pollution Liability Insurance

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  FAQs

What Is Environmental and Pollution Liability Insurance?

Environmental and pollution liability coverage is commercial insurance designed to protect companies from the financial costs associated with pollution, contamination or some other environmental hazard. Business owners are covered for cleanup costs associated with contaminated sites, payment for losses to third parties and legal defense costs.

Business owners should note that a general liability or business owner policy will not cover losses involving pollutants despite being among the most common commercial insurance products. Environmental insurance is necessary for safeguarding against these types of claims.

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How Does Environmental Insurance Work?

Similar to any other insurance policy, the policyholder pays premiums to the insurance company and, in return, the insurance company agrees to pay for liability losses related to environmental hazards. Environmental liability can arise from many different sources:^[1]

• Accidental spills or leaks
• Improper disposal of hazardous waste
• Pesticides harming the local wildlife
• Puncturing an oil pipe
• Incorrectly building a sewage system
• Leaving water in the wrong location

When an environmental incident occurs, the policyholder reports the claim to the insurance company. The insurance company will then investigate the incident and if the loss is covered, will provide financial support. Environmental and pollution liability insurance policies typically include coverage for both third-party claims and first-party response costs.

• Third-party claims coverage protects against lawsuits brought by individuals or organizations that have been harmed by pollution or contamination.
• First-party response coverage pays for the cost of cleaning up contaminated sites and addressing other environmental hazards.

Environmental and pollution liability insurance also provides coverage for legal defense costs. Suppose the policyholder is sued by a third party due to environmental contamination. In that case, the insurance company will pay for attorney fees, settlements and other legal costs.

While environmental insurance provides a safety net, the business owner must still comply with environmental regulations and follow ethical business practices. Illegal dumping and deliberately violating environmental regulations will not be covered.

What Is Covered By Environmental and Pollution Liability Insurance?

Environmental and pollution liability insurance typically covers the following types of incidents:

• Third-party claims: Protects against lawsuits brought by individuals or organizations that have been harmed by pollution or contamination. For example, if a factory was spewing fumes that were making the local residents ill, environmental liability insurance may cover their medical bills.
• First-party response costs: Pays for the cost of cleaning up contaminated sites, including removing contaminated soil, treating contaminated water and disposing of hazardous waste.
• Underground storage tank liability: Addresses the risk associated with underground storage tanks that may leak and cause environmental damage and pays for the cost of cleaning up any contamination and for third-party claims related to the leakage.
• Transportation pollution liability: Protects businesses involved in transporting hazardous materials. It covers the cost of cleaning up any spills or leaks that occur during transportation and for third-party claims related to the contamination.
• Contractor pollution liability: Provides protection for contractors or subcontractors who are hired to perform work on a site that may result in environmental contamination. For example, if a homeowner hired a landscaping contractor and they used harmful pesticides that made their family ill, this policy would cover the contractor’s liability expenses.
• Emerging contaminants: Helps cover the costs associated with emerging contaminants, such as per- and polyfluorinated substances (PFAS).

What Isn’t Covered?

Despite its coverage of a wide range of liabilities, environmental insurance has its limitations. Some of the most common exclusions from environmental insurance include:

• Nuclear events
• Intentional acts (e.g., illegal dumping of hazardous waste or the release of pollutants into the environment.)
• War
• Government action
• Failure to comply with new changes to environmental regulations
• Environmental contamination that started prior to policy start date
• Lead, asbestos and mold (may be purchasable as separate endorsements)

Who Is Environmental Insurance and Pollution Liability Insurance For?

Environmental and pollution liability insurance is generally for businesses who operate in industries that have the potential to cause environmental hazards. These industries may include, but are not limited to:

How Much Does Environmental and Pollution Liability Insurance Cost?

The annual cost of environmental insurance can be between $1,000 and $100,000.^[1] Factors that help calculate your premium amount include the size of your business, the risks associated with your profession, your claims history, how much coverage you need, your deductible and if there are any available discounts.

How To Get Environmental and Pollution Liability Insurance

To get environmental and pollution liability insurance, follow these steps:

1. Identify your risk: Evaluate the type and extent of environmental risk associated with your business activities. For example, if you own factories, you may have major concerns about air pollution.
2. Research insurance providers: Look for insurance companies that specialize in environmental and pollution liability coverage.
3. Shop around: Compiling quotes from multiple insurers is one of the best ways to get the cheapest rate available at that time. To get the most accurate quote, you will need to provide information about your business, including its industry, number of employees, claims history and time in business.
4. Evaluate coverage: Carefully review the coverage and exclusions of each policy to determine which one meets your specific needs. This is to avoid surprise denials when you file a claim and discover that your insurance will not cover you.
5. Purchase insurance: Once you have selected an insurance policy that meets your needs, complete the required application and purchase the coverage.
6. Keep records: Maintain records of all environmental-related activities and any incidents that occur to assist with future insurance claims. Also, be sure to stay up-to-date with the latest environmental regulations in your industry.
7. Reassess your coverage needs: As your business changes over time, you may discover that your current policy no longer works for you. You may need higher or lower coverage or you just want to find a cheaper rate.

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