Information on pollution and environmental liability insurance policies and risk management practices.

By Blair Koorsen and Michael Thomas from RBN Insurance Services

The recent explosion at a chemical plant in Rockton, IL, garnered significant attention. The explosion caused extensive fires, heavy black smoke, and flying debris that prompted evacuations across a broad geographic area. This terrible accident acted as a reminder for many businesses to review their risk management practices and insurance coverages. Manufacturing facilities that work with hazardous chemicals have unique exposures, and one of management’s key responsibilities is to be prepared if an accident happens. This article provides information on pollution and environmental liability insurance policies, risk management practices, and ways to work with your insurance and risk management advisors to ensure your business is protected.

Any organization that manufactures products or provides services that might be subject to environmental regulations runs the risk of a possible pollution and environmental liability claim, whether for cleanup after an accident or from allegations of property damage or bodily injury caused by pollution. Because coverage for these claims is explicitly excluded in most general liability policies, businesses that have pollution liability exposure generally need to purchase specialized coverage. The cost of these insurance policies and the type of coverage afforded varies significantly depending on company-specific factors and each insured’s particular risk exposures. When evaluating your exposures and insurance needs, it’s important to work with a knowledgeable insurance advisor to find a policy that offers the most appropriate coverage.  

Beyond purchasing insurance, management teams should be continually evaluating their operations to find ways to control and mitigate the risk of an accident. Whether working with third party advisors or entrusting these responsibilities to senior leaders in your organization, it’s important to promote safe practices and a culture of responsibility. According to the Chemical Safety and Hazard Investigation Board, non-existent or inadequate preventive maintenance programs have been a frequent root cause in their investigations. Below are some of the key recommendations we’ve made to our clients. 

Purchasing Property: When acquiring any property or land, work with environmental experts to minimize any risk from pre-existing pollutants or emerging contaminants. Pollution and environmental due diligence involves assessing known, potential, and possible pollution and environmental liabilities and your obligations associated with the property in question. 

Maintenance Programs: Preventative maintenance programs can help reduce the likelihood of accidents and, therefore, possible pollution and environmental liability claims. Following preventative maintenance programs keeps equipment in top condition through regular machinery checkups and maintenance tasks. These programs ensure that critical components are inspected and replaced before failure. Additional benefits from preventative maintenance programs include fewer unexpected machine breakdowns, potentially lower repair costs, fewer delays in production, fewer defective products, less unplanned downtime, and a safer work environment for employees. 

Safety Programs: Comprehensive safety programs can help reduce pollution and environmental liability risk by limiting accidents. Safety programs should be thoroughly documented and clearly communicated to employees. Safety programs should include housekeeping protocols, hazard recognition training, and clear guidance about how to safely work with hazardous materials. Safety training should be conducted for all new employees with regular reminders for all employees. 

Incident Response Plans: Despite solid risk management practices, accidents can happen. Employers should have a vetted incident response plan in place. Elements of an incident response plan should include the following:

  • an overview of all onsite activities and operations
  • inventory of items stored
  • emergency contact details for key employees, regulators and emergency services
  • detailed site plan showing drainage layout and areas vulnerable to pollution, and actions to take in the event of an accident.

Environmental accidents can cost businesses millions of dollars. Furthermore, potential claims can erode an organization’s reputation among customers and in the community. Sound risk management practices and appropriate insurance coverage for your organization can help mitigate these risks. Work with your insurance and risk advisors to secure a policy and establish or deepen practices that strengthen your organization’s culture of safety.

About the Authors
Blair Koorsen is the Business Development Manager at RBN Insurance Services, and Michael Thomas is an Insurance Advisor with RBN Insurance Services. Contact them at bkoorsen@rbninsurance.com and mthomas@rbninsurance.com, respectively.

About RBN Insurance Services
RBN Insurance Services (Chicago, IL) is an experienced team of insurance and employee benefits brokers. Their professionals work with businesses to assess risk, identify cost-efficient approaches to insurance, and negotiate with carriers to deliver comprehensive options at a competitive price. RBN Insurance Services excels in working with higher-risk, higher-complexity operations where insurance can be hard to place, and insights can be differentiating. For more information, visit http://rbninsurance.com.