Why environmental risks could be your client’s biggest blind spot this storm season
Guest post by:
Kari D. Kohal, MBA, AINS, AIS
President | Managing Director
Environmental Practice Group
American Risk Management Resources Network
It is hard to believe that hurricane and storm season have already arrived. When hurricanes make landfall, it’s not just about roofs being ripped off or trees blocking roads. From toxic floodwaters to mold and bacteria growth, many commercial property owners and managers are exposed to environmental risks that traditional GL and property policies simply do not cover.
Storms often leave behind significant environmental risks that are rarely covered by insurance programs for commercial property owners and managers. Indeed, with the various pollution exclusions on standard General Liability (GL) and the severe limitations on Property policies, insureds are left uncovered for many pollution conditions resulting from storms.
As a Bridge Specialty Group broker, you play an integral role in ensuring a quality insurance program for property owners and managers prior to finding out the effects after the storm has hit.
In this blog post I will address the various environmental risks and potential pollution conditions we have seen develop during and after hurricanes and other storms. I will also share steps you can take as a wholesale risk advisor to further support your retail clients and build stronger relationships with them.
Simply put, a pollution condition – also known as an environmental condition – is a pollutant (irritant, contaminant, etc.) that appears somewhere it wasn’t intended to be and causes bodily injury, property damage and/or clean-up costs. When reading the definitions of pollution and pollution conditions in standard policies, there is no mention of pollution being limited to oil and gas. However, this underlies the biggest misconception when considering who needs to purchase environmental/pollution insurance.
To better manage environmental risks, it’s important for an agent to discuss the purchase of environmental or pollution insurance with commercial prospects and insureds, to protect against pollution conditions resulting when is released or escapes into an unintended place or in an excessive amount—potentially causing bodily injury, property damage, or clean-up costs.
Given the broad definition of pollution and the complexity of various pollution exclusions and sub-limits, it is highly recommended to suggest investing in an environmental site pollution policy for commercial property owners and managers, especially to build on the retroactive date of the policy for pollution conditions.
In the remainder of this post, I will share examples of environmental risk exposures that are increased due to storms including hurricanes. Keep in mind that all commercial property owners and managers are vulnerable to environmental risk to varying degrees, depending on the risk aptitude of the insured as well as the potential risk severity of the business. In the environmental insurance industry, risk severity tends to be more significant than risk frequency, as adverse environmental conditions can be so damaging and costly.
With heavy storms the probability for high severity environmental conditions increases.
Commercial property owners could face chemical or waste releases including containment overflows, fires causing pollution conditions, mold growth affecting indoor air quality or bacterial contamination.
Chemical releases
Distribution warehouses, manufacturing plants and other commercial buildings often store hazardous materials at different quantities. During a storm or hurricane, those materials can be displaced, broken open or even create a dangerous chemical reaction when exposed to water.
For example, if a drum of chemicals spills into rising floodwaters, you’re no longer dealing with a simple property claim, you’re dealing with an environmental condition.
Even if the commercial property was not impacted by rising floodwaters, they could still have an environmental condition from heavy winds or a tornado blowing the chemical drums into the neighboring lake or neighbor’s property.
Mold growth and bacterial contamination
Water intrusion is one of the biggest culprits behind widespread environmental losses involving mold growth and bacterial contamination.
Mold needs three things to colonize and reproduce: water, heat and food. When water seeps into drywall, ceilings or subflooring and the humidity rises, it creates an ideal environment for mold colonies. Since mold is omnipresent in the environment including indoor air, hurricanes, and southern or summer storms, are the perfect mix for toxic mold growth, affecting the indoor air quality of commercial properties and causing bodily injury and clean-up cost losses.
Flood water is grossly contaminated with bacteria, which means the more water that gets into a commercial property the higher the clean-up costs will be.
According to the Institute of Inspection Cleaning and Restoration Certification (IICRC) and the American National Standards Institute (ANSI) Guidelines & Standards of the S500 Standard for Professional Water Damage Restoration, Category 3 water is any water that is not a supply line or not water you would want to drink, and its remediation requires a more robust clean-up process and standard and entails more cost to the commercial property owner or manager. The application of what water could be categorized as grossly contaminated with bacteria is far reaching and could easily trigger the fungi and bacteria exclusion on GL policies. It also could trigger the extreme limitation of the commercial property policy for pollution as many states have a precedent that bacteria are deemed a pollutant. However, this does vary by state, making the need for pollution insurance more important.
Another type of bacteria to keep track of is legionella bacteria, which causes legionnaires disease, which is deadly. This is a more known harmful bacteria that can thrive in water-damaged HVAC systems and in stagnant water post-flooding.
The commercial property coverage gap that gets missed
Even when a property is “fully insured,” many policies provide minimal, if any, coverage for mold, fungi, bacteria or pollutants. Most ISO-based property forms include a very low sublimit for mold/fungi-related damages and pollution events. However, keep in mind, based on our internal research, the average mold remediation project for a commercial property is around $250,000. Environmental insurance policy limits start at $1 million, so relying on the property sub limits for insurance coverage may be a risky course of action.
In addition, GL policies will routinely have pollution exclusions as well as additional fungi and bacteria exclusions. We are also seeing an increase in per- and polyfluoroalkyl substances (PFAS)exclusions on commercial property and GL policies, all of which can be addressed with an environmental insurance policy.
Environmental Insurance: The missing puzzle piece
Environmental insurance policies, when brokered and structured properly, are intended to fill the dangerous gaps left behind by GL and Property policies. They are not designed to replace existing coverages, instead, they complement and expand the protection your agents provide their clients.
In general, these policies can:
- Provide coverage for mold, fungi and bacteria-related losses post-storm.
- Cover costs of remediation for hazardous material spills and other various clean-up costs after a pollution condition from a storm or hurricane.
- Respond to third-party bodily injury and property damage claims tied to pollution conditions.
- Offer business interruption coverage tied to environmental conditions.
- Offer emergency responses costs to help mitigate a pollution condition due to a storm or hurricane.
*All to the specific terms and conditions of the policy that was put in place.
Why this matters now more than ever
Storm intensity and frequency are increasing in hurricane-prone areas. We are seeing more hurricanes, tornadoes, etc. and are experiencing stronger storms including windstorms. Cities are lacking stormwater infrastructure to keep up with the increase of water causing more widespread flooding. In addition, commercial properties are more complex than ever, with different building materials, green buildings, etc. The result? The environmental risk exposure is growing, while traditional insurance products haven’t kept pace.
What you as a Wholesale broker can do immediately:
- Proactively educate your agents on the concerns in the GL and Commercial Property policies related to the environmental conditions, prior to storm season.
- Recommend environmental insurance as a complement, not a replacement, to their current insurance placement. Also recommend they add the coverage as soon as they can prior to the storm season as many carriers will begin adding restrictions to placing new business policies if the storm activity is high severity and frequency.
- Use our resources here at the Bridge Specialty Environmental Practice Group (ARMR Brokerage). We have a team of wholesale brokers who specialize in brokering and negotiating some of the most complex risks and environmental insurance placements. We are here to help you and work with your agent on providing quality environmental insurance placements. You don’t have to do it alone.
- Watch for environmental red flags in insured operations. When reviewing a submission or discussing an account with an agent, if there is the possibility of something going somewhere it isn’t intended to go causing bodily injury, property damage and/or clean-up costs, your agent should alert the insured as soon as possible about environmental insurance.
- Act before the storm hits. Environmental Impairment Liability / site pollution policies are on a claims made basis. It is important to have the coverage placed with retroactive date set before a storm occurs to ensure the policy can be fully activated according to its terms and conditions.
In summary
At the end of the day, we’re in the business of helping our agents protect what matters most to their clients. That means staying a step ahead, not just with market access or fast quotes, but with risk foresight.
Whether your insured owns one property or hundreds, the question as a wholesale broker and risk advisor is not, “Can they afford it?” but rather, “Can they afford to go without it?”
ARMR Brokerage, the Bridge Specialty Environmental Practice Group is here to help. Reach out directly for quick consults, market recommendations or to discuss environmental exposures on your next placement.
For more information about the Bridge Specialty Environmental Practice Group, contact Kari Kohal at [email protected] or (608) 824-3341.
This material has been prepared for general informational purposes only, is intended to apply generally rather than to any specific company and presumes appropriate discretion will be exercised regarding any particular situation.
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