Guest post by:
Kari Kohal, MBA, AINS, AIS, President & Managing Director – ARMR Net
Member of Bridge Specialty Group
Practice Group Leader, Bridge Specialty Environmental Practice Group
Schools, whether public, private, universities or colleges, are not typically the first risks that come to mind when considering environmental exposures. However, these institutions face a unique blend of hidden environmental risks that are often not covered or severely sublimited under standard commercial property and general liability policies. This is due to various sublimits and pollution exclusions found in every commercial property and general liability placement. Due to the variance of pollution sub-limitations and exclusions, the discussion of environmental insurance should be had between the insured and their local insurance professional.
As an insurance broker, you can increase your value and differentiate yourself from competitors by discussing the environmental insurance coverage gaps and the hidden environmental risks lurking in standard commercial policies. Since environmental exposures are ever-changing, it is impossible to predict every constituent a risk could face. That’s why investing in environmental insurance early, to establish a retroactive date, is essential.
When we think of environmental exposures, oil spills, gas releases, chemical leaks into rivers, or landfills often come to mind. While those are certainly valid examples, they’re not the most common losses we see on environmental insurance policies. This is mostly driven by the broad definition that courts and policy language assign to “pollutants.”
Indeed, as we’re about to explain, the US judiciary’s working definition of “pollutants,” which triggers pollution exclusions and limitations of commercial property and general liability policies, or in the case of environmental insurance, triggers the policy to the terms and conditions, is very broad.
Example of a “Pollutants” definition from ISO CG 00 01 04 13 form
“Pollutants” mean any solid, liquid, gaseous, or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.
Courts across various states have often interpreted “pollutants” to mean virtually anything, in sufficient quantity, that ends up where it shouldn’t and causes bodily harm and/or damage to property and/or natural resources. Based on this interpretation, schools, colleges and universities are significantly exposed to hidden environmental risks that are often not adequately covered by commercial property and general liability insurance.
These hidden risks may include issues such as indoor air quality and unknown environmental liabilities inherited from prior property owners.
I recently attended and spoke at a school pool meeting on everyday environmental exposures, where the room was filled with superintendents. After the presentation, one attendee shared that their district had to conduct full soil remediation, costing over $500,000, due to unknown pre-existing pollutants on newly acquired property. This is a very real exposure—especially for rapidly growing school districts that standard commercial property policies probably would not respond to.
Hidden environmental exposures and claims examples
Indoor air quality – Mold
During the summer, many schools shut down their HVAC systems to save on operating costs. In a few buildings, the HVAC systems were shut down improperly, creating a warm, humid environment with organic matter, the perfect recipe for mold growth. As a result, mold colonies rapidly grew. When the maintenance team restarted the systems before the new school year, they unknowingly circulated mold spores throughout the buildings. Soon after, staff and students began experiencing migraines, asthma and severe allergies. In addition to bodily injuries, the school spent over $700,000 on mold remediation.
Indoor air quality – Asbestos fibers
During a library remodel, a contractor accidentally disturbed asbestos. The fibers were drawn into the HVAC system and circulated throughout the building. Parents and students were later informed of the exposure, and recommended that all contaminated personal items, including clothing, had to be discarded. The parents sued the school for pollution exposure.
Chemistry lab accident
During a chemistry experiment, a student accidentally mixed the wrong chemicals, causing a violent reaction. The chemicals splashed into the student’s eyes, requiring immediate hospitalization. The accident caused the student permanent blindness.
Chemical burns or vapor intrusion – Pool maintenance
A maintenance worker added an unsafe amount of chemicals to the school pool. During practice, several swimmers experienced coughing and dizziness. A few were hospitalized due to respiratory distress.
Legionella – Water features, pools, locker rooms, dorm showers
Legionella bacteria developed in the plumbing system, contaminating the water supply. Several students who took showers inhaled water droplets containing the bacteria and contracted Legionnaires’ disease. They were later hospitalized due to the disease. The bacterial source took weeks to identify, and the entire plumbing system had to be replaced.
Herbicide or pesticide exposure – Sports fields
Landscapers applied herbicide to the soccer fields without realizing that the teams had practice shortly after. The soccer coach unknowingly held their team’s practice on that field, resulting in bodily injury to many of the teammates.
Above-ground storage tank incident
An above-ground fuel tank was hit by a third-party vehicle, releasing fuel. An environmental cleanup crew conducted a remediation project that cost over $300,000.
Chemical storage issues
Curious students accessed pool and cleaning chemicals, leading to water contamination and property damage.
Meth lab discovery
A meth lab was discovered on school property. The chemicals from making methamphetamines had been released into the nearby porous surfaces. Due to the nature of a meth lab, the cleaning and dismantling of the lab required that all counters, wallboards and cabinets be thrown away as hazardous waste. Indoor air quality samples also had to be performed. The full hazardous waste disposal costs and remediation costs were the responsibility of the insured.
Illicit waste abandonment
Unknown parties illegally dumped contaminated waste on school property. The school was left responsible for the remediation costs and hazardous waste disposal costs.
Vapor intrusion during renovation
During a remodeling project, chemical fumes from solvents entered the HVAC system at a highly concentrated level and circulated through the building. Several people suffered bodily injury and required hospitalization.
These are just a few examples, and due to the broad definitions of “pollutants” and “pollution conditions,” the exposure possibilities are endless. Environmental insurance policies are unique in that they provide coverage for both first-party cleanup coverage and third-party bodily injury and property damage coverage.
However, what makes environmental insurance challenging to place is its lack of standardization. Ten years ago, at the Society of Environmental Insurance Professionals conference, an underwriter presented that they counted at least 140 variations of a Contractors Pollution Liability policy. We expect that number today to be substantially higher.
Environmental Insurance policies, especially those placed by brokers who specialize in environmental wholesale brokering, are highly customized. It’s not uncommon for environmental insurance specialists to co-write manuscript endorsements with carriers. As a result, brokers unfamiliar with these coverages may unknowingly place insufficient coverage, creating errors and omissions risks for both retail and placing brokers.
What can you do as a broker?
Have the conversation early with your retail agents. Let them know there are specific insurance products with insuring agreements available to help manage their clients’ environmental risks. Share the claims examples from this blog post and explain how Bridge Specialty Group has an environmental practice group that specializes in complex wholesale environmental insurance placements. This is a valuable added benefit for retail agents working with Bridge Specialty Group.
To learn more about our Environmental capabilities, contact Kari Kohal at [email protected] or (608) 824-3341.
