As individuals recover from the recent devastating wildfires that raged across Los Angeles, we send our heartfelt compassion to the thousands affected by this unprecedented disaster.
California has faced several recent catastrophic wildfires, including the current destruction of the Pacific Palisades, which has reportedly damaged or destroyed more than 15,000 structures. Related fires include the Camp Fire in 2018, which devasted the town of Paradise, among many others.
These catastrophes highlight the critical need for comprehensive insurance coverage, especially environmental insurance, which addresses the pollution risks often overlooked – and not covered – in standard commercial policies.
How did we get here?
According to Michael Murff, PhD, MBA and Senior Data Analyst and Product Director for Bridge Specialty Group, factors leading up to these catastrophic events included environmental conditions, climate extremes and the Santa Ana winds, human factors such as urban development, aging infrastructure, and systemic and policy challenges such as water management and regulatory hurdles. Murff observed, “California’s wildfire crisis is a multifaceted challenge, driven by a mix of natural, human and policy factors. Many wildfires are caused by humans, but numerous concurrent factors play into the complexity and severity of the situation in Palisades.”
Influencing factors include:
- Environmental conditions: Drought, dry fuels and strong Santa Ana winds create perfect conditions for rapid fire spread
- Human factors: Urban development in fire-prone areas and aging infrastructure increase ignition risks
- Climate extremes: Rising temperatures and volatile precipitation cycles intensify fire risk
Kari Kohal, MBA, AINS, AIS, President of wholesale insurance brokerage ARMR Network, LLC (a new member of Bridge Specialty Group), agrees and added, “Systemic and policy challenges including environmental regulations and land-use restrictions can slow preventative measures. Limited water storage and distribution make it more difficult to respond quickly and effectively. Additionally, long-term measures like upgrading infrastructure, expanding water resources, and implementing resilient urban planning require significant public investment.”
Beyond prevention: Insuring against the hidden environmental risks in the aftermath of wildfires
With such extreme circumstances in California, managing the increasing environmental risk and obtaining sufficient insurance proves to be a significant challenge for insurance professionals and property and business owners alike.
Many commercial property owners are unaware of the hidden environmental risks that emerge in the aftermath of wildfires. These wildfire-related risks for commercial properties often go unnoticed until a loss occurs, complicating indemnification, especially for environmental and pollution issues. With general liability (GL) and property policies excluding or severely limiting pollution coverage, purchasing environmental coverage is essential for property and business owners. Broadly, a pollution condition arises when any substance, in sufficient quantity, causes harm where it shouldn’t, leading to injury, property damage or cleanup costs.
Kohal, who specializes in environmental insurance, offers guidance for retail insurance professionals to help their commercial property clients manage increased environmental risks, particularly those related to wildfires and hidden risks.
Kohal explains, “Wildfires and intense heat can damage containment systems, causing increased releases of pollutants. These substances may then spread to neighboring properties, waterways or water supply and sewer systems. What’s important to note is that property owners are liable for the resulting cleanup costs and will require additional environmental insurance coverage.”
Filling the gap with environmental insurance
The definition of a pollution condition and a pollutant in GL and commercial property policies are broader than at face value, which makes it troublesome to manage the risk with insurance. One of the many reasons environmental insurance products were created is to lessen the ambiguity of environmental risk management through insurance within GL and commercial property policies. Kohal says, “This type of coverage fills the gap caused by the various pollution exclusions or sub limits found in GL and commercial property policies.”
Educating commercial property owners
As a practice, retail agents should inform and educate their clients on the various pollution exclusions in GL and commercial property policies, focusing mostly on the definition of “pollutants” as defined in the policy. Many insureds do not realize they have environmental risk to manage with additional insurance until they read the definition of “pollutants” as well as the pollution exclusions in their policies. Recommendations for commercial property owners include:
- Review existing policies: Understand the definition of “pollutants” and pollution exclusions in current GL and Commercial Property policies.
- Consult with specialists: Partner with insurance professionals experienced in environmental coverage.
- Consider additional coverage: Explore environmental insurance products to manage increasing environmental risks.
Navigating environmental risks with a knowledgeable wholesaler
It’s beneficial for retail brokers to partner with a wholesale broker who has extensive experience in environmental insurance and specializes in this line of coverage. Bridge Specialty Group and their environmental practice group, ARMR Network, run by Kohal, provides various resources for their retail insurance partners, as well as the various environmental insurance products to assist in the risk management of the ever-increasing environmental risks commercial property owners face today.
ARMR Network – a dedicated specialist in environmental insurance
ARMR Network’s team of specialist insurance brokers have placed environmental insurance on some of the most complex risks in the world. The team developed the first Contractors Pollution Liability insurance policy in the world, insuring the containment operations from the nuclear disaster at Chernobyl, and developed the first insurance wrap-ups for Superfund remediation contractors. As risk and insurance consultants, their services have been engaged by the US EPA, the US Army Corps of Engineers and the US Justice Department. They are major contributors to the chapters in the CPCU, ARM and IRMI texts on environmental insurance and their contributions were instrumental to the professional liability loss prevention chapter on environmental and mold risk professional liability loss prevention manual for the Independent Insurance Agents and Brokers of America.
Valuable resources
Bridge Specialty Group’s Environmental Practice Group, with ARMR Network, offers robust carrier capacity and deep advisory resources to comprehensively support retail insurance partners in navigating the complexities of environmental insurance. As part of our market leading services, we provide agents with training opportunities that sufficiently highlight the key technicalities of environmental insurance products as well as how to identify environmental insurance opportunities. In addition to training, the team provides environmental/pollution claims consulting and support services through an experienced on-staff expert witness as well as a JD in insurance contract law. ARMR Network’s comprehensive online environmental insurance library also offers retail partners with extensive in-depth resources, including detailed articles and claims examples, enabling them to confidently present and discuss environmental insurance options.
Want to learn more about environmental insurance? Contact Kari Kohal at ARMR Network Inc., a member of Bridge Specialty Group.
Resources:
USA Today How many homes have LA fires burned? Here are the estimates.
California Public Utilities Commission. (2024). Utility wildfire mitigation plans. Retrieved from https://www.cpuc.ca.gov/industries-and-topics/wildfires/utility-wildfire-mitigation-plans
Intergovernmental Panel on Climate Change. (2024). AR6 synthesis report. Retrieved from https://www.ipcc.ch/report/ar6/wg2/chapter/chapter-14/
National Association of Insurance Commissioners. (2024). Wildfire mitigation and insurance policy report. Retrieved from https://content.naic.org/sites/default/files/cipr_report_wildfire_mitigation.pdf
National Fire Protection Association. (2024). Fire suppression policy and forest health. Retrieved from https://www.fs.usda.gov/Internet/FSE_DOCUMENTS/fseprd1181344.pdf
National Weather Service. (2024). Santa Ana winds and wildfire safety. Retrieved from https://www.weather.gov/safety/wind-mountain-valley
Public Policy Institute of California. (2023). California’s water: Storing water. Retrieved from https://www.ppic.org/wp-content/uploads/californias-water-storing-water-november-2018.pdf
U.S. Drought Monitor. (2024). State drought monitor for California. Retrieved from https://droughtmonitor.unl.edu/CurrentMap/StateDroughtMonitor.aspx?CA
U.S. Forest Service. (2023). Wildland–urban interface expansion. Retrieved from https://research.fs.usda.gov/treesearch/55817
