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The next big thing - Environmental insurance for the rest of us

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The next big thing - Environmental insurance for the rest of us

  1. 1. LIU Product Update The next big thing: Environmental insurance for the rest of us Any owner of property where environmental contamination is found may become responsible for the cleanup—regardless of whether or not the incident was the company’s fault or even its material. When thinking of environmental insurance, common examples come to mind: companies that handle large volumes of toxic materials and firms involved in waste management. But recent natural and man- made disasters have led to significant environmental consequences for unprepared companies of all sizes within the construction, education, manufacturing, hospitality, technology, retail, telecommunications and agriculture Industries. No wonder more business owners in Australia today are rethinking the need for Environmental Impairment Liability (EIL) coverage. Here are four important reasons why businesses of all sizes and classes are potentially at risk from environmental exposures. 1. Liability as a property owner When it comes to environmental exposure the property owner where environmental contamination is found may become responsible for the cleanup—even if it was caused by the landlord’s tenant (and not the landlord). Even conscientious property owners who do everything possible to comply with environmental regulations may find themselves at risk for this type of exposure. Most recently, commercial building owners in Sydney found themselves incurring environmental clean up costs when flooding occurred in the underground parking garages of their properties. The storm surge floodwaters compromised boilers, diesel tanks, and transformers, filling lower floors with contaminated water. In some cases, the extensive clean up meant tenants could not return for some time and the building owners suddenly had to confront the reality of an incident that had a considerable disruptive effect on their business. Most General Liability (GL) policies have significant limitations on pollution liability or exclude such liability outright. EIL insurance not only protects clients actively involved in an environmental incident (e.g. tenant), it could also protect clients who may become responsible for the contamination (e.g. landlord). EIL policies provide coverage for bodily injury, property damage, defence costs, cleanup and restoration expenses, loss of rents and business interruption. 2. Power Outages As environmental liabilities can arise from both natural and man-made disasters a commonly overlooked exposure is a company’s dependence on its power source. Any company could easily find itself in a similar situation to one manufacturer, a mobile phone case maker, that uses a process involving plastic extrusion. A sudden disruption in the local power supply recently shut down its pollution control equipment, resulting in a discharge of untreated waste that exposed neighbours to harmful fumes and spilled contaminants into the sewage system. The information in this document is presented by Liberty International Underwriters (a trading name of Liberty Mutual Insurance Company ABN 61 086 083 605 Incorporated in Massachusetts, U.S.A. The liability of members is limited). This information is intended to provide general information only. It should not be relied on as insurance advice in any jurisdiction. Refer to the policy wording for the complete terms and conditions. Please contact LIU for a Licence to use and distribute this document. This information is current as at August 2015. Please Contact AlanThorn on Ph: +61 2 8298 5838 E: Alan.Thorn@libertyiu.com or visit www.liuaustralia.com.au
  2. 2. Almost immediately environmental protection officials came knocking at the manufacturer’s door, along with concerned local residents and media. While losing power once meant no lights for a few hours, with today’s IT infrastructures powered by electricity, the operational consequences of even a minor blackout can be far-reaching. Even having a backup generator is no guarantee against disruption, since generators often run out of fuel or suffer performance problems when operating continuously for more than a limited period. EIL insurance covers contamination resulting from waste water discharged into a body of water, as well as waste material seeping into the soil or penetrating the ground water. EIL policies also cover exposures arising from toxic air emissions, including problems impacting a facility’s indoor air quality as a result of problems with the HVAC systems. 3. Not as harmless as you think Materials do not need to be classified as a hazardous waste, or chemical, fuel or petroleum product to create an EIL loss. Environmental claims encompass a broad range of potential contaminants, some of which are seemingly benign, yet wreak havoc when spilled or seep in large quantities into habitats where they’re not supposed to be. For example, environmental claims have resulted from cooking grease that has escaped down a drain over a prolonged period of time that ultimately created noxious fumes in a city’s sewage system. EIL can fill the coverage gaps created by a host of environmental exclusions common in GL policies, including pollution, fungus, mould, bacteria, lead and more, depending on the policy. 4. Public scrutiny A badly handled environmental problem can damage a brand and haunt a business for years. Because the majority of environmental incidents can negatively impact people’s health, quickly responding to—and minimising—an environmental event is crucial. There’s a business imperative to do something and, if you don’t, the company’s reputation may be irreparably damaged. The general public’s sensitivity to the consequences of environmental events is far greater than it was in the past. It is now heightened by catastrophic occurrences such as oil spills and the increased frequency of intense natural disasters like the Brisbane floods, Cyclone Yasi and the Sydney Storms. Furthermore, with today’s improved testing methods and modern record-keeping technology, it’s far easier to assign liability and link people or companies to the rubbish and waste streams they’ve created. As such, businesses face greater EIL exposure. While public reaction cannot be controlled solely by having coverage, an EIL policy can help mitigate the effect of an environmental event, allowing businesses to respond quickly and minimise negative publicity. Finally, perhaps the biggest emerging influence on EIL losses is the impact of social media given it provides an immediate, mainstream platform which allows everyone to interact, express opinions, and share their concern about environmental issues against corporate offenders, large and small. Indeed, concerned residents are increasingly driving national conversations this way. For more information on Liberty International Underwriters’EIL solution, please contact Alan.Thorn@LibertyIU.com or visit www.liuaustralia.com.au The information in this document is presented by Liberty International Underwriters (a trading name of Liberty Mutual Insurance Company ABN 61 086 083 605 Incorporated in Massachusetts, U.S.A. The liability of members is limited). This information is intended to provide general information only. It should not be relied on as insurance advice in any jurisdiction. Refer to the policy wording for the complete terms and conditions. Please contact LIU for a Licence to use and distribute this document. This information is current as at August 2015. Please Contact AlanThorn on Ph: +61 2 8298 5838 E: Alan.Thorn@libertyiu.com or visit www.liuaustralia.com.au

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