What is a Pollutant?
Any material, substance, liquid, product, etc… which is introduced into an environment for other than its intended use / purpose. Fresh water, cheese, and milk have all been classified as pollutants by Insurance Carriers under various circumstances. What pollutants are impacting your business?
Every medical office operating today faces numerous environmental exposures. The following is a partial list of environmental exposures faced by medical offices or by the vendors they hire.
Environmental Exposures Impacting Medical Offices
Include, but are not limited to: Sick Building Syndrome (mold, Legionnaires, vapor intrusion); Radiation; Waste water from radiology services; Pollution from neighboring properties migrating onto yours (vapor intrusion); Disposal of pharmaceuticals, Pollution cleanup and liabilities that occur after a fire; Medical and hazardous waste; Storm water runoff (i.e. parking lots, chemicals used for landscaping…); Utility easements that cross property which may leak or spill hazardous materials; On site storage of hazardous materials / wastes; Illegal disposal practices by vendors for hazardous/medical and solid wastes; Mercury in fluorescent lights, thermometers and other medical equipment; Sample Pharmaceuticals stored on site; Latex Allergies; Storage tanks used for backup power generator fuel; Leaks from elevator hydraulic fluid storage tanks; Possible adverse reactions and interactions of chemical compounds that accidentally commingle during a fire….
Environmental Loss Examples: Medical Offices
- A mechanical contractor removed ductwork from a medical facility’s HVAC system. It was later determined that the ductwork was home to a dangerous fungus. The dismantling activities and the on-site storage of dismantled ductwork caused the fungus to spread into the building. Employees became infected with the fungus some were even critically infected. The contractor was found liable for the spread of the fungus and had bodily injury and property damage claims in excess of $1 million. Even though the medical facility was not at fault, they had expenses of $100,000 for legal defense and $50,000 for claims management.
- A wastewater treatment plant that was 25 years old had been upgraded several times over the years. Improper closure of an old clarifier and on-site surface impoundment had allowed gradual seepage into groundwater. These constituents contaminated the underlying groundwater, which was a potable water supply for the neighboring community. The costs for groundwater cleanup and emergency water supply for residents totaled $550,000.
- A medical laboratory experienced an unknown release of mercury. The mercury was discovered several years later, after the laboratory was no longer in use, and the building had been converted to offices. Under CERCLA (Comprehensive Environmental Response, Compensation and Liability Act), the medical lab was responsible to perform the cleanup. The medical lab faced a costly cleanup, adverse publicity, and potential bodily injury claims from the building’s current occupants. Cost of remediation totaled more than $300,000.
- A dental office for years let old silver fillings go down the drain that went to an onsite septic system. Testing of a nearby stream revealed high levels of contaminants. The source was determined to be the silver fillings in the septic system. Cost of remediation exceeded $250,000.
- A medical office’s maintenance staff was performing a routine check of the emergency backup power system. The backup power generator was located on the roof of the building and the diesel fuel to run the generator was in a 5,000 gallon underground storage tank. After testing was completed the generator was shut off but a faulty valve allowed for diesel fuel to continue to be pumped from the underground storage tank. 3,000 gallons of fuel was pumped from the tank, flowed onto the roof and down drain spouts before it was discovered. Since there were several drain spouts the diesel fuel created several contaminated areas that had to be cleaned up. Remediation of the ground and neighboring stream exceeded $400,000.
- A contractor was hired to remove a leaking underground storage tank. During the excavation they discovered they were not dealing with one tank but four. The cost of the job more than tripled from the original estimate.
- The concrete secondary containment of a 10,000-gallon diesel aboveground storage tank was cracked. A release from the tank spilled 8,000 gallons into the containment. The diesel seeped into the underlying soils and required costly excavation and removal. The total cost for investigation, removal and disposal exceeded $320,000.
- A medical facility hired a contractor to remove two underground storage tanks and associated contaminated soil. During storage tank removal, the contractor’s backhoe hit a natural gas pipeline causing an explosion. Third parties filed bodily injury claims against the contractor, as well as the hospital, claims exceeded $2.5 million.
Benefits of Environmental Liability Insurance
Unlike most liability exposures impacting medical offices, pollution losses are not a frequency risk, but rather a severity risk. For this reason, the majority of medical offices lack the financial strength to self-insure their environmental liabilities. Since every medical office is impacted by environmental liabilities consideration needs to be given to the economies of scale afforded with environmental liability insurance as part of your risk transfer strategy, versus self-insurance.
The Three Main Benefits environmental liability insurance offers:
- Defense Costs: Environmental liabilities are relatively new and very litigious. Even if you do nothing wrong you can still get named in a suit and have to expense defense costs i.e. legal fees, environmental investigations, etc.
- Claim Management: All policies come with specialists to assist you in handling a claim. Who is in charge of communications, public relations, emergency response, government compliance, financial management, third party claims for bodily injury, property damage, natural resource damages….?
- Third Party Liability: The majority of the time the cost to clean up the environmental problem/s is far less than the associated claims that come in from third parties for bodily injury, property damage and business interruption. You need to look at your client’s and neighbors that can be impacted if you or a sub-contractor/vendor cause an environmental loss.
Environmental Liability Insurance Products
Environmental Impairment Liability (EIL) aka Site Pollution Liability
EIL will protect medical facilities for exposure to economic loss caused by pollution that actually or allegedly originated from your operations. Sometimes referred to as pollution legal liability this coverage protects insured’s that own, rent, lease, occupy or have any other insurable interest in real property and the operations. Coverage can be written in a variety of ways addressing unknown preexisting pollution conditions or new conditions. Coverage can include third party bodily injury and property damage along with business interruption and extra expense, on and off site cleanup costs, legal defense expenses, non-owned disposal sites, transportation and more. EIL can be offered on multi year terms. Most EIL policies cover above ground storage tanks, some can cover underground storage tanks.
Property Transfer Coverage
When buying, selling or being gifted property there can be unknown preexisting environmental conditions. Since a Phase I or Phase II survey cannot guarantee uncovering all potential environmental liabilities, insurance companies have created property transfer insurance. This coverage protects the new owner or any party with an insurable interest, against unknown environmental conditions that may be discovered during the policy period, that were not caused by the new owner. This coverage not only helps to keep the property at its maximum value, it will assist the purchaser in being able to secure the necessary financing to complete their transaction.
Transportation Pollution Liability
Generally, Business Auto or Truckers policies will exclude pollution losses arising from spills or other releases of their cargo. Transportation pollution liability affords coverage during the loading, unloading and transportation, for a spill, release or sudden upset and over turn of transported cargo. Note: An MCS 90 is not pollution coverage. Since CERCLA states you own your waste from cradle to grave it is critical to know who you are doing business with and if there is a spill or release of your waste, you need to have a strategy in place to address the potential liabilities.
If you buy your products or materials FOB point of shipment, you need to give serious consideration to making sure you or the transporter is covered for a pollution loss during transit or loading and unloading of the vehicle. Many hospitals and medical facilities deal with radioactive medicines and other environmentally sensitive materials, these can be shipped by air and not vehicle. Sidetrack agreements with railroads need to address this issue.
Note: For doctor’s offices, you have potential indirect environmental exposures from the vendors you hire to perform services. Should your vendors cause an environmental problem or exacerbate an existing environmental issue their general liability insurance policy generally will have one of two things – An Absolute or Total Pollution Exclusion. In order to be protected you should make sure your vendors have this insurance coverage before they begin doing work.
Contractors Pollution Liability (CPL)
This coverage can be purchased to meet two specific exposures. First, contractors that perform remedial activities (asbestos, lead, mold, soil or ground water remediation, emergency response) there is the standard contractor’s pollution liability (CPL) insurance coverage. This protects the insured for pollution conditions they may cause or if they exacerbate an existing situation while performing remedial services. This is for covered operations performed by or on behalf of the insured. The loss must occur away from any premises the insured owns, rents, leases or occupies, in other words while they are performing remedial services at Pullman Regional Hospital.
Secondly, standard contractors (i.e. general contractors, HVAC, plumbing, electrical, mechanical, janitorial, demolition, drilling, excavation, highway, street and paving contractors, rigging, utility, millwrights, artisan, etc.), in performing their services may cause an environmental liability that is generally excluded from their general liability coverage. For these contractors there is contingent contractor’s pollution liability (CCPL) coverage. Basically they are afforded the same coverage as remedial contractors but the cost to purchase this insurance is substantially less.