What is a Pollutant?
Any material, substance, liquid, product, etc… which is introduced into an environment for other than its intended use / purpose. In other words, something that ends up where it doesn’t belong. Fresh water, cheese, and milk have all been classified as pollutants by Insurance Carriers under various circumstances.
Most commercial insureds assume that claims arising from their operations are covered by the general liability policy. However, claims resulting from a “pollution incident” are excluded from most general liability policies, which leaves commercial insureds with gaps in coverage. What pollutants are impacting your business?
Environmental Exposures Impacting Hospitals & Medical Facilities
May included, but are not limited to: Legionnaires; Air emissions from medical waste incinerators; Spills or leaks from aboveground/underground storage tanks and piping; Sick building syndrome; Vapor intrusion; PFAS Chemicals; Bacterial or infectious air releases from faulty HVAC systems; Pollution liabilities and clean up that occur after a fire; Air release from on-site refrigeration systems; Sewer and septic system contamination from the disposal of laboratory wastes, pharmaceuticals and chemicals into sinks, Leaks from elevator hydraulic fluid storage tanks; Historical contamination; Easements that cross property which may leak or spill hazardous materials; Janitorial cleaning compounds; Asbestos; Lead; Inadequate hazardous and infectious waste management program; Property donated or purchased; Spills and leaks from the storage and handling (loading and unloading) of materials / supplies…; Laundry Operations; Illegal disposal practices by vendor’s for hazardous, medical and radionuclide wastes; Incomplete incineration of harmful biological materials, plastic bags, petri plates, tubing; Poor information on the possible adverse reactions and interactions of chemical compounds that accidentally commingle during a fire; Radioactive material in equipment and medications: Mercury in fluorescent lights, thermometers; Parking lots and garages….
Environmental Claim Scenarios
- A mechanical contractor removed ductwork from a hospitals 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 hospital. Patients 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 hospital was not at fault, they had expenses of $100,000 for legal defense and $50,000 for claims management.
- A hospitals 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 medical facility 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 facility hired a consultant that failed to delineate wetlands on property, which was to be developed into a new medical professional building. As a result, the medical building had to be re-engineered, thus delaying its opening. The settlement amounted to $2 million.
- A street and road contractor was hired to apply a sealing coat to a new concrete parking garage next to a hospital. During the application of the sealant, fumes migrated into the hospitals air intake system. Several patients and hospital staff were overcome by fumes and became ill. Lawsuits were filed alleging bodily injury and asserting damages in excess of $1,000,000.
- Legionella was discovered in the water supply of a major metropolitan hospital. An entire wing of the hospital needed to be vacated and patients removed while the water system went through treatment for the Legionella. In addition to the remediation costs, several patients sued the hospital claiming bodily injury from exposure to Legionella.
- A mechanical contractor was hired to perform HVAC repairs at a hospital. No medical procedures were performed during the actual renovation activities and proper measures were taken to ensure proper encapsulation. Despite the controls, one year after completion of the project, the contractor was notified that several aspergillus (a type of mold species) infections had occurred several months after valve replacement surgeries. Internal and government investigation identified the source as the hospital operating room shortly after the renovation. The hospital was sued by several of the patients sustaining secondary infections. The hospital and the contractor contributed to settle the claims.
Underground & Above Ground Storage Tank Loss Examples
- A hospitals maintenance staff was performing a routine check of the emergency backup power system. The backup power generator was located on the roof of the hospital 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 contractor was hired 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 hospitals, pollution losses are not a frequency risk, but rather a severity risk. For this reason, many hospitals lack the financial strength to self-insure their environmental liabilities. Since every hospital 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.
Three Overlooked benefits of environmental liability insurance:
- 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 Impairments Liability (EIL) aka Site Pollution Liability
EIL is for hospitals and medical facilities susceptible to economic loss caused by pollution that actually or allegedly originated from their operations. Sometimes referred to as pollution legal liability this coverage is for those who own, operate, lease, or have any other insurable interest in real property and the operations. Coverage can be written in a variety of ways addressing unknown preexisting 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 clean-up costs, legal defense expenses, non-owned disposal sites, transportation and more. EIL can be offered on multiyear terms. Most EIL policies cover above ground storage tanks.
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.
Underground & Above Ground Storage Tanks
Financial responsibility requirements ensure that owners and operators of underground storage tank systems can financially handle a release from an underground storage tank. The responsibility encompasses the ability to pay funds for corrective action and third party bodily injury and property damage from non-sudden and sudden and accidental releases from a regulated underground system. Several states offer tank funds. It is necessary to make sure if your state has a tank fund that is financially sound and the time it takes to get reimbursed.
Note: For hospitals and medical facilities, 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 either 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.
Property Transfer Coverage
When buying or selling 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.