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ARI Blog: Article

Pollution Insurance Overview

What Is Pollution Insurance?

Pollution insurance is a type of coverage created specifically to manage the costs associated with pollution clean-up and cover liability claims for pollution-related injuries, illnesses, or deaths. This type of commercial insurance was designed in response to the problem that liability claims were bankrupting companies, and therefore victims were not being compensated.

Policies cover any small-scale pollution that causes contamination of soil, groundwater, or property. They also provide coverage for air-borne contaminates like smoke and emissions. Many policies will even cover pollution that occurred before the harmful effects of waste products were known. For more significant, more extensive pollution incidents, an environmental impact liability insurance policy may be needed.

What Is Contractors Pollution Liability Insurance?

Contractors work on other people's property. If work that they do now uses materials that are later found to be hazardous, the contractors are liable for damages and clean-up. Many contractors went bankrupt in the 1970s when they were forced to clean up asbestos-filled insulation from buildings they had worked on. Contractors' pollution liability insurance is designed to protect contractors from these unmanageable losses.

Who Needs Pollution Insurance?

When many people think of pollution insurance, they picture large factories with billowing smokestacks, but many small businesses can benefit from this coverage. Any company that uses environmentally unsafe chemicals, such as a hair salon or a dry-cleaning service, runs the risk of a pollution lawsuit. Similarly, garages, junkyards, and industrial manufacturers face these charges.

Even contractors who construct buildings need pollution insurance if their work can affect long-term air or environmental quality. A specialized form of pollution insurance called contractors pollution liability insurance can meet the needs of the construction industry.

What Does Pollution Insurance Cover?

Pollution liability insurance provides coverage for any claims brought against your company related to pollution of property or that causes harmful effects to people. Damage awards for these claims can be extremely costly, so having this sort of insurance can protect your business from severe financial challenges or even bankruptcy.

Most of the coverage options listed below come standard with a pollution insurance policy, but some companies may require you to purchase additional endorsements to get full coverage. Be sure to read the policy details well before selecting a provider. You can expect pollution insurance to cover:

  • Legal defense fees: Pollution insurance companies will provide your company with attorneys specializing in these matters to defend you in a pollution-related lawsuit. Your policy can also cover the costs of any other related legal fees and court costs.

  • Clean-up efforts: If your company is required by law to clean up contaminants, this coverage will compensate you for a portion of the costs. Many insurers will allow you to buy stop-loss policies that limit the amount that your company will be responsible for during the clean-up. This is beneficial if additional pollutants are identified in the clean-up process, potentially escalating the costs.

  • Operations: If your business uses chemicals or hazardous materials in the course of its operations, you will want to be sure to have coverage for accidents or oversights that may cause pollution. There are two types of coverage available:

    • Catastrophic coverage: This covers you if there is a sudden, pollution-inducing event such as a fire or explosion.

    • Non-catastrophic coverage: This covers you if pollution occurs over a long period and affects neighboring businesses or residents.

  • Property transfer: This protects property owners if they purchase a parcel of land or a building contaminated or otherwise polluted by a previous owner. If you have this insurance coverage, your insurer will cover necessary clean-up costs.

  • Errors and omissions: This coverage is designed explicitly for clean-up companies and environmental consultants. It covers them for liability if they should wrongly declare a property free of pollutants or if the work they do causes further contamination.

Contractors' pollution liability insurance provides contractors with coverage against bodily harm or injuries claims and includes coverage for any related court costs and legal fees.


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