Insights 101 | Environmental Pollution Insurance in Canada Explained
Pollution and environmental liabilities are increasing risk and exposure for many Canadian businesses. Unfortunately, these risks and exposures aren’t covered under standard insurance policies like commercial general liability insurance and/or commercial property insurance.
Increasing environmental focus paired with an expanding list of known pollution sources has led to many recent costly lawsuits. This is why you should speak to an ALIGNED Insurance broker about Canadian environmental pollution liability insurance. A pollution claim can arise at any time for nearly any company, with a devastating cost.
This is why we’ve pulled together some important insights about environmental pollution insurance in Canada.
A Brief History Of Canadian Environmental Insurance
Canadian pollution liability products have been around since the mid-to-late 1980s, evolving over time to address shifting trends, emerging risks, and increasing coverage demands.
Initially, these policies were known as pollution legal liability insurance, providing coverage for third-party bodily injury and property damage. They also addressed clean-up cost claims from the offsite release of environmental contaminants originating from the insured’s property. However, these early policies had significant gaps, excluding on-site contamination claims or first-party clean-up costs.
By the early 1990s, pollution liability coverage had broadened to include claims for on-site contaminant releases and first-party clean-up costs arising from newly discovered environmental conditions.
Most insurers restricted first-party coverage to clean-up costs that the site owner was legally required to pay, ensuring compliance with local, provincial or federal regulations.
Modern Pollution Liability Insurance Policies
Modern pollution policies provide coverage for site owners throughout a property’s lifespan—often referred to as “cradle to grave” coverage, which applies as long as the owner maintains continuous coverage during this period.
This comprehensive coverage starts with property acquisition, continues through its useful purpose and ends when the property is either abandoned or sold, addressing potential environmental liabilities at any stage of the property’s life.
In addition, many recent environmental pollution insurance policies now cover previously known exposures, such as asbestos, lead-based paint, or contaminants that were once below legal thresholds. These known exposures were commonly excluded in older policies.
Types of Canadian Environmental Pollution Insurance
Various Canadian environmental pollution insurance coverage types are currently available, and most policies are customizable to address a company’s specific risks and exposures. These policies often include additional coverage options, such as transportation pollution liability for contamination while transporting goods.
Examples of available coverage include:
- Premises pollution liability coverage
- Environmental impairment liability insurance
- Contractors pollution liability policies
These policies can be tailored to complement the broad coverage of standard commercial general liability policies.
Who Does Canadian Environmental Pollution Liability Coverage Protect?
Traditional Canadian environmental pollution insurance policies covered only the site owner, but today, many parties could be liable for environmental conditions. During the sale of a property, the seller and purchaser could have potential liability. They could address this shared liability in their contractual arrangements, but both could protect themselves with a type of pollution coverage.
Lenders whose loans are backed up by actual real estate also face a potential liability if they foreclose on a property and then an environmental condition is discovered.
Not only will this plummet the property’s value, but the lender would also be responsible for the costs of the pollution. Lender liability coverage protects lenders from this unique environmental risk.
A property’s tenant, whether the owner or renter, also faces liability for pollution claims, particularly if their business operations or personnel caused the pollution.
Why Consider Environmental Pollution Insurance For Your Company?
The risk of pollution may seem obscure, but it could arise at any time. New forms of pollution and contamination are frequently being discovered, often resulting from a large (and generally successful) lawsuit due to third-party bodily injury or property damage.
In addition, due to the widely variable and uncertain nature of environmental and pollution factors, this risk is an economically uncertain liability—but one that could be financially disastrous. Costs could exceed even the value of the property itself. Many risk managers feel more comfortable paying a fixed premium rather than gambling with potentially catastrophic costs in the future.
Who Needs Environmental Liability Insurance?
Common industries and professionals that require environmental liability insurance include:
- Real Estate Companies
- Construction companies
- Manufacturers
- Cleaning and restoration companies
- Demolition companies
- Independent contractors
- Waste & Recycling Companiesc
- Sub-contractors
- Restoration & Disaster Response/Management Companies
- Otherim
What About The Costs Associated With Pollution?
Potential costs are high due to the many aspects of pollution exposure. For instance, third-party claims could include bodily injury, property damage and/or hefty clean-up costs for contaminants that travelled off-site or were released onsite. Plus, the company would be responsible for the court costs associated with defending itself.
A first-party situation arises when a company experiences a spill or contamination that requires clean-up, often due to a violation of local, provincial, or federal environmental standards. Business interruption is also a consideration in these instances, as any clean-up could be time-consuming. Pollution insurance can cover all of those exposures.
In addition, Canadian environmental pollution insurance coverage can help a property transaction go quicker. If an environmental condition exists before or during the sale of a property, the process can be dragged out while the condition is cleaned up. Environmental tests and investigations to find potential pollution sources can be lengthy, even if no known condition exists. A pollution insurance policy can mitigate this. If a buyer knows an existing environmental condition will be taken care of, they will have greater confidence in their purchase.
Canadian environmental pollution insurance policies are flexible, making it easier for businesses to tailor their coverage to fit their company’s particular exposures. Contact the expert business insurance brokers at ALIGNED Insurance, who can help you find the right policy for your company.
What Qualifies As A Pollution Source?
Buildings and properties can harbour numerous pollutants, environmental conditions, and contaminants, with new ones being discovered regularly. Many claims classified as pollution-related by insurance companies might be mistakenly assumed to be covered under a commercial general liability (CGL) policy.
Due to the sweeping pollution exclusion on these standard policies, you may be surprised when a claim is classified as pollution and not covered.
The following are just a sampling of possible pollution exposures that may affect your company:
- Chinese drywall (defective drywall emitting harmful levels of sulphur into the air)
- Toxic mould, fungi, or bacterial contamination
- Silt runoff from construction sites contaminating public water sources (liability for both contractors and property owners)
- Certain green construction techniques that introduce unforeseen pollutants
- Nanotechnology-related pollutants
- Asbestos exposure
- Lead-based paint hazards
- Release of contaminants or chemicals into the air or public water supply, such as solvents, degreasers, paints, cleaning products, fuels, pesticides, and herbicides
- Aboveground or underground storage tank leaks
- Improper waste disposal (including medical waste)
- Exhaust fumes from buildings or vehicles
- Malfunctioning HVAC or ventilation systems
- Contamination from deteriorating, leaking, or crumbling older buildings and pipes
Pollution is an unpredictable, costly exposure your business needs to consider as part of its risk management program. While many pollution-related incidents can be prevented, there is always the possibility for an unexpected spill, contamination or environmental condition to occur on the surface. That is why Canadian environmental pollution insurance coverage is a key Canadian insurance product that protects your company.
Frequently Asked Questions
Are natural disasters covered by environmental liability insurance?
Natural disasters can increase pollution risks by causing spills or spreading contaminants. Environmental liability insurance can protect your business by covering emergency response costs and third-party claims resulting from these events.
What should I do if I suspect pollution on my property?
If you suspect pollution emanating from your property, it’s important to act immediately. Get in touch with your insurance provider to report the potential issue and arrange an inspection. Taking prompt action can help minimize the damage and ensure any necessary clean-up costs are covered under your policy, saving you from having to foot that expensive bill yourself.
How does environmental liability insurance protect employees?
Environmental liability insurance provides coverage for any health claims made by workers due to exposure to pollution conditions in the workplace. It ensures their medical expenses and any related costs are taken care of, protecting both your team and your business.
Are there specific training requirements for employees to qualify for coverage?
Yes, many of these policies require that employees get proper training on handling hazardous materials and what to do in an emergency pollution situation. This training is important because it helps reduce the chances of pollution incidents happening in the first place and ensures everyone is following the rules laid out in the policy.
Can environmental liability insurance cover past contamination issues discovered during a property sale?
Yes, some policies include coverage for previously unknown contamination discovered during a property transaction. This can really smooth out the sale process by ensuring cleanup costs are managed properly, giving peace of mind to both buyers and sellers.
