Spotlight On: Pollution Liability

Pollution liability is a risk some commercial clients don’t realize they have. Others may be aware of the risk, but mistakenly assume it is covered by an existing commercial general liability policy.

Either way, brokers need to know what CGL policies exclude and where the pollution coverage gaps lie.

Some CGL policies have endorsements covering sudden and accidental pollution; however, the coverage doesn’t apply if someone discovered contamination that originated years ago, warns Irin Bakhtiar, an environmental specialist with Zurich Canada.

“The vast majority of pollution losses are what we call gradual losses,” Bakhtiar says. “They are losses that you might discover months, if not years, after the pollution event started. That would not qualify as [a sudden and accidental] claim under the majority of CGL endorsements.”

Most provinces have laws allowing cleanup orders to be issued against “any person who owns, owned or has or had management or control” over a contaminated property, regardless of how the contamination occurred and regardless of who is at fault, says Gowlings lawyer Harry Dahme.

Many commercial insurance clients “don’t yet realize that they have exposures there, or they underestimate the exposures that they have,” Bakhtiar adds.

Commercial brokers are advised to talk to clients about exclusions in the CGL that would prevent them from making claims if they are sued or subject them to fines or penalties in connection with a pollution incident.

Suppose, for example, you have a commercial client who owns a dry-cleaning business. “Even if they are using some of the greener chemicals, they are still using chemicals that could lead to soil and ground water contamination,” Bakhtiar warns. “Point to the ways in which the CGL would never have paid for [a spill of hazardous material] because it was discovered a year too late.”

By the same token, a client who is a construction contractor might think, ‘Well I am not using hazardous materials in my construction.” But they may not be thinking of their hidden storage tank, Bakhtiar said. “That is a real pollution exposure for which they need dedicated pollution coverage.”