Environmental risk insurance is becoming an increasingly important cover for business of all sizes as more and more claims are being made because of environmental damage.

With the growing awareness of environmental concerns and a tougher regulatory stance by government at all levels, companies are now focussing their attention on protecting themselves against environmental risks in order to avoid heavy fines and penalties and the resultant damage to their business.

Many companies believe that their existing insurances covered the events and the ensuing litigation costs after a disaster involving pollution or contamination, however this is often not the case and there are some gaps that need to be covered.

Although standard business insurance policies will cover events such as injury to employees (workers’ comp), partial coverage for injury to third parties under a standard public and products liability policy (if the pollution is due to a sudden and accidental event) and fines and penalties (covered under a statutory liability policy or extension), the company may still be exposed to several gaps in cover due to their policy exclusions.

Several common events however are often excluded from these policies. An event such as the gradual pollution of an area due to a slow leak or contamination is one example. This type of pollution is a hard to identify problem which can be environmentally disastrous, not to mention financially disastrous for any company particularly when it comes to the clean-up costs.

On top of this, environmental damage liabilities, such as biodiversity or natural resources restoration, also may not be covered.

According to Terry Phillips of Honan Insurance Group, “With the focus on potential environmental damage due to the government’s hard-line stance, some insurers now offer carefully worded policies to protect companies against the financial risks involved in environmental pollution. These Environmental Insurance policies can cover sudden and accidental pollution as well as gradual pollution and most importantly fill potential gaps due to exclusions in their standard business insurance cover.”

Environmental Insurance specifically covers events such as:

• first and third party clean-up costs,
• first party business interruption from pollution,
• defence costs,
• fines and penalties except for criminal acts,
• third party injury and third party property damage,

It is vitally important that a business is not harmed by the unexpected. Environmental Risk insurance is usually available in two basic forms:

• Fixed site liability
• Contractors liability

The correct form depends on how your business operates. An insurance broker will be able to assist you in determining which form meets your specific insurance needs best.