Despite our best efforts to mitigate environmental risks, pollution incidents still occur, writes vice president of general casualty at Allied World Asia Jota Shohtoku
In one form or another, virtually every company faces environmental impairment related risks. Most mitigate these risks through procedures and processes such as environmental management plans, waste management plans, chemical inventory procedures, pollution testing and monitoring. However, despite best efforts to mitigate such risks, pollution incidents do occur, and the subsequent third party bodily injury and third party property damage claims, remediation costs and the business interruption losses faced by the company that caused the incident can be significant. Even worse, ‘standard’ insurance policies such as public liability and property are often inadequate to cover all the exposures associated with such incidents.
It is fairly easy to visualise the pollution risks associated with mines, petrochemical plants, pipeline operators, oil tankers, and tank farms. Asia has seen its fair share of pollution incidents in the past few years including well-documented oil and chemicals leaks in China, mining-related pollution incidents in the Philippines and Indonesia, and offshore pipeline leaks in Thailand. These events tend to result in greater social awareness of pollution incidents and consequently, governments in the region are reacting to their voter base by developing more stringent regulations or enforcing existing regulations more strictly. What this means is that the pollution-related risks that companies in the region face are heightened due to the greater probability of receiving a third-party claim or a governmental claim arising from a pollution incident.
Even companies that are considered to be ‘less hazardous’ can often be entangled in a pollution incident. For example, hospitals and healthcare facilities are exposed to potential pollution-incident related claims because of the hazardous waste that they generate and the tanks that they have on-site to fuel emergency generators, as well as more-healthcare specific issues such as healthcare associated infections, microbial matter, legionella and among others. Trade contractors are also exposed to the potential of such claims.
Unfortunately, the ‘standard’ suite of insurance products such as public liability or property does not typically respond to pollution incidents that may occur either through site operations or contractor works. For this reason, environmental impairment liability policies specifically designed to cover these pollution-incident related risks through first-party and third-party coverages have been developed by underwriters and are being more commonly purchased in the region. In certain instances, these policies are even being used in merger and acquisitions as contamination related exposures are typically excluded from standard representations and warranties contracts.