| Environment liability insurance options |
| TYPE OF COVERAGE | KEY FEATURES |
| Bodily injury and property damages | • Compensation for damage due to pollution conditions, such as release of hazardous or toxic materials. Covers onsite and offsite injuries |
| • Damages for personal injury such as mental anguish, and for costs of treatment |
| • Property damage including costs to replace or repair property and compensation for the loss of use of the property |
| Contract damages | • Provides compensation where pollution impairs the insured’s ability to perform under a contract |
| • Covers situations where pollution requires the insured to cease operations while the pollution problem is addressed and contracts with customers may be broken |
| • Covers situations when the insured warranties to a lessee of property owned by the insured that the property is free from pollution, but pollution still exists and causes damages to the tenant (lessee). The coverage pays for compensatory damages for which the insured is liable for such a breach of contract |
| Environmental clean-up costs | • Policy pays for the costs the insured must incur to address its pollution problems and comply with government standards established to protect human health and the environment |
| • Covered costs including site investigation costs and the removal, treatment or disposal of wastes |
| Legal defence expense | • Coverage pays for the insured’s legal costs incurred to defend or settle a liability |
| • Coverage pays for legal fees to defend against lawsuits brought by federal or state regulators and private third parties |
| Business interruption | • Coverage pays for internal costs that the insured suffers as a result of pollution |
| • Internal costs include loss of income, continued payment of salaries and other routine business expenses, and expenses for temporary relocation of the business during the period of restoration |
| Remediation cost | • Policy pays for cleanup costs that run substantially over budget, including remediation costs |
| Overruns | • Policies require the insured to accept the risk of the project going over budget by a certain percentage of the estimated cost. The insurer pays only if the project costs exceeds the estimated cost, plus the agreed upon buffer |
| Source: based on Tetra Tech EM Inc. study of the insurance market and assessment of environmental liability insurance options for cleanup activities |
The use of insurance as a market-based tool for environmental management has gained momentum in the past few years. Insurance is a contract that can either broaden or narrow conditions upon which compensation is given for environmental damage. Existing tort doctrines or statutory provisions very often stipulate the conditions upon which compensation is given. In areas such as perceived environmental risks, however, it may be easier and less costly to all parties to adopt contractual conditions of payment. By monitoring the insured’s activities as part of underwriting procedures, insurance companies can provide economic incentives to comply with standards.