Awareness of the environmental responsibility of businesses is increasing, thanks to the efforts of industry leaders and influencers. The social and environmentally responsible corporate is also largely regarded in high esteem by millennials and the Gen-Z population. A Nielson poll in 2018 revealed that 80% of Gen-Z and 85% of millennials prefer environmentally-responsible brands for engagement over others.
Of course, developing a ‘millennial-friendly’ business that contributes to the community is the aim of many small business owners out there. It’s also responsible to believe that most responsible business decisions today should include the environment and society at large.
The need for such consciousness exists. There’s no denying that accidents happen everywhere, e.g. the West Virginia chemical spills in 2014, when about 10,000 gallons of chemicals spilled into the Elk River. The case was settled by a federal judge for no less than $151 million in 2016. Although small businesses are incapable of causing such major mishaps, businesses in the manufacturing sector and service industries should be more aware of their environmental impact and take some financial protection to avoid trouble. And the environmental and pollution liability insurance offers just that!
What is environmental liability insurance?
Simply put, the environmental liability insurance covers businesses handling toxic materials regularly or otherwise, from injuries, property damage, legal suits, and third-party claims arising from pollution and contamination incidents. It also covers the expense of mandatory cleanups and business interruption losses.
While this is a general coverage for small businesses, numerous specializations are also available under this policy. For example, environmental consultants (independent or otherwise) can opt for errors and omissions coverage as they go about instructing other companies about the latter’s environmental responsibilities. That apart, separate policies also exist for remediation contractors and testing labs, dealing with hazardous substances. If your small business is concerned with the real estate, you may protect it from contamination-related hazards with customized policies. Lastly, there are storage tank insurance products that cover cleanup expenses, injuries, and property damages.
A brief history of environmental liability coverages
In the early 1980s, very few insurance providers offered sufficient coverage for environmental hazards. There were few legal requirements to opt for such policies, and the companies bought them did so only for contractual obligations and regulatory compliance. However, things began to change from the 90s, as insurers and reinsurers got more aware of the financial risks in environmental hazards, and the market grew exponentially. Other practices that boosted this change were the various regulatory ‘cleanup’ programs, liability disclosures, increased public awareness, and the push to obtain a safe and healthy sustainable economy.
So what are the types of risks that are generally covered by this insurance today?
- Operational risks, including but not limited to, sudden and gradual pollutant discharges
- Property damages and physical injuries owing to environmental hazards, both for first and third-parties
- The costs of remediation practices
- Legal expenses in case of lawsuits arising from contamination issues
- Operational expenses for general and environmental contractors
- Liabilities in the disposal of contaminants and hazardous materials
- Business interruption expenses for loss of income due to environmental hazards
Also, take a look at the following:
Changes in regulations
Concern about the environment is rising steeply, and so are the regulations designed to control pollution. It seems that every small business, no matter the industry, is facing some amount of non-compliance risk, which may end up quite expensive for the owner. If you find it hard to stay ahead of the changing rules and don’t have time for comprehensive analysis, it’s better to stay safe by getting the insurance.
Expanded risks
Previously, only those businesses dealing in hazardous materials and prone to large lawsuits for catastrophic incidents considered this policy. But now, even small businesses, like laundry services or food supply chains, are susceptible to environmental claims. The regulatory cleanups and business income loss are other factors one should consider while thinking of environmental liability insurance.
Future benefits
If you plan to sell your business or its franchises in the future, you should have proper insurance policies in place. Potential buyers (and their due diligence lawyers) are quite aware of the insurance requirements, including environmental liability coverage. You risk a good deal if you don’t meet all the insurance requirements before the sale.
Customizations are available
Not all businesses face the same risks, and most insurers are aware of the environmental threats of each industry. They can help customize the liability coverages based on a company’s specific requirements and risk-proneness. You may even get umbrella policies for lower premiums that cover many of the pollution liability threats of your business.
A smart business is one that’s careful, compliant, and responsible, and meeting all your insurance needs is one way of achieving that status in the modern world. Not only will the customers be happy to give you their business, but you will be better protected too. All while reducing the risk you post to the environment around you.