From obtaining a carrier’s consent before incurring costs, to a straightforward late claims notice, making an environmental insurance claim can be fraught with hazards. All can be avoided with early, accurate information.
The most important test of environmental insurance comes at the moment you make a claim. Negotiating the broadest and most competitively priced pollution coverage is important, but policyholders need their policies to respond as they were originally intended. Nothing sours the client-broker-carrier relationship more than a mishandled claim.
But having an environmental claim that falls within the policy is only the first part of the claim experience. Communicating early and often with the carrier is the second. It’s commonly a break in communication that usually leads to most claim are denials.
So what can you do to ensure a smooth claims experience? It starts by avoiding these four common pitfalls:
1. Late notice
Site pollution legal liability policies are made on a claims made and reported basis. All claims received during the policy period have to be reported before expiration. This is an unforgiving process. It doesn’t matter if the risk manager didn’t know about the claim or if expected costs exceed the deductible: Courts normally support late notice denial.
Denials can be avoided by keeping open communication inside the company. The risk manager should canvass each location or division at least a month before the policy expires to see if they’ve received a demand alleging liability. This doesn’t mean anything as formal as a lawsuit. It can be an email or even a verbal allegation. It should go without saying that the company must know about any release of pollutants in order to protect their rights under the policy. Ignorance is not an excuse.
2. Prior knowledge and known conditions
Every environmental insurance company will have an exclusion that’s relevant in this context. It will say any pollution condition that took place prior to the policy period and is known—by a director, employee, a manager responsible for environmental affairs or control or compliance personnel at the location, and wasn’t disclosed in writing prior to the policy, will not be covered.
If there’s any information about spillages or incidents in the public domain, it can be assumed the claims adjusters will find it, even if the insured hasn’t already done due diligence. This is a sure argument for communication with location managers beforehand and demonstrates why the insured should take every step to research the area covered by the policy.
3. Pre-tender costs
The claim clock starts running after the policyholder places the carrier on notice. Costs incurred before this won’t be reimbursed or apply against the deductible. A carrier will always push back on pre-tender costs, even if they seem reasonable and even if the policyholder gets creative by arguing that work done prior to putting the carrier on notice should be seen as ongoing remediation. Courts will tend to side with the insurer.
4. Failure to obtain carrier’s prior consent to incur costs
When an insured purchases an environmental health policy, the issue we often see is severity, not frequency. It means they may not know what to do in the event of making a claim and may not fully understand how it differs from other types of policies. While some carriers may be more forgiving for remediation work performed after the claim was reported, others will insist they obtain prior written consent before any remedial activities are performed and will not pay out.
If this is the case, remember to keep communicating with the carrier and review the facts with your broker. Look at the intent of the policy language and structure, highlight ambiguities and engage specialist coverage counsel for any legal arguments. Keep the carrier updated, keep your lines of communication open and you may find that coverage is there.
Avoiding these common pitfalls will help ensure a better claims experience. For more information on how insureds can best protect coverage in the event of a pollution claim, see our article, Environmental Claims – Battlefield Tested Tips and Ways to Improve your Overall Claims Experience (link requires subscription).
In the meantime, keep constant and open dialog with your claims adjuster and broker, and obtain written consent prior to performing any work to get the most from your environmental insurance coverage.
Have questions or comments? Please feel free to respond in the comments field below.
Co-author Robin Kelliher is an environmental insurance broker at Willis Towers Watson.