Environmental Impairment Liability (EIL) insurance protects businesses against pollution-related claims, cleanup costs, bodily injury claims, property damage, and legal expenses caused by environmental incidents. It helps cover risks that standard Commercial General Liability (CGL) policies often exclude.
Discovering an unexpected pollution condition on your property can be costly and time-consuming. Fortunately, insurance products are available to protect property owners from losses arising from a pollution event. Specifically, EIL insurance protects businesses involved in the creation, processing, or transportation of products that are deemed potential contaminants. Policies typically include coverage for third-party property damage and bodily injury claims (including defence costs) and ‘first party’ remediation coverage.
EIL insurance is also referred to as:
- Premise Pollution Liability
- Site Pollution Liability
- Pollution Legal Liability (PLL)
EIL insurance covers accidental pollution arising from standard operations, such as pollution that the business’s products may produce. It also covers any other mishap resulting in environmental damage. Environmental policies protect against pollution exposures at your premises, adjacent third-party premises, or locations where you conduct business.
Where Do Environmental Exposures Come From?
Environmental exposures generally stem from the release of a pollutant at a site, long-term exposure to one, or incidental exposure to activities of neighbouring businesses. Additionally, rural properties see a good deal of exposure. This is likely due to increased illegal dumping and unregistered tanks, main street businesses (like printers, cleaners, service stations, and residential properties with old heating oil tanks or faulty sewer lines.
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What Types of Businesses Should Have EIL Insurance?
Classes of business that should consider having Environmental Impairment Liability include the following:
- Warehouses
- Hotels
- Restaurants
- Shopping centres
- Hospitals
- Senior care/assisted living facilities
- Apartment complexes
- Landfills
- Recycling centres
- Cleaners
- Service stations
- Older residential properties
It is important to note, however, that companies with a lower risk of causing pollution, such as organic farming companies, may not necessarily require this type of coverage. Nevertheless, because environmental risks can vary significantly across industries, businesses with minimal exposure are generally less likely to need such protection. Furthermore, when the potential for environmental harm is limited, the benefits of obtaining this coverage may not outweigh the associated costs.
Why Do You Need This Type of Insurance?
An accidental pollution event, such as a contamination leak on your business property, could lead to a third-party claim against your company. Examples of claims include nuisance, bodily injury, or damage to their property. Furthermore, a regulatory authority may then require you to clean up your land or restore damaged biodiversity, whether on-site or off-site. And finally, you may be required to pay associated legal defence expenses. Environmental insurance, more formally referred to as EIL insurance, can cover these liabilities.
What Does Environmental Liability Insurance Cover?
Environmental Liability insurance mainly covers unknown, pre-existing and future environmental liabilities. It provides coverage for the following areas:
- Sudden or gradual pollution
- Cleanup costs
- Bodily injury
- Property or third-party damage
- Legal costs and expenses
Depending on the scope of the coverage, some Environmental Liability insurance policies may also include other optional risks:
- Non-owned waste disposal sites
- Transportation of hazardous materials
- Reputational damage
- Business Interruption
What Are Common Examples Of Environmental Liabilities?
Environmental liability is crucial if you’re considering purchasing a business that will negatively affect the environment. For instance, when you buy equipment that could cause air pollution, environmental specialists assess the various types of ecological liability associated with the equipment.
The different types of environmental liabilities depend on their source. Insurance Business Canada magazine lists the most common types of liabilities:
- Compliance obligations: Regulations overseeing the building, disposal, and use of harmful substances in the environment.
- Remediation obligations: Businesses must limit their activities and the impact of pollution on the environment and human health.
- Fines and penalties: For non-compliance.
- Compensation obligations: What may need to be paid for environmental damages caused by pollution to property or individuals?
- Punitive damages: Commonly used as a deterrent. This is similar to compensation obligations but more expensive.
What Is Not Included In EIL Insurance?
While pollution and asbestos are typically considered standard exclusions under most other insurance policies. Environmental Liability insurance policies, by comparison, contain several exclusions that are uniquely specific to this type of coverage:
- Non-compliance with environmental laws
- Prior knowledge of pollution conditions
- Abandoned properties
- Deliberate dumping
How Much Does EIL Insurance Cost?
The cost of Environmental Liability insurance will depend on the environmental risks and exposures of businesses and their activities. Some companies will have heightened exposure due to air emissions or waste management activities. In contrast, others are more likely to face oil and chemical spills or the discharge of contaminated water from cleaning or cooling operations.
The required coverage will depend on the company’s size, the materials handled, and their potential effects on the surrounding habitat. As with other types of insurance, any prior incidents and the area’s history will affect your premium rate.
Sudden And Accidental Liability Vs. EIL Insurance: What’s The Difference?
As a business owner, you can purchase an EIL policy to cover first-party cleanup of the pollution condition on your property and any third-party liability to others that may result. Suppose you do not wish to purchase a full EIL policy for your business. In that case, limited coverage is available by purchasing the Sudden and Accidental Pollution Liability extension under a CGL policy.
A wide range of pollution exposures could shut down your business, cause damage to third parties and result in expensive, time-consuming cleanup costs. Pollution claims, resultant damage and cleanup costs associated with an environmental incident are typically excluded from general liability policies.
CGL insurance covers accidents and injuries that cause damage to employees, property, and equipment. Typically, CGL policies exclude coverage for damages resulting from pollution. A property owner can buy sudden and accidental (S&A) pollution liability under a CGL policy. This will provide third-party liability coverage for property damage and bodily injury resulting from a pollution incident.
The coverage provided under this extension is quite limited compared with Environmental Impairment Liability insurance. Why? The policy provides only third-party coverage and is limited to a specific period for detecting and reporting an incident, hence the name “Sudden and Accidental.”
The S&A extension usually does not include the owner’s site remediation, government cleanup orders or waste management activities.
Environmental Impairment Liability Insurance Questions
What Does Environmental Impairment Liability Insurance Cover?
Environmental Impairment Liability Insurance covers pollution-related risks, including cleanup costs, third-party bodily injury, and property damage. It may also apply to both sudden and gradual pollution events, depending on the policy’s terms.
Who Generally Needs EIL Insurance?
Businesses with high environmental exposures will benefit the most from EIL insurance. These businesses include manufacturers, warehouses, restaurants, hotels and recycling facilities.
Is EIL Insurance Mandatory?
Environmental Impairment Liability insurance is not mandatory or legally required for your business. However, many companies involved in manufacturing, waste management, transportation, or the handling of hazardous materials often need coverage due to their environmental exposure.
What Is The Difference Between PLL and EIL Insurance?
Pollution Legal Liability (PLL) and Environmental Impairment Liability (EIL) insurance are often used interchangeably. In both cases, they provide coverage for pollution-related claims, cleanup costs and environmental damage.
Does CGL Insurance Cover Pollution?
In most cases, Commercial General Liability policies exclude pollution-related claims unless a limited sudden and accidental pollution extension is added.
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Limitations Under Property Insurance Policies
Standard property and liability insurance in Canada often limits or excludes coverage for pollution-related damage, typically responding only when it results from insured events such as fire or flood. While these policies protect physical assets such as buildings and equipment, they may leave businesses exposed to costly environmental risks.
In contrast, Environmental Impairment Liability (EIL) insurance provides broader protection, covering both sudden and gradual pollution events, including unknown pre-existing conditions. For businesses looking to reduce environmental risk and avoid expensive penalties. EIL insurance can help mitigate your business’s exposure to costly penalties associated with these risks. If you’d like to learn more about Environmental Impairment insurance, don’t hesitate to reach out to us at isure!
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