Environmental pollution insurance

What is environmental pollution insurance?

Environmental pollution insurance (EPI) provides businesses with financial protection against liability associated with pollution releases and other events that harm the environment.

It is also known as environmental risk insurance, environmental liability insurance, pollution liability insurance and environmental impairment liability insurance.

Who should consider having EPI cover?

Any business that uses or stores non-trivial amounts of chemicals or hazardous materials that could damage the environment or affect other people’s property should consider EPI cover as they run the risk of causing a pollution incident and incurring associated liabilities.

How can EPI cover help my business?

Standard business liability insurance often excludes loss caused by pollution and environmental damage, or only provides cover in limited circumstances. A policy with EPI cover can help  fill this gap.

If a general liability policy provides any cover at all, it is often limited to third-party claims for off-site damage to property and bodily harm from sudden and accidental escape of pollution. This may not cover, for example:

• the costs of complying with a clean-up order by a regulator
• on-site damage to your own property
• environmental clean-up of other peoples properties
• decontamination of your property following a fire, flood or storm
• damage caused by contaminated run-off or escape following an on-site fire
• loss or damage associated with gradual pollution events, such as groundwater contamination caused by pipeline leakage or underground storage tanks
• cost of collection, transport, treatment or disposal of contaminated fire water.

What do EPI policies usually cover?

Individual EPI policies vary from insurer to insurer, so business managers should review their risks and look for appropriate cover that may include the following:

Clean up/remediation costs for sudden/accidental and gradual pollution

An EPI policy can provide cover for both sudden/accidental and/or gradual pollution events, including cover for third party bodily injury and property damage arising from gradual pollution.

On-site clean up and compliance costs

First party cover for the business, which doesn't involve a claim by a third party for damages, for example:

• complying with notices and orders made by  the appropriate regulatory authority, such as clean-up notices
• on-site monitoring, removing, neutralising or cleaning up pollution
• site contamination assessments

An EPI policy may also protect against claims for personal injury and property damage by third parties, which may include coverage for clean-up of a third party site or damage caused during transportation.

Natural resource damage

Costs associated with damage to natural resources, including destruction, injury or alteration of:

• land
• flora and fauna
• air
• water
• groundwater
• drinking water.

Emergency costs

Reasonable and necessary clean-up costs incurred by the insured or government agencies in an emergency, where a delay in response would exacerbate the damage caused or increase the costs of responding to a future claim.

This allows for rapid mitigation of losses and damage with the confidence of reimbursement for the related costs.

Definition of pollution

The types of pollutants covered by EPI policies will vary from insurer to insurer. Business managers should review the extent of cover provided by an EPI policy to ensure it is appropriate for their risks.

Where can I obtain EPI cover?

Speak to your insurer or broker. While EPI cover is widely available in some other countries it is still relatively new to Australia. As a result, not all insurance companies will offer it and not all brokers will be aware of it.