Category: Insurance

Separate Households: Whose Insurance Covers the Kids’ Accidents?

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Michael and Maureen divorced after 18 years of marriage and agreed to joint custody of their three children. Their 11 year-old son Mikey is riding his bike one afternoon with some friends and not paying full attention to the road in front of him. A five year-old child chasing a ball runs into the road and Mikey strikes her with his bike, causing her to fall and break her arm. The child’s furious parents sue both Michael and Maureen for compensation for her injuries and trauma.

Not long after, their 16 year-old son Mark gets his drivers license. One evening while driving home, he swerves to avoid a deer in the road, loses control, and plows into two parked cars. Both cars are relatively new; the repair bills come to thousands of dollars.

Because Michael and Maureen now have separate households, they each have their own auto and homeowner’s insurance policies. Are both parents responsible for the children’s actions? Is only the parent who had custody at the time of the accident responsible? And whose insurance pays for the damages? Will either policy pay? With the increasing prevalence of two-household families and blended families, the question of which parent (and, therefore, which insurance policy) is responsible for a child’s actions has become more common. The answer is not always clear.

A standard homeowner’s policy covers the people named on it (the named insureds); household residents who are either relatives of the named insureds or under age 21 and in the care of a named insured or relative; and full-time college students who are either relatives of the named insureds and under age 24 or others in the care of a household resident and under age 21. A standard auto policy covers the named insureds and “family members” (residents of the household related to the named insureds by blood, marriage, or adoption, including ward or foster children.) Michael and Maureen have joint custody of their children. In which parent’s household are the children residents?

State laws and courts have answered this question in a variety of ways. For example, states such as New York have established “dual residency”; that is, a person can be a legal resident of multiple households at the same time. However, other states such as Montana have laws prohibiting dual residency. Some courts start with the custody awarded in the divorce decree but also consider how the parents are actually handling custody. A New Jersey court found that a child had dual residency, despite the mother having legal custody, because both parents had actual custody at different times. The judge ruled that both parents’ homeowner’s policies applied to the child.

Other states have ruled that no one factor determines residency; a court must look at multiple factors. A Georgia court devised an approach that measures custody time and focuses on whether there is in fact more than one household. New Jersey courts look at both measurable factors and qualitative factors, such as whether people in the household function together as family members.

If Michael and Maureen live in a dual residency state, both their homeowner’s and auto policies may cover the accidents their children have. Policy terms explain how they share loss payments for these incidents. In other states, the solution may be more complicated. A court may weigh several factors and assign residency to only one of the households, requiring one parent’s insurance to pay for the loss. Since the outcome in these situations is uncertain, the best thing for divorced parents to do is to make sure they have plenty of insurance provided by financially strong companies.

Why All Contractors Need Adequate Liability Coverage

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Liability insurance is important for contractors and subcontractors. This type of coverage offers financial protection from the results of accidents, injuries and property damage caused during a project. When working on a construction project, many workers accidentally damage the property in one way or another. Mishandled tools, dropped items or misinterpreted directions are often the sources of property damage incidents. The regular standards of business require contractors to have proof of adequate construction liability coverage prior to starting a project on a structure. This standard is also required for subcontractors.

Commercial Contracting Insurance
Commercial contractors are usually expected to carry multi-million-dollar policies. This allows for coverage of any injuries or construction-related damages to the structure. As a rule, commercial contractors performing riskier tasks have higher coverage amounts. For example, a roofing contractor would have a higher amount than a contractor remodeling the interior of a one-story commercial structure. To finance premiums over the span of several months or one year, indemnity corporations charge contractors a down payment and monthly service fees.

Residential Building Insurance
This type of coverage is important for any worker in the building business. In many cases, homeowners decide to sue the contractor for damages sustained during the process of construction. If there are any injuries on the job site, some workers may also want to file lawsuits against the contractor or homeowners. A good construction liability policy will protect contractors from loss in unexpected situations and various types of damage lawsuits. However, the contract must require every subcontracting party to have their own coverage. The contract must also state that the contractor does not claim any responsibility for damages occurring during the construction process that are the fault of one or more subcontractors. Policy amounts are related to the amount of money the contractor executes, so it is important to estimate a realistic figure. To be fully protected, it is best to have at least two or three times as much coverage as the total amount of the construction project.

What You Need to Know about New Building Codes & Insurance

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Commercial building owners may think that replacement cost insurance is sufficient, but it may not be enough to protect from a major financial loss. Many people believe that their policies are enough to completely replace a destroyed building. However, this is often far from the truth. This false sense of security may leave people who experience loss with the bitter realization that coverage has stipulations. This is especially true if the insured building is old. Even if a building does not change substantially over the years, local building codes change frequently. Building codes in place at the time of the structure’s original construction may also be considered.

Many cities have ordinances requiring buildings to be demolished if more than 50 percent of the structure is damaged. If reconstruction is performed, current codes must be used. Unfortunately, some codes change to prohibit building the same type of structure in the area. For example, a funeral home that burns down 75 years after construction may not be rebuilt in the same spot. The area may have originally been zoned for such a business, but the neighborhood may have changed into an area with mostly houses. If the area has recently been zoned to accommodate residential buildings only, the owner of the business would have to rebuild elsewhere. The unfortunate part in such a case is that land may be more expensive somewhere else, and the value of an empty lot may not be enough to cover it. There are also accessibility issues to think about.

If a damaged building lacked ramps, remote doors and accessible toilets, the owner may have to make adjustments when rebuilding. This could end up costing more money. Standard commercial property insurance does not offer much coverage for such costs. The majority of insurers pay either $10,000 or five percent of the building’s insurance amount. Whichever amount is less is what is paid. This small amount of compensation can easily be used up by demolishing the building, bringing the building up to code or starting new construction elsewhere.

It is important for building owners to think about buying extra coverage for such possibilities. Most insurers offer special law or ordinance coverage for an extra premium amount. Unless the costs result from failure to comply, the bills for demolishing and rebuilding are covered. There are three specific types of coverage for specified buildings, which include the following:

  • Coverage A includes loss to the building’s undamaged portions.
  • Coverage B includes the cost of demolishing undamaged parts of the building.
  • Coverage C includes the heightened cost of repairs or construction to meet new codes and ordinances.

The amount of insurance for Coverage A is equal to the amount of coverage for the whole building. For Coverage B and Coverage C, there are separate amounts assessed. This type of insurance protects the owner only for the cost of replacing or repairing a damaged structure. However, lost income due to construction is not covered. There is separate coverage available for income loss. To learn more about that type of coverage, discuss the options with an agent. Unwanted surprises from unexpected disasters are harsh for business owners, so it is important to be prepared with adequate insurance.

Will Your Insurance Protect you from a Facebook Lawsuit?

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Mostly everyone knows that the use of social media has grown by leaps and bounds over the past decade.  What many people don’t realize are the unique risks that come along with social networking. Anyone using Facebook, MySpace, LinkedIn, or other social networking sites should exercise extreme caution in what they decide to say on-line.

As an example, in 2009 a teenager in New York sued some of her classmates and their parents, accusing the classmates of bullying and humiliating her in a Facebook Forum.   Whether or not the allegations are true, the teenagers and their parents require legal resources to pay for the possible judgments against them.

Many people believe a standard homeowner’s insurance policy will cover them in such a situation.  In fact, it probably will not provide the necessary coverage.  A standard policy covers bodily injury or property damage done to someone else.  It defines bodily injury as sickness, harm or disease, and it defines property damage as destruction of or injury to physical property.  Neither definition includes publishing or saying something that injures another person’s reputation. Hence, the policy is not likely to cover a Facebook post.  In other words, the policy is unlikely to cover the act of making someone else feel miserable due to social networking.

A good source to consider for additional coverage is a personal umbrella policy.  This kind of policy provides additional insurance in circumstances where a loss has depleted the amounts of liability insurance offered under a homeowner’s policy.  Umbrella policies usually have a deductible of $250 to $500; but have the potential to protect the policyholder from financial devastation.

As Americans become more exposed to risk through social networking, they should choose their words carefully on any social networking site.  Additionally, they should speak with an insurance professional to see if an umbrella policy is a good match for their insurance needs in an increasingly risky world.

Builders Risk Insurance: What’s Not Covered?

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Builders’ policies are not totally comprehensive, though. While specific policies vary, the vast majority of construction coverage policies are written based on a regulator-approved standard form. So for the most part, you can expect your policy to cover the buildings and structures on the property, including the systems directly installed thereto.  Usually, your standard policy will cover such items as heaters, electrical systems, HVAC systems and boilers. Policies will also usually provide coverage for temporary structures, as well as construction materials that are stored on the premises for use on site. But sometimes property owners and contractors alike are taken by surprise when a policy doesn’t cover something:

Not Covered

Unless you buy specific extensions or rider most policies will not cover items that are external to the structures, such as fencing, walkways, roads, swimming pools, and other external items not intrinsic to the main enclosed structures.

Landscaping is also not covered under this particular policy, though it may be covered under a flood or fire insurance or wind insurance policy, depending on the hazard that caused the damage and the type of structure.

Items that are normally underground are also not usually covered. Examples include plumbing and irrigation systems, drains and even building foundations.

Water Structures

Is the property adjacent to a body of water? Your standard builders insurance policy probably won’t cover items that interact with the water. For example, it generally won’t cover bridges, docks or wharfs.

All-Risk vs. Specific Peril

All-risk policies provide protection against any risk, while named peril policies only protect against damages from specific hazards. All things being equal, you can expect a higher premium from an all-risk policy versus a named-peril, or specific peril policy. On the other hand, if you have coverage against one type of occurrence already, it may not make sense to pay full price for an all-risk policy, doubling up your coverage. But be careful with this type of planning

Riders and Endorsements

Unlike personal lines of insurance, which are more tightly controlled by regulators to protect unsophisticated consumers, commercial lines of insurance, including builders’ insurance, features policies that are readily and easily upgraded to include additional coverages that may make sense for the builder. It is more efficient for an insurance company to cover an unusual risk with a rider than to build the coverage into policies for which it isn’t even relevant. It makes no sense for everyone who isn’t building a home with a swimming pool pay into swimming pool coverage for those few who are.

If you need coverage for a specific item not included in the base policy, your insurance company can probably write up a rider or an endorsement to cover the extra risk. You’ll have to pay an additional premium, and the maximum dollar amount for that particular risk will be clearly defined.

For example: Acts of war and acts of terror are frequently listed as exclusions on standard insurance policies. But if you are building a structure near a nuclear plant, for example, or a high-profile and logical target for terrorist groups or an enemy military, you may want to consider purchasing additional coverage.

When you buy this coverage, the insurance company grants an “extended policy.”

Read Your Policy

It is important to read and understand your policy in detail, paying particular attention to the policy exclusions. If one of the exclusions is a risk you’re concerned about – or if you would suffer a significant loss in the event of damage to or destruction of a specific structure or item on the property that’s excluded, bring it up right away with your agent, and have him or her draw up a rider, which will be attached to the back of the policy. The additional premium required is usually small, but it covers a big loss in the event something goes wrong.

Just Because You’re a Renter Doesn’t Mean You Don’t Have Insurance Needs

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Many renters mistakenly believe that they don’t need renter’s insurance or view it as an expensive luxury. However, insurance needs aren’t negated just because one happens to be renting their home.

For those not familiar with renter’s insurance, it’s an insurance coverage that protects the renter from property losses from damages like water and fire. It also provides protection for liability risks, such as lawsuits brought by the landlord of the property, pet attacks, falls and slips, and guest accidents. This type of coverage is available in most areas and has an average $20 monthly premium rate for around $500,000 dollars worth of liability coverage and $20,000 dollars worth of property coverage.

Trusted Choice, a network of financial and insurance service firms, recently found in a survey that almost 25 million American home renters didn’t have any insurance coverage to protect themselves from losses and that most renters have limited, if any, knowledge of renter’s insurance.

Eight percent of the respondents without renter’s insurance had never heard about renter’s insurance before. Meanwhile, 17% said they weren’t aware that they needed renter’s insurance and 26% percent felt that renter’s insurance was too costly.

According to the study, some renters also mistakenly believed that their insurance needs were covered under the insurance policy held by their landlord. In reality, landlords don’t typically insure anything other than the building and infrastructural elements like HVAC systems and elevators. Other losses incurred will be directly on the renter’s shoulders. Even negligent actions caused by one tenant, such as a fire, that affects other innocent tenants in the building aren’t typically covered by the landlord’s insurance.

Other key findings of the study included:

* Fifty percent of the surveyed renters owned pets. Thirty-two percent of the non-pet owners had renter’s insurance. Although renters that own pets have a higher liability exposure than renters without pets, a mere 26% of the pet owners had renter’s insurance.

* Eighty-nine percent of the surveyed renters owned at least one expensive electronic device, such as a computer, camera, digital recorder, or home theater system. This group was more likely to have a renter’s insurance policy than those that didn’t own such devices.

* Fifty-three percent of the surveyed renters owned at least one form of exercise or sports equipment, such as a skis, bicycles, or a home gym system. This group was more likely to own renter’s insurance than those that didn’t own such equipment.

* Only thirty-one percent of the renters operating a home business from their apartment, condo, or other type of rental unit had renter’s insurance.

Penn State Crimes Raise Liability Insurance Issues

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Most institutions carry liability insurance to protect themselves against the bad acts of employees working in an official capacity, or misusing their facilities – and Penn State is no exception. But the recent, lurid child sex abuse scandal embroiling the Penn State football program and former coach Jerry Sandusky isn’t a typical “slip-and-fall” case.

Background

If you’re not much on sports, here are the basics: Pennsylvania State University assistant football coach Jerry Sandusky has been convicted on 45 counts of sexual molestation, both in his home and in the Penn State football program’s restroom and shower facilities.

The criminal trial phase is over, although as of this writing, Sandusky has yet to be sentenced. The civil liability side of the case is just warming up.

Technically, Sandusky retired from the coaching staff in 1999, though he was granted “emeritus” status after he retired, and allowed free use of the University of Pennsylvania athletic facilities for years while he served as director of Second Mile, the charity he founded as an outreach to disadvantaged youth. But he was using the charity to gain access to victims the whole time, some of whom he raped in the locker and shower room himself.

The ultimate financial liability the University will face is unclear. The current Penn State University president, Rodney Erickson, claims that the University did carry sufficient insurance coverage to cover anticipated claims. And normally liability insurance would cover civil suits from actions on campus.

But the Sandusky case is different – and the carrier is balking.

At issue: According to an investigative report conducted by the former Director of the FBI Louis Freeh, the University was first alerted to the possibility that Sandusky was a sexual predator as early as 1998. If that weren’t enough, another football coach, Mike McQueary, walked in on Sandusky apparently sodomizing a child in the locker room/shower facility in 2001. He informed the Nittany Lions’ head coach Joe Paterno, and Paterno notified the school Administration – which did nothing.

The school took no action to restrict Sandusky’s access to the facilities or to children on campus. Instead, the Free Report concluded that Paterno and the University administration, including the former director of the Campus Police, “repeatedly concealed critical facts relating to Sandusky’s child abuse from authorities, the University’s Board of Trustees, the Penn State community, and the public at large.”

Most of the boys whom Sandusky was convicted of victimizing were assaulted after 2001, after the Administration had an opportunity to bring Sandusky’s depraved acts on campus to a halt – and this ix the crux of the matter from a liability insurance perspective:

In concealing the reports of Sandusky’s sexual depredations on campus, the University concealed information from insurance company underwriters that was material – indeed, central – to their underwriting decision. As a result, lawyers representing the Pennsylvania Manufacturers Association Insurance company filed suit in court seeking to limit their liability to pay damages in this case.

The company also pointed to specific contractual provisions: Their contracts with the University had been amended in the early 1990s to specifically exclude coverage for sexual harassment and assault claims. The company also asserts that such claims are routinely excluded in Pennsylvania as a “matter of public policy.”

Playing Defense

Obviously, there’s no foolproof way to screen out, a priori, every employee or associate who may commit a bad act. If there were, everyone would do so. But anyone with staff or who offers access to facilities to the public should review coverage and assess possible gaps in their coverage: Most policies will honor claims for inadvertent acts, but not for deliberate ones – and Penn State’s carriers will point to the University administration’s cover-up of the Sandusky crimes as a deliberate act. Indeed, at least two Penn State administration members have been indicted for perjury.

Further, many policies specifically exclude claims of abuse or molestation. If this is the case with your liability insurance coverage, you may need to buy a separate abuse and molestation insurance policy.

In the case of athletic programs, some companies that issue general liability programs to sports facilities and their directors and boards will underwrite additional coverage. But the carriers typically vary by industry.

This is a high-risk area for insurance companies, so when you apply for coverage, be prepared to show that you’re taking some risk mitigation measures of your own, such as requiring background checks for staff members, implementation of a “buddy system,” ensuring adequate supervision and reducing or eliminating “sleepover” events.

Outlook

Penn State’s liability exposure does not necessarily extend to all of Sandusky’s victims – just the ones abused on campus or at or as a result of officially sanctioned university events. Some estimates, based on the cases already known to the public, peg the University’s exposure to about $100 million. Their endowment could cover that, easily, though it will hurt future programs and scholarships. However, other people may yet come forward with liability claims, and that will take time to work out.

More broadly, we are already seeing a tightenting of the market – liability premiums and molestation and abuse premiums have climbed following the public exposure of the case. But the insurance risk pool should also expand as a result of increased public awareness of the importance of abuse and molestation insurance – especially as distinct from a general liability policy.

Why You Should Require Liability Insurance for Those You do Business With

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Are the people you do business with insured? You may want to ask them.

If a vendor, contractor, cleaning crew, gardener/arborist, or other service provider does not have insurance, you may be out of luck if they cause property damage or injury. Also, people who do not carry insurance are probably less likely responsible than those who are insured. They may not be the ideal people you would want to hire. It’s worth paying a little more to get someone who is insured.

Never just take the word of a vendor. Many who are not insured may say “yes” because it’s likely they don’t want to embarrass themselves. Instead, ask them to have their broker send a certificate of insurance. By having their broker send (fax or email) it to you, you know the policy has been paid for and has not been cancelled.

Some vendors, especially small firms, will try to convince you that they do not need insurance. Do not fall into this trap as you will be letting an amateur convince you to purchase product or service that lacks the protections an insurance policy provides. As a courtesy to existing clients, we can give you advice on any insurance certificate that is emailed or faxed to us.

 

Suggestions on who you should request insurance certificates from:

  • Contractors who are working on a home or commercial remodel
  • Repair or installation service for your auto, home, or business
  • Service contractors, such as gardening and maids/cleaning services
  • Independent Contractors or Contract Employment
  • Professional Services, such as such as a CPA, Consultant, Mortgage Broker, Staffing Firm, Insurance Broker, Architects/Engineers, and others who provide professional services (professional liability)
  • People who rent or lease from you

 

Types of Insurance you should request:

  • General Liability
  • Workers Compensation – for operations that have workers on your premise
  • Commercial Auto Coverage – for those who use vehicles on the job
  • Professional Liability (Errors & Omissions Insurance) – for those who provide professional services

 

Should you request a certificate for every purchase? It’s your call, but if someone is entering your premise or you are purchasing a bigger ticket item, you should strongly consider asking for insurance documentation.

Homeowners Insurance & Social Gatherings

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Many homeowners enjoy throwing parties for holidays or special events. If a party is in the near future, be sure that individual homeowners coverage is adequate. Guests who are injured may need to file an injury claim if their vehicle is damaged, if they fall down or if a pet bites them. Research shows that about 75 percent of adult homeowners who plan social gatherings in their homes do not have a personal umbrella policy. This makes them more vulnerable to lawsuits stemming from guests who suffer injuries. The same research study showed that the remainder of the homeowners surveyed did not know what type of coverage they had. This means it is likely that the percentage of homeowners who do not have adequate coverage is more than 75 percent. However, they should have this extra coverage to protect themselves from lawsuits. Although dog bites and falls are common, alcohol is one liability issue that is often overlooked but is very risky.

Alcoholic drinks are viewed as a way to relax and enjoy socializing. However, there is one sobering fact that many homeowners who plan to serve these drinks should know. In 30 states, homeowners may be responsible for damages arising from any auto accidents caused by their intoxicated guests who choose to drive home. In a research survey, more than 50 percent of homeowners said they agreed that party hosts should be responsible for their guests’ safety. However, very few took any steps to obtain adequate insurance coverage. The research study concluded that most people avoid purchasing a personal umbrella policy because they are under the impression that their regular homeowners coverage provides adequate protection for such matters. Since many lawsuits include large awards and medical costs, it is easy for one incident to exceed the homeowners liability limits.

Homeowners must take two steps to ensure they are protected. First, it is imperative for them to contact a personal agent to discuss umbrella policy options. It is also important to take the agent’s advice to avoid facing a costly lawsuit. The second step homeowners must take is to read the following suggestions, which are designed to reduce their risk of lawsuits from intoxicated party guests:

-Instead of having the party at a personal residence, reserve space in a restaurant or bar that has a liquor license.

-Ensure that there are filling food options and non-alcoholic beverage choices available.

-To avoid trouble from party-crashing strangers, limit invitations to friends or familiar people.

-For guests who appear drunk, provide transportation or overnight accommodations.

-Avoid serving alcohol to guests who appear intoxicated.

-Plan activities that draw attention away from drinking alcohol.

-If several guests are expected at a home party, consider hiring an off-duty police officer to handle problems and discreetly monitor guests’ alcohol consumption.

-Take away all alcoholic drinks at least one hour before the part is supposed to end.

Environmental Insurance: Do You Need It?

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If you move a lot of earth, handle chemicals, fuel, emissions beyond an ordinary vehicle, biohazardous material or any other kind of HAZMAT, you may be at risk for a nasty lawsuit. Or you could be fined by the Environmental Protection Agency, Fish & Wildlife Service, or a state environmental agency for endangering a rare species of animal or plant you didn’t even know was at the work site.

Unfortunately, many businesses are inadequately insured for this kind of risk. Environmental risk – the risk associated with damages to the environment and errors and omissions contributing to it – is generally not included with standard liability insurance policies normally sold.

You could do everything right at the executive level. But we all know that employees have minds of their own. If you have an employee who has a fuel spill out in the field, and he deals with it improperly, and the EPA finds out, you could find yourself answering to federal officials – and writing out a check for a hefty fine. You aren’t culpable – but you’re still responsible for your employee’s actions.

Environmental risk insurance helps protect your business against loss due to accidental pollution claims. Your exposure comes from three main sources:

Lawsuits by aggrieved parties claiming they were damaged by pollution you caused.  Violations of regulations and statutes, causing you to have to pay a fine.Costs associated with clean-up and/or mitigation. Contractual obligations to spend money to clean or mitigate pollution, which you do even without being sued.

Nightmare Scenarios:

Union Carbide

Sometime overnight between December 2ndand 3rd, 1984, there was a massive leak at a chemical pesticide plant near the city of Bhopal, India. The gas was heavier than air, and so hugged the ground, enveloping the slums and laborer communities surrounding the plant. The gas killed thousands overnight as they slept. All told, the chemical leak injured more than half a million people: Many of them severely. There was no bringing back the dead, of course. The Indian government demanded $3.3 billion in damages. Ultimately, Union Carbide reached a settlement with the Indian government to pay nearly half a billion dollars in compensation.

Naturally, this is an outlier case. But genuine aggrieved plaintiffs, nuisance lawsuits, and government regulators combine to make things pretty risky for small and medium-sized businesses.

Consider:

One of your drivers has an accident downtown, causing a chemical spill, which in turn causes surrounding businesses to have to close for two days during the clean-up. The businesses claim they lost hundreds of thousands in revenue during those two days as a result of your driver’s actions. Who is liable? You are.

Exxon Valdez

Bringing things closer to home, two more recent environmental catastrophes illustrate the dollar amounts that are potentially at stake with environmental claims. The Exxon Valdez oil spill resulted in a jury award of some $287 million in actual damages and $2 billion in cleanup costs for the grounding of a single ship. The jury also awarded plaintiffs another $5 billion in punitive damages, though that amount was adjusted downward by judges in a series of appeals going all the way up to the Supreme Court. In the end, the disaster cost the Exxon Corporation about $2.5 million, including cleanup, damages to seafood businesses, tourist areas, Native American tribes and others. There was some dispute over total insurance company liability – insurers pointed out that the ship’s captain was known to have alcohol issues, and yet Exxon kept him on the job. This underscores the importance of businesses taking reasonable precautions to prevent or mitigate claims long before the litigation stage. The captain was acquitted of having been under the influence of alcohol that day, though, and Exxon was eventually able to recoup over $780 million from its insurance carriers.

Deepwater Horizon

The catastrophic oil spill in the Gulf of Mexico is in the spring of 2010 still being litigated. British Petroleum has filed lawsuits claiming up to $40 billion against Halliburton, claiming that they were at fault for faulty certification and incompetence in using an industry software program that, if properly used, would have changed the construction of the well. The owner of the doomed Deepwater Horizon rig itself, Transocean, however, carried $700 million specifically in environmental insurance coverage – plus a $560 million hull insurance policy.[i]

BP has estimated the total cost of the spill to be as high as $40 billion. This amount will be split up between several companies and their insurance carriers, but the lawsuits are still winding their way through the litigation process. It will likely be several years before we have a solid accounting of the costs, however.

Strict Liability

Normally, if someone accuses you of negligence in a lawsuit, you can counter that claim by showing you took every reasonable precaution to prevent the accident. But any time you transport certain very hazardous material, you fall under strict liability doctrine. That means that you don’t get points for trying to do the right thing. You are taking on the full brunt of the potential liability regardless of how careful you are. If there are damages from a spill, it’s your fault, period. The courts will hold you responsible.

Most standard business liability insurance is not underwritten or designed to cover strict liability risk. Environmental risk coverage is specifically excluded on most standard forms.

Major Federal Laws

Anyone engaged in any kind of outdoor activity, construction, fleet management or anything beyond an office environment would do well to become familiar with the key federal environmental laws that affect business:

The Clean Air ActThe Clean Water ActEnvironmental Protection ActToxic Substance Control ActThe Oil Pollution Act of 1990The Resource Recovery and Conservation ActThe Comprehensive Environmental Response, Compensation and Liability Act (CERCLA, also known as ‘Superfund”)

Most of these laws are enforced via regulators empowered to levy fines – which can amount to hundreds of thousands of dollars per day in some cases, for as long as the firm is not in compliance. Additionally, company managers could potentially face personal fines and potentially even jail time.

Coverages

The incidents listed above are, thankfully, outliers. Most claims are nowhere near that size. But in many industries, the potential risk for any given company is far greater than they can bear themselves. Depending on your business, you might want to consider one or more of the following specific types of environmental coverage:

Contractor’s Pollution Liability InsuranceDealer and Repair Pollution Liability InsuranceEnvironmental Services Package InsuranceHAZMAT transportation insuranceFixed Price Remediation InsuranceLender Environmental Protection InsuranceStorage Tank Pollution Liability Insurance

Note: There are certain federal insurance requirements for operators of motor vehicles involved in HAZMAT transportation.

Bottom Line

Don’t assume your standard business insurance covers you for this kind of risk. Generally, it does not. If you don’t have coverage specific to environmental risk, chances are you are going naked. That’s a very big risk to take.

[i] https://www.lexisnexis.com/community/insurancelaw/blogs/insurancelawblog/archive/2010/05/17/insurance-implications-of-the-deepwater-horizon-disaster-by-michael-cessna-of-counsel-lathrop-amp-gage-llp.aspx