United States: Tapping into Existing Environmental Coverage

Originally published in Risk Management, April 2016

When faced with new envi­ronmental liabilities, com­panies often overlook the existing coverage that insurance poli­cies purchased long ago may provide. Comprehensive general liability (CGL) insurance policies purchased between the 1950s and early 1980s will generally cover liabilities imposed today because of environmental property damage that took place in those earlier years. With this in mind, risk managers need to search for, index and electronically store these important company assets.

Risk professionals should also obtain copies of any settlement agreements or releases and note the limitations on what was released. A release of a list of known sites may permit coverage today for new sites previously unknown. Companies may still have coverage for new claims or for sites that have recently emerged or might emerge in the future.

Even if a company has previously tapped its general liability coverage for environmental liabilities, it may want to examine the scope of its umbrella coverage, unless completely released. Frequently, umbrella policies can have additional coverage beyond that provided in the primary coverage. It is possible that additional defense coverage or some other form of additional limits might be sitting there untapped.

Consideration should also be given to whether the company was an additional insured under the policies of others as contracts often required. If so, getting copies of those policies and inquiring into whether they were released, settled or exhausted, and to what extent, are impor­tant tasks. There may be substantial cov­erage under those policies that should not be abandoned or ignored.

Other coverages may also come into play. If a tornado or windstorm disperses chemicals, or a fire causes a chemical spill, or spray run-off from a fire hose contami­nates a pond on the policyholder's prop­erty or an adjoining river, there may be coverage under the company's first-party property insurance policies. Risk manag­ers should check whether the first-party property policies have express environ­mental contamination coverage subject to a sub-limit. They should also look for flood coverage sub-limits and be mindful of notice requirements that may be more stringent than those found in general liability insurance policies.

Directors and officers insurance could be triggered if a company's officers or directors are sued in an action alleging corporate misfeasance that exposed the company to environmental liability. Some courts have permitted D&O insurance coverage to be tapped for lawsuits against executives or board members that relate to environmental liabilities. The key ques­tion is whether the lawsuits are based in alleged securities violations or shareholder or investor misrepresentations instead of pollution. In Sealed Air Corp. v. Royal Indemnity Co., the New Jersey Superior Court held that D&O insurance coverage was not barred because allegations against the directors and officers were based in securities fraud and misrepresentation, not pollution. In Boliden Ltd. v. Liberty Mutual Insurance Co., the Ontario court held that claims for misrepresentation, construction defects and other omissions related to pollution were covered, but claims for discharge of pollution were not. Be aware, however, that some other courts have declined to apply D&O coverage to securities and litigation claims over waste disposal practices.

Beyond CGL coverage, umbrella cov­erage, coverage under additional insureds endorsements, first-party property poli­cies, and D&O coverage, insurance prod­ucts specifically related to environmental contamination and liabilities have been available since at least 1985 when the insurance industry carved out a separate market by introducing the "absolute" polluters' exclusion. Risk professionals who are considering purchasing these policies should carefully examine the limitations on the scope of coverage, exclusions and notice provisions.


Robert M. Horkovich is a shareholder in Anderson Kill's New York office, and co-chairs the firm's insurance recovery group. He is a trial lawyer with substantial experience in trying complex insurance coverage actions on behalf of corporate policyholders and has obtained over $5 billion in settlements and judgments from insurance companies for his clients over the past decade. (212) 278-1322 | rhorkovich@andersonkill.com


About Anderson Kill

Anderson Kill practices law in the areas of Insurance Recovery, Commercial Litigation, Environmental Law, Estate, Trusts and Tax Services, Corporate and Securities, Antitrust, Banking and Lending, Bankruptcy and Restructuring, Real Estate and Construction, Foreign Investment Recovery, Public Law, Government Affairs, Employment and Labor Law, Captive Insurance, Intellectual Property, Corporate Tax, Hospitality, and Health Reform. Recognized nationwide by Chambers USA for Client Service and Commercial Awareness, and best-known for its work in insurance recovery, the firm represents policyholders only in insurance coverage disputes - with no ties to insurance companies and has no conflicts of interest. Clients include Fortune 1000 companies, small and medium-sized businesses, governmental entities, and nonprofits as well as personal estates. Based in New York City, the firm also has offices in Ventura, CA, Philadelphia, PA, Stamford, CT, Washington, DC and Newark, NJ.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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