Safeguarding against pollution claims

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Safeguarding against pollution claims

Environmental insurance can be costly, but risks can be greater

By Lee

5/11/2009

NJBIZ - New Brunswick,NJ,USA

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At a time when companies are tightly controlling their costs, many are forgoing

the purchase of environmental insurance for their projects. But while such

insurance can be costly, some firms said not buying environmental insurance can

be financially devastating.

" With the economy right now, companies are running lean, " said Dan Borgna, vice

president of the environmental and construction division at the Jersey City

office of insurance broker Frenkel & Co. " If they haven't been party to a

pollution-related action, [environmental insurance] may not be number one or two

on their radar. "

The number of companies purchasing environmental insurance was up in 2008 from

2007, with the rate of participation expected to continue to increase, as more

insurance companies are offering packages that incorporate both pollution and

general liability coverage, he said.

Environmental claims can affect a wide range of businesses, including real

estate developers, building contractors, manufacturers, dry cleaners and gas

stations, Borgna said, but less than 5 percent of companies in New Jersey have

environmental insurance. Unlike workers' compensation coverage, a company is not

required to carry environmental insurance unless it operates a regulated

facility, such as an environmental contaminant treatment plant, he said.

And because a large percentage of companies have not encountered any

pollution-related claims, many firms have not budgeted for environmental

insurance, which has premiums that typically begin around $7,500 a year, Borgna

said.

" It costs the company more money and, ultimately, it cost the customers more

money, " said Salvatore Barbagallo, founder and president of SPS Mechanical Inc.,

a Woolwich-based plumbing, heating and air conditioning contractor that has been

buying mold insurance for the past three years.

But " we're protected against any lawsuit that may happen " in relation to

mold-related claims, he said. Plumbing, heating and air-conditioning equipment

can all produce moisture, which could lead to mold issues, he said.

While many contractors in the plumbing and HVAC industry now have mold

insurance, some are deciding not to renew in order to cut costs, he said, but

" we decided that it was not something we wanted to play around with. "

Environmental insurance typically covers three categories of losses: cleanup,

bodily injury and property damage — the latter two being third-party claims,

said Ken Cornell, executive vice president of JCH Environmental Insurance

Brokers in New York.

Many businesses are not aware of potential exposures to pollution-related

claims, Cornell said. " The thing about environmental claims is they don't happen

as frequently as other types of claims and other types of insurance, " he said.

The legal fees alone of handling a pollution-related claim can cost tens of

thousands of dollars a month, said , vice president for risk

management at the Parsippany-based headquarters of construction company Skanska

USA. " If there's a spill of a hazardous material in an environmentally sensitive

area, you could wipe out a company's balance sheet very quickly trying to even

defend a claim like that, " he said.

Pollution-related insurance accounts for close to 1 percent of Skanska's

construction costs for a project, said. Unlike a general liability or

workers' compensation claim, pollution-related claims are more difficult to

quantify in terms of a company's exposure, he said — particularly in New Jersey,

which has more contaminated sites than most other areas of the country.

" You just don't know what you're going to find, " he said, " because of the

density of development in New Jersey and the amount of times we roll over

properties from different uses. "

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