Absolute Pollution Exclusion: What It Means for Your Insurance Coverage as a business owner or homeowner.

Insurance is a way to mitigate risk. People take out insurance for their homes, vehicles and health. Businesses also invest in insurance coverage to protect their assets. However, not everything is covered by your insurance policy. One area of exclusion to keep in mind for your Massachusetts or Connecticut business is absolute pollution exclusion.

Understanding Absolute Pollution Exclusion

Most businesses take out a commercial liability insurance policy. While this policy will have some general coverage, there are various caveats. These are known as clauses, and these clauses can have a significant impact on the state of your coverage. This is the reality of the absolute pollution exclusion. When your policy includes an absolute pollution exclusion, then your business is not protected against pollution that stems from normal business operations. These exclusions have been commonly included as a standard part of general liability insurance since the mid 1980’s.

The History Behind the Absolute Pollution Exclusion

The absolute pollution exclusion has strong historical roots to explain its existence. Its development stems from a famous case involving the Montrose Chemical Corporation of California. This company made a chemical known as DDT. During the production of DDT, the waste was released into the Pacific Ocean. Inevitably, this waste led to widespread pollution. This practice endured for decades until the federal government finally demanded reparations. Montrose was required to pay for the cleanup.

After the federal government took action, the legal and financial fallout continued. With such widespread damage, more and more insurance companies were pursued to cover reparations from the Montrose Corporations actions and inactions. In court, success was mixed, and insurance companies were forced to cover the cleanup costs. At this point, insurance companies found the cleanup too expensive and a threat to their own solvency. To prevent future exposure to these costs, these companies stopped providing protection against pollution in their standard policies.

Details of Absolute Pollution Exclusion

It is important to note that this exclusion is not comprehensive. Most liability policies still include some coverage for incidental pollution events. This means that if the pollution stems from events that are not, in any way, related to your normal business operations, you will still be able to make a claim. There are some policies however that have what is called “a total pollution exclusion”. These policies may not even provide liability coverage after any pollution event.

Despite the legal framework of the absolute pollution exclusion, its application is still open to debate in the courts. When there is a disputed claim, the courts are often the ones to decide what counts as pollution. In general, insurance companies do not want to cover issues related to pollution like lead paint, asbestos, fuel spills and more. Oil tanks that leak may not be completely covered under these exclusionary clauses.  Some coverage may exist for migratory damage away from your premises. Specific pollution policies or endorsements can be purchased for an additional premium. It is important that your insurance company understands what your own specific needs so that you policy is prepared to cover those needs should an event occur.

Common Exceptions

As previously stated, while the exclusion does limit coverage in many cases, your Connecticut and Massachusetts business will still have some protection. For example, the absolute pollution exclusion does not exclude protection when bodily injury is sustained by smoke, fumes, vapor or soot caused by heating or cooling appliances. You will also be able to make a claim when a fire causes damage or injury to insured contractors. There may also be protection when fuel or other fluids leak out of equipment at an off-site location. Other instances may also exist.  The important thing to keep in mind is that it is essential that your insurance company is thoroughly aware of the nature of your business operation so the most comprehensive coverage are offered for your consideration.  

Oil Tanks and Leaks

Of particular concern for many is coverage for oil tanks in the event they leak. Because oil is generally classified as a pollutant, clean up for its discharge, seepage or local migration most likely will be excluded under your policy. The issue of coverage for these events and claims usually comes down to the classification of fuel oil as a pollutant.  These cases are very very hard to win because the exclusions and definitions have , for the most part, already been determined by the courts. It is not too general a statement to make that all businesses need to be diligent about taking proactive, protective measures to limit their own exposure to this potentially catastrophic exposure. Additionally, even if the potential for an occurrence may be small the scope and severity of these claims is so high it may often advisable to seek out specific pollution coverage.  

Oil Tanks in Owner Occupied Residential Property       

Because of legislative mandates Coverage is more readily available for oil that leaks from tanks in these settings.  Most carriers offer various limits of coverage, for an additional premium, on the HO-3 Homeowners Policy. Check with your insurance agent to see if this optional coverage is right for you.