Air, soil, water or any other natural resource is typically something that provokes warm and fuzzy feelings, until it has been affected by a pollutant. A pollutant can simply be anything that is not where it was intended to be. In other words, something doesn’t have to be hazardous to be deemed a pollutant, just out of place and having an adverse effect on the resource.
Most manufacturers have been operating in the same location for years, if not decades. Their managers know the ins and outs of their business and are most likely comfortable that risk exposures in their facilities have been mitigated. But what about those exposures outside of their control or, worse yet, knowledge?
Manufacturing, by its very nature and diverse forms, is a vulnerable industry when the potential for environmental contaminations are taken into consideration. Whether from historical operations, waste disposal practices, transportation, distribution, or everyday activities, the potential for environmental liability exists and persists with growth.
Neighbors can easily allege they became sick or experienced bodily injury or property damage as a result of a pollutant that has or is migrating to their property. When this happens, manufacturers are often times caught off guard and not prepared to defend against third party claims from individuals or groups asserting they have been adversely affected. In addition, the company may lack any dedicated funds and resources that would be necessary to secure legal and/or public relations services to protect their reputations. Worse yet, many owners and managers are blind to the legacy of the property where their businesses reside and operate, leaving them subject to claims resulting from pre-existing pollutants having nothing to do with their current operations.
In many cases, this lack of environmental liability protection is realized at the wrong times, such as when selling a business or refinancing a property. Either one of these acts can trigger the need for an environmental audit or Phase 1 site assessment. Even though these assessments are relatively non-invasive, more often than not a Phase 1 study triggers a Phase 2 study, which will likely include actual testing of soil, water and air for contamination. If contamination is discovered on or off-site, the property may require remedial activity. Meanwhile, business activity is disrupted, revenues jeopardized and the ability to secure needed capital diminished greatly. In addition, the knowledge of a condition does not eliminate the potential for a third party claim.
The broad definition that anything can potentially be deemed a pollutant, coupled with the fact that for more than 40 years most Commercial General Liability policies have contained pollution exclusions, ultimately leaves most manufacturers without adequate protections against third party claims.
Owners and operators of manufacturing operations can take comfort in knowing that there are experienced insurance professionals that offer pollution legal liability coverages to provide appropriate protection against environmental liabilities. So when manufacturers do meet their neighbors, they need not go alone. They can do it with coverage. •
This column was originally published in Crain's Cleveland Business