On Friday, June 22nd, the bourbon industry was hit again with an environmental contamination event that, as insurance practitioners, you would have never considered pollution coverage as needed. Warehouse No. 30 on the Barton 1792 Distillery campus in Bardstown, Kentucky, partially collapsed on Friday, June 22 2018 releasing some 9,000 barrels of the bourbonly good stuff. Approximately 53 gallons, each totaling an estimated 477,000 gallons, of bourbon seeped into the groundwater and downhill into nearby streams and tributaries. The EPA responded quickly with an environmental contractor to help with the containment and cleanup, however it has been reported that fish deaths from the loss of oxygen in the surrounding streams and rivers have started to occur. Whoa wait ….. no one has ever told you that leaking bourbon barrels could possibly be an uncovered pollution event in a standard general liability or property insurance policy?
Every now and again agents and brokers run into something they just are not accustomed to working with. I would argue that most insurance professionals have a close relationship to bourbon, but with that said, they may have never considered it as an excluded pollution condition. As an environmental insurance broker, I work with over 400 independent insurance agents and brokers annually helping them navigate the complex meanings of what may or may not be considered a pollutant in an insurance policy for several of their insureds. The definition of a pollutant is rarely the same state by state, thus pollution exclusion can apply to many different types of businesses. Unfortunately, no one ever told insurance agents how to handle these potential gaps in coverage and environmental loss exposures.
Your common ISO general liability insurance policies were never intended or designed to deal with environmental losses. Any General Liability (GL) policy purchased after 1986 will almost always have at least one kind of pollution exclusion if not more. The most common pollution exclusion is found in the GL policy form, itself, as Exclusion f. This is, in most cases, the longest exclusion in the policy and can take up an entire page. In addition, most commercial insurance carriers will include additional broader pollution exclusions via endorsement to the GL policy.
The above becomes an issue when agents and brokers have no idea how these exclusions work. Since 1986, the operative words in all pollution exclusions have been “irritant or contaminant”. Due to the broadness and ambiguity of these terms, case law in each state differs on what is considered an excluded pollutant or not. Courts have literally argued and continue to argue to this day in the terms of what constitutes an irritation or contamination event. For instance, manure is an excluded pollutant in the state of Wisconsin, and in Alabama, it is not. Unfortunately for policyholders, insurance agents, and brokers, the decision of whether coverage is afforded for pollution events, like the Bourbon spill above, in most cases is left up to the courts. That said, the wordings within pollution exclusions have been some of the most heavily litigated terms since their first application in 1986. Knowing the aforementioned, one thing insurance agents and brokers can count on is, if we leave the decision on what is a pollutant up to the courts, we are all in trouble.
At the same time, only adding to the debauchery that is pollution coverage is standard insurance policies. Agents and insurance brokers have been told for years that the givebacks to the common pollution Exclusion f. can be utilized to certify as pollution coverage. Not only are these givebacks and endorsements exceptions to an exclusion, the Exclusion F., they rarely carry their own insuring agreement and also share the limits of liability with other casualty type losses. How is an exception to an exclusion actual insurance? The issue with pollution losses is you can never predict how a GL or property insurance policy including the assortment of pollution exclusions will respond prior to the loss occurring. Conversely, if insurance agents and brokers wait until after the loss, they leave the coverage disputes up to the claims adjuster’s and judges’ opinions of an exclusion and the exceptions to that exclusion to determine affirmative coverage. Seems like a pretty dangerous game.
For this story, the fact of the matter is that this is not the first time Kentucky has had to deal with an environmental loss from the almost $8.5 billion dollar bourbon industry. In a similar loss situation in 2000, a fire destroyed a seven-story Wild Turkey warehouse causing bourbon to spill into the Kentucky River leaving hundreds of thousands of fish dead for 66 miles downriver. Then again in 2003 at a Jim Beam warehouse where barrels of bourbon were aging, lightning struck the building releasing about 800,000 gallons of the good stuff into a retaining pond which began to burn and eventually overflow into the nearby creek. The release killed nearly 19,000 fish, and Jim Beam was required to pay for cleanup and damage to natural resources. I am told the fish were cited for swimming while intoxicated before finally meeting their demise.
Fortunately, there is a saving grace for losses like the above which can correct for the gaps in coverage created by decades-old pollution exclusions and court battles on the meaning of what an irritant or contaminant might be. Enter Environmental Liability Insurance. The environmental liability insurance marketplace is readily available and has been available since the mid to late 1980’s. The products available in the environmental insurance marketplace are designed to deal with losses arising from the release, escape, or dispersal of irritants or contaminants from a physical location or pollution damages caused by an insured’s contracting activities. These environmental insurance products have their own insuring agreements, definitions, and coverages for defense to fill the gaps in coverage created by pollution exclusions in 98% of commercial GL and Property insurance policies sold today. The market for these products is quite robust, and our firm entertains terms from over sixty-some environmental insurance carriers for all different types of risks. Each carrier has their own appetite and corresponding coverage forms leaving us with some two hundred excess and surplus lines policies available to correctly cover irritation and contamination losses for all sorts of clients. The policies are designed to provide coverage for bodily injury, property damage, clean-up costs, & damages to natural resources resulting from a pollution incident. There is still hope for us all.
To close, I will leave you with this. When it comes to pollution claims or even events where there may be possible contamination like the Kentucky bourbon spills noted above, general liability policies are not the same as true environmental liability insurance. General liability policies currently have and have had pollution exclusions intertwined into the base policy forms for over thirty years. In most cases, these pollution exclusions and other pollution exclusion-related endorsements even remove all or any coverage for costs of defense. Furthermore, the term pollutant in any general liability or property policy cannot be relied upon and has never been restricted to only hazardous constituents. It is broadened to include irritants and contaminants which can include many different types of hazardous and nonhazardous materials or substances. Pollution exclusions today affect almost any type of commercial entity, and pollutants don’t discriminate. All it takes is the right circumstances, and a full-blown uncovered pollution claim can arise right from the bottom of a barrel.