Companies are Misinterpreting Their General Liability Policies and Environmental Risks
The environmental insurance market is paradoxically oversaturated, yet a large percentage of businesses still lack adequate coverage despite growing risks. According to industry experts, the supply of environmental insurance policies has been high for decades, but demand remains low, and businesses are vulnerable.
David Dybdahl, founder of American Risk Management Resources Network, which is now part of Bridge Specialty Group, notes that approximately 80% of companies do not purchase environmental insurance. This figure has remained fairly static since 2018.
One major factor contributing to this problem is the complexity of environmental coverage itself. Unlike more standardized insurance products, these policies require specialized knowledge. Gaps in the distribution process may be preventing businesses from understanding or accessing the right protection.
Furthermore, standard liability insurance policies are filled with exclusions that have widened over time. Dybdahl pointed out, “More underwriters keep coming up with new ways to exclude contamination – which is the operative word in a pollution exclusion – and then look at specific things excluded, like lead or asbestos, in addition to pollution exclusions, as the exclusions expanded.”
As scientific advancements allow for more sensitive contamination detection, insurers have expanded their use of exclusions. The latest target is PFAs, or “forever chemicals,” which have been linked to cancer.
“Science can detect things in smaller models, which we just started to see on the radar screen with the exclusions for PFAs, a man-made chemical designed specifically to not oxidize so it doesn’t break down,” Dybdahl explained. “And when you start looking for PFAs in parts per trillion instead of parts per million, you find them all over, and then it’s linked to certain forms of cancer, and then there’s a whole set of exclusions.”
Despite these growing exclusions, many businesses still operate under the assumption that their general liability policies adequately protect them.
“Pollution exclusions are the most litigated words in the history of insurance,” Dybdahl stated. “Lawyers and judges can’t figure them out.”
This confusion extends to insurance brokers as well, many of whom lack formal training in environmental insurance. “There aren’t a lot of educational venues for insurance producers to actually learn,” Dybdahl added.
The Rising Danger of PFAS Litigation
This lack of understanding leaves businesses dangerously exposed, and that exposure is likely to increase. Litigation related to PFAs is accelerating, with thousands of lawsuits filed in US federal courts.
According to Dybdahl, “PFAs has the potential to be the next asbestos because it is widespread.”
He continued, “Currently, litigation, according to the press, is focused on the manufacturers of PFAs. But then what happened with asbestos was that the first lawsuits were against manufacturers, which then went to the companies that included asbestos in their products. Then, it went to the people who used asbestos-containing products, and that took decades. So, if PFAs go that direction – and the situation has all the elements to do so – that could be a major loss exposure.”
Businesses without specific pollution coverage could be left to manage massive lawsuits on their own.
Regulatory Uncertainty and Citizen Lawsuits
Regulatory uncertainty adds another layer of potential risk. Dybdahl expressed concerns about a breakdown in enforcement. “I am concerned that there may be a sea change in regulatory procedures and enforcement directly related to lack of manpower,” he said. “How will the permits get done? The permitting that’s designed to protect wetlands or air quality?”
Many assume weaker enforcement means lower risk, but Dybdahl believes the opposite is true. If government agencies fail to enforce environmental laws, private citizens can take action, with potentially severe financial consequences for businesses.
“Interestingly, that may increase the number of third-party lawsuits,” he said. “There is, in the US, the ability for citizens to do a citizens’ action against a company that’s not in compliance with the regulations, and one of the criteria is the regulators aren’t doing anything. Then, the citizens can bring a lawsuit and pay for lawyers – and if they win their lawsuit to enforce the regulations, the lawyers get paid, and usually, there’s a big settlement for the citizens.”
The Most Common Mistakes in Environmental Risk
Businesses often mistakenly assume environmental insurance is only relevant for hazardous waste sites and chemical plants.
Dybdahl has witnessed this mistake result in costly outcomes. “The most common mistake made on environmental loss exposures is underestimating the effects of the pollution exclusion,” he said.
Dybdahl explained that pollution exclusions often specify “contaminant” or “irritant” as key words. Other words are then used to describe what an irritant or contaminant might be. He provides a relevant example.
“We actually had a customer that contaminated a whole elevator, a grain elevator, with corn in it because a worker took a bag of seed corn, which is colored very brightly, and that color also has a pesticide in it,” he said. “And they just took a bag of seed corn, put it in with a vat of shell corn, and took it off to the elevator. And then somebody noticed one of those badly decorative seed corn things, and then [the customer] had to pay for the whole elevator.”
The Need for Improved Communication and Broker Expertise
According to Dybdahl, the industry requires a revised approach to communicating the value of this type of insurance. He suggested removing the term “pollution insurance” from environmental policies, because it is a misleading term.
Claims data shows a disconnect between industry perceptions and actual risks.
“The number-one loss exposure in the environmental insurance business, last time I had statistics, five years ago, was mold,” he said. “Mold was the number one source of claims payout. It wasn’t chemical companies. It wasn’t tipped-over hazardous waste trucks. [It was] mold.”
The biggest risks to businesses may not be what they assume; they are the threats companies don’t even consider until a crisis occurs.
For brokers, the message is clear: “If you don’t have an environmental resource group in your company – most don’t – then seek out a wholesaler with specialized experience. Your underwriter is likely not the best resource because they have a limited view and only know their company.”
Businesses that do not seek out specialists are exposing themselves to massive liabilities. Environmental insurance is not a niche product. It’s not just for chemical plants or landfills. With growing exclusions, increasing lawsuits, and unprepared brokers, the coverage gap continues to widen. The coverage exists, but many businesses still do not have it when needed.
