INSURANCE: Confusion Can Lead to the Courtroom

Joseph Catanese

Most businesses believe that when they suffer a loss - whether it's from an auto accident, fuel spill or flooding - they are covered if the insurance premium is paid. Unfortunately, this is not true, since payment only is made when the losses fall within the policy's coverage.

Too often insurance coverage confusion forces businesses to challenge their insurance companies in courtroom battles. Debates often center on language and circumstances. However, by taking an active role when buying insurance, businesses can minimize potential disputes.

To avoid the courtroom, businesses must understand the policy's terms, limitations or exclusions. An insurance policy is a contract with negotiable terms. A policyholder and an insurance company agree on specific language and provisions, possibly including a set of exclusions that would eliminate coverage in certain circumstances. Once negotiated, courts can strictly enforce the policy's terms.

For example, after suffering losses from environmental disasters, the insurance industry added an "absolute pollution exclusion" in Commercial General Liability (CGL) policies.

This exclusion restricts insurance coverage to certain pollution occurrences, thus protecting insurance carriers from long-term or gradual pollution exposures from long-term waste dumping, chemical discharges, or, some now argue, indoor air quality.

The exclusion also resulted in many years of litigation to determine what is insured. The primary debate centered on whether pollution is sudden and accidental, or gradually occurs over time and during multiple policy periods.

Frustrated with paying for environmental claims and the ensuing legal battles, the insurance industry incorporated the exclusion in all CGL policies - not just general liability policies.

However, compilations can arise when defining what constitutes a pollutant. For instance, based on the exclusion, many general liability insurers are denying indoor air quality claims because both indoor and outdoor air quality can be affected by natural substances such as mold and mildew, or gasses such as carbon monoxide. Traditionally, these are not considered pollutants.

Today, a growing number of insurance carriers offer pollution coverage or a pollution enhancement to standard CGL policies. However this trend is likely to spark more courtroom discussions on what is insured.

Like many environmental insurance clauses, the pollution exclusion often is challenged in state and federal courts. Court interpretations of insurance policy terms vary from state to state. To date, neither state nor federal courts have agreed on the intent of the sudden coverage extension afforded in the CGL policy.

Ideally, insurance companies do not want to settle conflicts in a courtroom. It's wiser for them to ensure their policies meet the specific needs of a waste operator. And by taking an active part in the insurance buying process, potential insurance disputes can be minimized.

When looking for insurance, consider these precautions:

* Look for terms and conditions that meet your facility's specific needs.

* Make sure information on the insurance application or policy is accurate. Any mistake could cause a dispute if problems arise.

* Obtain a complete copy of all your policies. Pay attention to exclusions.

* Insurance policy language usually is specific and technical. If you have questions about your policy, speak with your broker, agent or insurance carrier and ask for clarification.

* Explore possible claims scenarios. Be sure you understand how they would be handled.

* Examine your insurance company's claims handling reputation.

* Remember that the insurance company with the best price may not offer the best coverage or claims service. Many companies have found that it is not smart to buy on price alone, but more prudent to research insurance carriers service records or customer service reputation.

Insurance coverage debates can be costly and time consuming. It's possible for waste companies to purchase effective insurance and to take advantage of coverage when a claim is filed. But this involves considering your purchasing options and taking the time to carefully understand your coverage.