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Pesticides and Pollution Coverage - are you protected?

Recently, a family became critically ill when they were exposed to a highly toxic pesticide at a luxury resort in the U.S. Virgin Islands. The suspected chemicals, which are subject to restricted usage rules in the U.S., were applied to the property prior to their stay. This incident should make property owners ask the question – what (and whose) coverage, if any, will protect me from a claim arising from such an event?
If you or your staff applied the chemicals, you may have no coverage unless you purchase a pollution liability policy covering such acts. Or if you’re lucky, the irritant may not be considered a pollutant in your jurisdiction, allowing your standard general liability policy to respond.

But if a contractor applied the chemicals, the answer depends on the endorsements contained in your contractor’s general liability policies. All policies address this issue in different ways, ranging in scope from an absolute “pollution” exclusion, which might negate any coverage, to a policy with meaningful exceptions that could apply.

In the 1980’s pollution claims were becoming prevalent and insurance companies sought language to “control” their exposure to losses. In response, the Insurance Service Office (ISO) drafted a new pollution exclusion to be part of the 1986 revised standard general liability form. This exclusion in its present form contains a few important exceptions that provide some degree of pollution liability coverage to insureds, including loss due to 1) smoke or fumes from a “hostile fire,” 2) fumes from equipment used to heat, cool or dehumidify the building, and 3) injury or damage within a building caused by pollutants in connection with operations performed by a contractor. This last exception might provide some coverage for your contractor (and you if you are an additional insured on their policy) in the scenario described above.

Even the standard pollution exclusion will exclude coverage for you if the pollution is on your property, so coverage may depend on what type of exclusion your contractor has on their policy. Unfortunately many general liability policies replace the standard pollution exclusion with some form of “absolute” exclusion that removes many of these important exceptions granted by the standard policy. Upon request, insurers will often “give back” the hostile fire and HVAC exceptions, but they are often reluctant to provide coverage for pollution caused by operations performed by contractors on property of others.

Some, but not all contractors’ policies will have a Pesticides and Herbicides Applicator Limited Pollution Coverage endorsement (CG 22 64) on their policy which allows for some coverage, but only if the contractor’s operation meets all standards of federal, state or local statutes, regulations, ordinance, or license requirements.

The pollution coverage deficiencies found in most property owners’ policies makes it important that you to: 1) require pollution liability coverage of contractors that bring the hazardous substances on to your sites using CG 22 64, including naming your business as an additional insured on their policy; and 2) protect yourself contractually against such claims. Another strategy could be to purchase a broad portfolio pollution policy that could provide you and your business coverage for such events.