The many meanings of environmental ‘mitigation coverage’

The word mitigation might have a simple definition in the dictionary, but when it comes to environmental insurance there’s more than one meaning. The conventional meaning typically refers to actions by an insured to prevent a pollution condition from becoming larger than when it was initially discovered. However, mitigation has also been used in instances when an insured was compelled to take action to prevent a pollution event even if it has not happened. Ursula Knowles, an expert in environmental insurance at Beacon Hill Associates, explored some of the ways the term “mitigation” has been used so you can make a decision about whether or not you need this type of coverage.

Mitigation as “Emergency Response” Coverage

Most environmental insurance policies include coverage

for “emergency response” activities within their forms. When they do not, this coverage extension is typically available by endorsement. Some carriers require that insureds notify and obtain approval from them for any emergency response activities before those

response activities are undertaken, including those necessary to mitigate a pollution condition. Sometimes there is a window of time within which an insured has to provide this written notification. Other insurers allow for insureds to use their own employees

or contractors to respond to a pollution event without the added burden of having to obtain the approval of the insurance carrier. Some will allow for expenses incurred by the insured to respond to emergencies, however, those expenses are limited to a certain

timeframe, after the emergency event occurred and/or was discovered.

Mitigation as Coverage for Newly “Actionable” Pollution

Events

Very often, Environmental Impairment Liability (EIL), also

known as Site Pollution Liability coverage, is touted as a product that will respond to pollution conditions that become “actionable.” “Actionable” generally means that something has to be done to address a pollution condition (or investigate a potential pollution

condition), either as a result of new regulations, new discoveries in the area of environmental risk management or as a result of claims made against an insured, for example, among many other potential scenarios. There have been instances where environmental

regulators have changed guidelines, lowering standards for specific chemicals or discovering new pathways for pollutants to migrate off-site which has resulted in property owners having to cease business operations and investigate their properties to make

sure they were still in compliance with environmental regulations. In those instances, it has been important that an insured has coverage for “discovery” (i.e. discovering a pollution condition at their location themselves) and that they notify their insurance

carrier of the activities they will be conducting in order to mitigate their potential for environmental liability, including regulatory fines and penalties.

Mitigation as “Excess Liability” Coverage

In the contractor arena, mitigation coverage is often offered

as an enhancement to Contractors Pollution Liability policies. This enhancement provides coverage for losses that an insured’s subcontractor incurs that is in excess of the subcontractors insurance. Very often, this loss has to be established by a formal judgement,

arbitration, or settlement and is triggered when the insured brings a claim against their subcontractor.

Mitigation as “Coverage to Reduce an Insured’s Potential

Liability” for Professional Damages

In the professional insurance arena, mitigation coverage

may be included in the policy form or offered by endorsement. This coverage usually refers to “mitigation expense” and typically provides coverage for the insured in excess of their subcontracted Professional or contractors’ pollution insurance policy. For

example, if the subcontractor’s insurance coverage is exhausted and the insured is responsible for payment of a claim, mitigation expense may pay for loss in excess of the subcontracted professional or contractor. This coverage typically attaches over the

professional’s insurance for actual or alleged errors or omissions performed by the design professional. This type of coverage is also typically determined by a formal judgement, arbitration, or settlement and is often triggered once the insured brings a claim against their professional or at the very least, the mitigation expense has to be approved by the insurance company.