The environment plays a crucial role in keeping our planet Earth healthy and thus it is our responsibility to protect the environment. With a lot of importance given to nurturing environmental consciousness, the government has formulated various environmental laws and keeps bringing new legislation related to environmental safety. Companies operating in industries like the energy sector, chemicals, construction, petrochemicals, etc are exposed to these changing legislations under the environmental laws. These industries face a lot of challenges due to these changing environmental legislations. Environmental liability insurance (ELI) plays an important role in financially protecting such companies against environmental risks. Companies require various types of liability insurance to protect themselves against the liability risk they face.
What is liability insurance?
Liability insurance is an important part of companies’ risk management program that gives them financial protection against the losses arising from bodily injury or property damage claims and the legal cost that they must incur for the litigations. Some of the main types of liability insurance policies available in India are public liability insurance, professional indemnity insurance, commercial liability insurance policy, director’s and officers’ liability insurance, employer liability insurance, product liability insurance, and environmental liability insurance. Businesses can avail the liability insurance coverage customised to their need depending on the nature and degree of risk exposure they face.
What is environmental liability insurance?
Environmental liability insurance is a type of liability insurance that gives protection against the environmental risks that companies face while operating their manufacturing units. The policy gives financial protection against losses arising from bodily injury and property damage, clean-up costs, etc. Environmental liability insurance is also known as pollution legal liability insurance.
What are the coverages provided under environmental liability insurance?
The following is the scope of coverage provided under environmental liability insurance:
- The policy covers third-party liability claims for bodily injury or property damage due to pollution conditions.
- Coverage for off-site clean-up costs claimed for pollution conditions migrating from the insured’s own site.
- coverage for on-site clean-up costs arising from the pollution conditions within the insured’s own site.
- It covers emergency response costs responding to pollution conditions threatening the environment and human health.
- The policy covers business interruption expenses caused by pollution conditions on the insured’s site. Business interruption can lead to loss of rental, profit and may result in additional expenses. Environmental liability insurance provides coverage for such expenses caused by business interruption due to pollution conditions.
However, it is important to note that environmental liability insurance also comes with limitations like any other insurance. The policy does not provide coverage for damages or losses arising from war explosions, nuclear perils, pollution due to negligence, or non-compliance to environmental laws.
Benefits of environmental liability insurance
The following are the benefits of environmental liability insurance:
- The policy provides coverage for sudden pollution as well as gradual pollution
- The coverage can be customised as per the need of your business
- It also ensures business continuity by providing coverage for loss of revenue, and profit due to pollution conditions during business interruptions.
- It provides coverage for present, past, and future environmental or pollution exposures. Coverage is provided for already existing and new losses arising from pollution conditions.
- It safeguards the insured company from losses that may arise due to changing environmental legislation
- It works like a risk management solution for the company availing the cover and boosting its reputation.
The release of harmful substances by manufacturing units can harm the environment. Losses arising due to such pollution conditions can result in huge costs to the company. Companies in sectors like chemical, energy, petrochemical should have environmental liability coverage for financial protection. Additionally, safety measures are crucial to protect the environment.
