Small risks can have large environmental exposures

Rough Notes, Jul 2002 by Strazewski, Len

FEI helps agents recognize environmental exposures for Main Street businesses

Small business risks can be the bread and butter business of many independent agents, but don't take them for granted. Many ordinary-appearing small businesses can harbor complicated and unexpected exposures, says Michael J. Hill, CPCU, president of Freberg Environmental, Inc. (FEI), in Denver, Colorado.

"Most independent agents don't realize that almost any business can have some sort of environmental liability exposure. Dry cleaners, gas stations, mini-storage facilities-they all seem to be simple Main Street businesses that can be handled with package policies," he says. "But actually all of them have environmental exposures that could require special risk analysis, loss control and liability coverage," notes Hill, a veteran of more than 20 years of environmental insurance product underwriting with FEI and other insurers and reinsurers.

Hill co-founded FEI, an insurance program manager specializing in thedevelopment of national environmental insurance programs, in 1991. The agency underwrites programs for Gulf Insurance Group and Lloyd's of London. The firm has 25 employees and supports a 50-state network of about 600 independent agents. Products include hazardous waste transportation liability insurance for transportation companies, environmental protection liability, pollution legal liability, comprehensive general liability insurance, contractors pollution liability insurance and professional liability for environmental consultants and engineers. Limits of up to $15 million are available.

Hill says many agents make the mistake of overlooking the environmental risks faced by Main Street businesses. "Until they get a hazardous waste hauler or an environmental engineer as a client, they don't really spend time investigating the wide range of environmental risks that can impact their clients. And their clients are unlikely to call their attention to these exposures. Most of their clients don't recognize the risks, either.

"Not only is this unfortunate for their clients who may be at risk, but also for the agent who could be at risk for an errors and omission exposure if a serious claim goes uncovered," he says.

So what kind of risk does a little neighborhood dry cleaner pose? Think about the chemicals that dry cleaners with a plant on premises use to get out those grease stains. "It's probably not a huge risk, but the chemicals used by dry cleaners can be very difficult to get out of the environment if they get introduced in a disposal accident; and communities are becoming particularly sensitive to hazardous wastes in their areas," he says.

Gas stations are a little more obvious in their environmental risks. Most have underground storage tanks for gasoline and facilities for disposal of used oil and other automotive fluids. Environmental protection liability insurance and storage tank liability insurance is standard for automobile service stations, but Hill says agents should be aware of potential ancillary risks and loss control needs for their clients as well as standard forms.

Mini-storage facilities can harbor virtually any kind of materials-- despite restrictions that owners try to enforce on users-and site security could be a concern for both owners and environmental liability insurance underwriters.

Even a neighborhood hair salon can be an environmental hazard if bleaching, dyeing and styling chemicals are not properly stored, used and disposed of in safe ways, Hill says.

"Agents need to add environmental risks to their standard risk and insurance application check lists to make sure they are acknowledging the potential for environmental risks," Hill says. "If they encounter something they don't understand, they need to be able to access the expertise to analyze the nature of these risks and the need for additional or specialized coverage."

Hill says agents need to be particularly careful during the current hard market. Several insurers have dropped out of the environmental liability insurance market, and rates have increased an average of 10% to 20% over last year. Some small firms are receiving premium increases of 35% to as much as 120% as insurers tighten underwriting standards and demand better loss control.

Danelle R. Nielsen, CIC, co-- founder and vice president, agrees. Nielsen has more than 15 years of environmental insurance experience and holds an M.S. in environmental policy and management from the University of Denver. She specializes in some of the most complicated environmental exposures, including asbestos abatement, lead-based paint contractor exposure, treatment, storage and disposal facilities and storage tanks.

Nielsen says that while small businesses may have some unexpected environmental exposures, they rarely require the company's extensive loss control experience. However, they do demand some sensitivity from the independent agents that provide the key point of contact.

"We are not going to get a lot of calls from our agents about loss control for a small dry cleaner or a small trucking company, but we do get a lot of questions about how to identify risks and choose appropriate coverage," she says. "And considering almost everything can pose some limited environmental risk ... the process isn't as easy as it might seem."