How to Insure Against Environmental Risks
One of the many ways convenience stores differ from their retail counterparts is the significant environmental risk related to their operations. The industry began offering gasoline in the 1970s and has taken great strides since then in improving storage systems, management procedures, and maintenance. However, despite these improvements, environmental releases do occur and cleanup costs or third-party claims can be significant.
It’s a tall order for convenience store owners to properly protect their businesses from environmental risks across multiple stores, and insuring these kinds of claims can be equally challenging.
Thirty-five states currently have active funds that pay for new and prior environmental releases. In these states, owners of underground storage tanks (USTs) can meet their financial responsibility requirements, as well as gain the benefits of insurance coverage through state funds that are regulated by the Environmental Protection Agency.
Owners relying solely on state funds to insure for this exposure can find them lacking in the nature of claims that are covered and the limits provided. In other states, financial responsibility must be met by other guarantees or commercial insurance programs.
For many owners, especially those with a significant number of locations, they find that a combination of state-mandated funds, together with a commercial insurance program providing broader terms and higher limits, is the most effective approach.
For example, a primary shortfall of traditional state funds and most traditional UST policies is they only respond to claims involving the UST system. They do not address a wide range of exposures resulting from spills, explosions and leaks, including on-site/first-party cleanup, off-site liability and cleanup, as well as bodily and injury and property damage. They also often exclude coverage for Above Ground Tanks (ASTs).
These types of claims can be covered under a pollution legal liability policy (PLL). In some instances, owners secure a PLL with the dual purpose of covering risks beyond the UST system, as well as providing liability limits above those provided by the UST/tank policies.
Another trend driving the use of PLL policies is lender requirements for distributors to secure higher liability limits due to increased litigation and well-publicized large claims. The best way to meet these requirements is normally through placement of a PLL policy with larger limits.
Many convenience store owners also manage the supply of petroleum products through their own vehicles and/or hired transportation. Exposure here includes the loading and unloading of fuel. The most common method of insuring transportation exposure is through a commercial business automobile policy. However, these policies only cover operating fluids and exclude transported cargo/pollutants unless properly amended to include coverage for transport and pollutants.
At the same time, it is important for the umbrella or excess liability to follow the terms of the underlying automobile liability policy as it relates to transported pollutants. These policies can include total pollution exclusions, which should not be permitted.
Many larger convenience store owners also own related businesses providing services such as tank maintenance and HVAC services. While a commercial general-liability policy can provide coverage for these operations and products, it will not be adequate given the various pollution exclusions in general liability policies. The exclusions within most commercial general-liability policies would apply if an environmental release resulted from HVAC maintenance, tank installation, etc.
In this type of situation, owners often insure these pollution risks through a contractors pollution liability (CPL) policy.
There are countless ways c-store owners can insure against environmental risks. While the liabilities may seem complicated, having the right balance of commercial insurance, usage of state funds, and a PLL policy can protect owners from catastrophic claims.
Editor’s note: The opinions expressed in this article are the author's and do not necessarily reflect the views of Convenience Store News.