Healthcare organizations’ operations, facility management, and waste-disposal practices can expose them to environmental liability that can negatively affect profitability. Awareness of potential liability due to environmental incidents is causing healthcare organizations toe examine their need for risk-management and insurance programs to prevent or minimize potential financial losses, protect the safety of their employees, and support public-health protection measures.

Environmental incidents occur less frequently than other business insurance claims such as those relating to automobile liability or workers’ compensation. However, the financial impact of an environmental incident can be severe. Environmental incidents for which hospitals and healthcare organizations may be liable include:

• Bulk storage of chemicals and building materials
• Inadequate treatment of pathogenic organisms in wastewater posing health hazards
• Insufficient pretreatment of wastewater discharges
• Incomplete incineration/incinerator emissions
• Historical concerns including past use of property
• Inadequate housekeeping practices within the facility
• Poor storage tank management programs
• Director & Officers liability associated with lack of proper environmental insurance coverage or due diligence
• Historical pollution conditions associated with trust properties and new property purchases
• Concerns over disposal of hospital waste at non-owned disposal locations
• Spills or leaks from the storage and handling of material containers such as drums, totes, or bags
• Sick Building Syndrome

Consider the situation of one healthcare organization that purchased a number of freestanding clinics. An investigation of the site (Phase I assessment) performed prior to the sale, revealed no issues of environmental concern. Two years later, however, a neighboring landowner discovered contamination on his property. An investigation by the state environmental agency found an underground gasoline-storage tank at one of the purchased clinics. The neighboring landowner sued the healthcare company for several thousand dollars for decrease in property value and interruption of his business. In addition, the healthcare company incurred more than $350,000 remediation expenses for its site and the neighboring property.

An organization’s cost to remediate environmental hazards typically is not covered under a business’ Commercial General Liability (CGL) policy. For example, CGL policies usually contain an absolute pollution exclusion. The insurance industry added this exclusion to policies in 1973 as a response to several high profile cases of environmental contamination, such as Love Canal, New York; Times Beach, Missouri; and Jackson Township, New Jersey. The purpose of this clause was to restrict coverage to events that were "sudden and accidental" and to protect insurance carriers from long-term or gradual pollution exposure resulting from years of waste dumping or chemical discharges.

Many businesses have brought legal actions against their CGL insurers, seeking coverage for environmental incidents or conditions that their insurance carriers have denied. In these court cases, the question debated is whether a pollution release was sudden and accidental, or if it gradually occurred over time. To prevent costly legal battles and to ensure that finances are available to remediate environmental incidents, healthcare financial managers should consider purchasing environmental insurance.

Comprehensive Environmental Insurance

Only a generation ago, the necessity of environmental insurance often was met with skepticism. Only a handful of insurance companies provided environmental liability coverage, and that coverage tended to be both narrow and expensive. A minimum premium for a small or medium-size business, even though smaller businesses did not have reduced liability to big financial losses from environmental incidents. Moreover, the underwriting process was cumbersome and time-consuming.

Also, many businesses saw no reason to need environmental insurance because they detected little or no exposure to environmental liability. Unfortunately, when an environmental incident did occur, businesses had little choice but to sue their insurance companies to obtain coverage. Some spent many years and a lot of money trying to get their insurance firms to pay out on an environmental claim, and most were unsuccessful.

Today, environmental insurance has become as necessary as general liability and automobile insurance for a growing number of companies. The availability and affordability of pollution insurance coverages offer businesses more opportunities to fill gaps in their insurance program and steer clear of courtroom disputes.

Today’s environmental insurance products are more comprehensive, offering coverage of professional liability, errors and omissions, subcontracted activities, and the costs of remediation, either onsite or at an offsite, nonowned, waste-disposal site. The high cost of environmental clean up, the liability associated with discarding waste, and the potential liability posed by hired contractors working in the hospital make these coverages an important part of a healthcare organization’s insurance program.

On average, U.S. hospitals currently are seeking limits of liability between $5 million and $10 million. A Self Insured Retention (SIR) is usually required. An SIR can cost as little as $5,000, though larger healthcare systems tend to set aside as much as $250,000 as an SIR, securing an environmental insurance policy to cushion them against catastrophic losses. Multiyear policies are available with limits up to 10 years, but healthcare organizations are likely to determine that policies with three to five year terms are most effective and economical for them.

The most widely purchased insurance program for healthcare operations is the Pollution and Remediation Legal Liability (PARLL) policy, which provides insurance coverage for preexisting and new pollution conditions. A PARLL policy typically has three main coverage components: on-site and off-site remediation expense; third-party coverage for on-site and off-site bodily injury and property damage; and legal defense expense related to the first two components. Included in the list of covered pollutants, along with many standard pollutants, is medical waste -- including low level radioactive, pathological, infectious and biological waste.

Environmental insurance tailored to meet individual needs also is available. Enhancements or endorsements can be attached to the standard policy to address issues of indoor air quality (including sick-building syndrome, mold or other emissions), underground storage tanks, use of incinerators, concern for air emissions, asbestos, or lead paint. Coverage for illegal dumping or the contingent liability of subcontracted waste haulers also is available.

Environmental insurance providers are recognized by the insurance industry for their flexibility in writing coverages. Healthcare facilities, for instance, now are able to purchase coverage that insures multiple locations under one policy. Multistate healthcare systems can work with insurance carriers to structure one policy to cover all facilities.

Conclusion

As businesses have become more sophisticated in their environmental management processes, so too, have environmental insurance underwriters. Environmental insurance companies willing to employ environmental experts to study the real risks of environmental hazards and find workable methods of reducing them. They are also seeking new ways to make purchasing environmental coverages easier and more affordable for the growing number of alternative insurance purchasers, including captives (owner- or member controlled insurance programs), purchasing groups and insurance pools.

Because of a greater understanding of the risks faced by companies, insurance providers now can look at risks collectively within specific industry classes. Healthcare organizations may benefit from investigating group insurance programs provided for members of associations or industry groups. These programs offer an affordable environmental insurance option that can help close a critical gap in many healthcare organization’s insurance coverage.

Environmental management has become a vital function within the day-to-day operation of their businesses, especially at hospitals and other healthcare organizations.

Environmental insurance increasingly is accepted as a normal part of managing potential losses from environmental problems. The healthcare industry has been quick to realize it does carry exposure to environmental liability. More importantly, the industry has learned these risks can be managed effectively.