Environmental Insurance: An Introduction for the Environmental Attorney and Risk Manager

Chris A. Mattison and Edward H. Widmann

Chris A. Mattison and Edward H. Widmann are members of Hall & Evans, L.L.C., Denver, Colorado. Mr. Mattison heads the firm's environmental practice group and Mr. Widmann chairs the firm's insurance coverage group.

[30 ELR 10365]

In the past decade, environmental insurance has evolved into uniquely different applications. Coverages have broadened, new products have been introduced, and premiums have decreased. Over the last few years, such insurance has also received greater attention from attorneys, their business clients, and corporate risk managers. This Dialogue will discuss the types of environmental coverages generally available and guide the practitioner and risk manager through the intricacies of these specialized policies and coverage concepts.

The complexity of the available coverages presents serious challenges and provides substantial benefit to prospective policyholders, risk managers, and counsel. Several policy forms have been created to cover risks arising out of brownfields and site redevelopment, real estate transactions, mergers, and acquisitions. Other products have been created for specific industries, such as chemical manufacturers, paint and coatings, chemical distributors, landfills, laboratories, environmental product manufacturers, transporters, warehouses, educational institutions, and water and wastewater treatment plants. Still other forms are designed for contractors and professionals, such as environmental consultants, architects, and engineers. While some forms are specific to the industry or environmental risk, other broader forms can be applied to numerous and diverse situations.

Environmental insurance is now a billion-dollar industry dominated by a limited number of companies that specialize in this niche market.¹ The largest players offering pollution legal liability and related coverages are AIG, ECS/XL, Kemper, and Zurich. United Capitol and United Coastal are smaller companies specializing in this market. Chubb, another major carrier, is a recent entrant into the field. There are a number of other companies offering coverage designed for limited environmental markets, such as professionals and contractors.² Each insurer offering environmental coverages will have a slightly different name or title attached to its product. Each company will also vary in its underwriting approach, its policy limits, and the length of time it will commit to be on the risk.³

Environmental Insurance Distinguished From General Liability Insurance

Environmental policies must be distinguished from general liability policies that are not designed to insure environmental risk. Although the general liability market is starting to insure some risk,⁴ most insurers have gone to great lengths (and expense) to avoid covering environmental claims under their standard general liability, as well as their auto and property policies.⁵ Coverage for almost all types of pollution-related [30 ELR 10366] claims has been removed by the "absolute" pollution exclusion, which has appeared in general liability policies since 1985-1986.⁶ In contrast, environmental policies are specifically designed to insure the environmental risk. This can include cleanup liability on and off the premises as well as pollution-based claims brought by third parties. Depending on the carrier, coverage limits and periods of coverage have broadened considerably. In a recent transaction involving the authors, policy periods of 30 years and limits of $ 200 million dollars were obtained in a brownfields redevelopment project. Higher limits are reported to be available for some transactions.⁷

Environmental Insurance Can Meet the Needs of a Business or Real Estate Transaction

While not the solution for every situation, environmental insurance should be considered for many contaminated or potentially contaminated real property transactions, redevelopment of such properties, mergers and acquisitions, lease transactions including sale/leasebacks and ground leases, financing packages, and balance sheet management transactions. The goal in acquiring the insurance should be to transfer as much of the environmental risk as possible to a financially secure carrier that is able to pay the claim should it arise. Being able to understand the coverage, evaluate the carrier, communicate with the broker or agent, and negotiate proper terms to accomplish the needs of the client is central to this process.

The risks relating to any site or business can be varied and complex. Environmental liability can be statutory, common law, or contractual. Not to be underestimated is the cost of defense that can often exceed the value of the claim.

Potential liabilities of a brownfield site may vary considerably. Historic releases of pollutants may require remediation in order to meet the requirements of environmental regulators, as well as to prevent claims for injury from employees, contractors, or other persons that enter the premises. Contamination migrating from the property (or onto the site from somewhere else) may create a risk of third-party claims for bodily injury or property damage or to recover cleanup costs that have been incurred by owners of the impacted properties. Diminution in value may occur to adjacent properties.

Once contamination has been identified, the cost associated with the remediation are uncertain. Remedial techniques vary in terms of effectiveness and cost. If two or more parties are involved, their respective consultants often differ as to the remediation technology as well as the anticipated costs. Even when contamination has been identified and cleaned up, a degree of uncertainty will still remain. The level of comfort for removing the risk will depend upon the form and finality of the regulatory approval or "no further action" determination. However, such letters often contain conditions that may reopen liability in the event other contamination is discovered. There will always be environmental risk arising from the process of neutralizing and removing the contamination. Finally, contamination can also be released from accidents during transportation of the waste to a disposal site.

Environmental risk is not eliminated by due diligence investigations. Many buyers and sellers rely upon the Phase I environmental assessment. The Phase I process involves a historical review of the property's ownership and use coupled with a site inspection and review of environmental databases.⁸ More detailed, probative, and expensive testing and sampling will reduce the risk, but not eliminate it.⁹ No assessment can guarantee a property is free of contamination.¹⁰

Indemnity agreements alone are not always a practical solution for these transactions. Most sellers do not favor long-term, unlimited liability and either refuse to give indemnities or seek to limit the effect, the duration, or amount of the exposure. The strength of any indemnity is only as good as the financial wherewithal of the party providing the indemnity. Financial strength will change over time, and an indemnity may prove to be less than adequate over the long term. Environmental insurance can serve as a way to bridge positions of buyer, seller, lenders, and remediation contractors in financial transactions and cleanups of contaminated sites. Properly drafted insurance, alone or in conjunction with indemnity, may serve as a practical way to close the deal.¹¹

Environmental Insurance for Industry, Businesses, Contractors, and Professionals

Environmental risk is often particular to the industry or profession and can take many forms. Environmental policies cannot eliminate the risk from all types of regulatory exposure.¹² But at the same time, pollution legal liability and [30 ELR 10367] other industry specific coverages can provide valuable protection to any industry or profession affected with elements of environmental risk in its business. Any environmental attorney or risk manager is bound to think of circumstances of spills, discharges, and releases particular to her or his industry or area of concern. By way of example, a few "typical" situations are identified below:

* A distributor sells a cylinder of chlorine gas without a safety plug. The release of gas injures persons on the premises.

* Tanks at a bulk storage facility rupture causing on-site property damage as well as loss of property value, groundwater monitoring, and medical monitoring claims from off-site landowners.

* Carbon monoxide or bacterial contaminated air released by a faulty ventilation system temporarily shuts down the business and results in respiratory and chemical sensitivity claims.

* Historical contamination discovered during a renovation shuts down the contractor, resulting in delay and business interruption claims.

* Midnight dumping at a facility exposes the owner to liability.

* A tank truck overturns on the highway spilling its contents resulting in emergency cleanup liability to local authorities.

These examples are diverse and apply to some, but certainly not all, businesses. The breadth of potential exposure is precisely the point. Unless the business wishes to assume or self-insure the risk, its risk manager may seek to fill the gap created by the absolute pollution exclusion in its general liability policies with properly drafted environmental coverage.¹³

The Pollution Legal Liability Policy

A pollution legal liability policy is designed to insure claims from unknown pollution conditions at covered locations specified in the policy. Initially, the policies were written to cover only off-site damage.¹⁴ Current policies generally cover both on-site and off-site pollution conditions.¹⁵ Claims for bodily injury, property damage, and cleanup costs are included. Business interruption and transportation claims can often be covered as well.¹⁶ Pollution legal liability will not cover the cost of an ongoing cleanup or contamination already known to exist. As in all insurance, each term, including definitions, conditions and, exclusions, must be carefully scrutinized. Many of the terms and coverages are negotiable, and these policies should be modified to fit individual circumstances.¹⁷

Provisions typically found in the pollution legal liability policy will include exclusions for preexisting conditions known to the insured, contractual liability (unless scheduled as an insured contract), underground storage tanks (USTs), and noncompliance with orders and directives of the regulating agency. Specific pollutants, such as radon, asbestos, and lead paint may be excluded. Terms of coverage are available in the range of 1 to 5 years, but policies have been issued up to 30 years or more. Limits of $ 1 million and up to several hundred million dollars can be obtained.¹⁸ Deductibles are generally $ 10,000 or higher.

Pollution legal liability policies have applicability to real estate mergers and acquisitions and other transactions. The form can also be used by industrial facilities (manufacturing, mining, petroleum refining, chemical production, distribution, and storage), solid and nonhazardous waste transfer and recycling and hazardous waste treatment, storage and disposal facilities, warehousing, office rental, and other commercial properties.

The Property Transfer Policy

Property transfer insurance is designed to cover claims arising at a covered location for preexisting, unknown contamination and for known contamination below reportable levels (or such other levels where a cleanup to government standards is not indicated). For example, such insurance could be crafted for a situation where contaminants in excess of regulatory limits are left on-site with the permission of the government and with a corrective action plan in place to prevent exposure. The latter situation is an example of a successful "no action" petition under a state voluntary cleanup statute. Bodily injury, property damage, and cleanup costs would be covered. Since this product is similar to the pollution legal liability policy, the limits, deductibles, and exclusions are also similar.¹⁹ This insurance is [30 ELR 10368] specially designed for property transactions, mergers, and acquisitions. It can be used independently or in conjunction with other coverage.

The use of pollution legal liability or property transfer insurance can be illustrated with another example. A former manufacturing facility has been decommissioned, and the site has been razed to make way for a light industrial and commercial development. Known contamination has been cleaned up to existing standards, and a no further action letter issued. The seller wishes to dispose of the property "as is" without indemnities. The buyer is concerned over the potential for undiscovered contamination and future regulatory action or third-party claims.

Pollution legal liability or property transfer insurance could be considered for the above situation. The policy should be designed so that it provides coverage for claims for cleanup costs arising out of any newly discovered contamination, both in amount and species. Third-party toxic tort claims for bodily injury and property damage should also be covered by the policy. Business interruption may be available to protect the policyholder against delay in completion of construction due to the discovery of new pollution conditions. The insured parties can include both the seller and the buyer and possibly the lender.

The Cleanup Cost Cap (Stop Loss) Policy

Cost cap or stop loss insurance can insure against cost overruns for remediation of a specific project. These overruns can arise from discovery of additional amounts of contamination, newly discovered contaminants, or changes in regulatory requirements. The coverage is limited to cleanup costs and will not insure bodily injury, property damage, or any other liability claims. Legal defense and the cost of negotiations with governmental entities regarding the cleanup is commonly excluded. The site must be properly characterized, and the remediation plan must have been approved by the regulators or by the carrier. The estimated cost of the cleanup (approved by the underwriter) will serve as a self-insured retention. Generally, a 5 to 10 percent self-insured buffer will be added to the cost estimate, and the carrier will insure any amounts expended above the buffer up to the policy limits.²⁰ Coverage terminates once the cleanup has been completed and a no further action letter obtained. Unknown pollution can also be insured as part of the cost cap (assuming you have been successful in negotiating the addition of such coverage).

Common exclusions include bodily injury, property damage, radioactive matter, asbestos, contractual liability, unscheduled USTs, capital improvements, unapproved amendments or changes to the scope of work, unknown conditions not disclosed to the insurance company, and fines and penalties imposed by regulators. Limits will vary with the cost of the cleanup limits of $ 100 million and higher have been obtained. The cost of the policy is often between 3 and 4 percent of the estimated cleanup cost.²¹

The Brownfields Restoration and Development Insurance Policy

In contrast to the property transfer insurance, this coverage is designed to cover properties with known contamination where remediation will take place as part of a plan of development or restoration. This policy form is a combination of pollution legal liability and cost cap insurance concepts and will cover bodily injury, property damage, cleanup costs for unknown pollutants, as well as a cost cap provision covering the cleanup.²²

Assume that the manufacturing facility in the previous example has been decommissioned, the site is known to be contaminated at levels requiring a cleanup, current environmental studies have identified several polluted groundwater plumes, as well as contaminated soil, and the contamination has been fully characterized. Moreover, an approved remediation plan is on file with the state, and cost estimates have been provided for the cleanup. Brownfields restoration and development or a cost cap policy issued in conjunction with a pollution legal liability policy could be utilized. The cost cap or stop loss portion of the coverage is designed to insure against an increase in the cost of the cleanup. After the cleanup has been completed, the location will be insured by a pollution legal liability or property transfer policy to cover unknown pollution conditions and third-party claims. As in the previous example, business interruption coverage could also be obtained. The policy (or policies) should be kept in place during the investigation, cleanup, and subsequent construction on the property, which are the most likely periods during which an environmental problem will be discovered. In addition, the developer can maintain the coverage beyond the completion of remediation activities when the regulatory authorities allow the contamination to be left in place or where there is substantial undisturbed land remaining after the remediation and development process.

If two policies are used to procure this coverage (some carriers may prefer to place this coverage with separate policies), care must be taken to insure a seamless transfer of the location from one coverage to the next. The terms, including definitions and conditions, must be fully integrated. Without such integration, coverage gaps could occur.

The Secured Creditor Policy

This product came on the market in response to the liabilities associated with the United States v. Fleet Factors Corp.²³ decision. The insurance is designed to cover the lesser of either (1) the loan balance due with respect to property found to be contaminated or (2) the cost to clean up the property. In the former case, the carrier will indemnify the insured for the loan balance. In the latter, the carrier will pay [30 ELR 10369] the cost of the cleanup on behalf of the insured up to the limits of coverage. The policy is applicable to situations where the creditor maintains a perfected security interest in the property and the creditor is faced with a default during the policy period. A lender's policy should also cover third-party claims for bodily injury and property damage. Unless specifically negotiated, coverage will not be provided for known contamination or in situations where the loan goes into default beyond the policy period.

Lenders may wish to consider such insurance either alone or in conjunction with environmental review procedures. Most lenders understand that some Phase I assessments have been shown to be unreliable and are not adequate to discover all site conditions that can result in environmental problems. Phase II reports are technical and may not be easily understood by banking professionals. The cost of performing an investigation increases the cost of the transaction. Insurance may become a vehicle to avoid some of these problems.²⁴

Because secured creditors can often be added to existing environmental coverages, it may not be cost effective to issue a separate policy to a lender covering a site where pollution legal liability, property transfer or brownfields restoration, and development insurance is available. Rather, it may be preferable to add the lender as an additional insured. There are other instances, however, where the principals to the transaction do not want to dilute their coverage (and limits) with additional insureds, thus requiring the lender to purchase its own insurance.

Professional and Contractor Environmental Liability Policies

The environmental consultant and contractor working at the site are likely to be exposed to potential liability for third-party claims, as well as liability to the client in the event an error causes cleanup costs to exceed the estimate. Professional's and contractor's insurance programs can cover these risks by including contractor pollution legal liability policy and errors and omissions insurance in appropriate situations.²⁵ This coverage is designed to provide for bodily injury and property damage claims arising out of covered contracting operations performed on the property and for pollution arising out of professional services rendered on the project. The potential for discovery of a pollution condition during the work, or after the work has been completed, suggests that the contractor would be well advised to continue to keep insurance in force, either through successive renewals of claims made policies or via an occurrence policy.

Oftentimes, due to competitive pressures, environmental contractors are required to prepare a fixed price bid covering the entire cost of the cleanup and possibly unknown conditions. Cost cap or stop loss coverage can serve to help contractors insure against the risk of an overrun.

Professional environmental liability insurance is similar to standard professional coverage. It extends to acts, errors, and omissions in the performance of professional services provided at covered locations where professional services are rendered. Two types of coverage are provided. The first covers damages resulting from an error or omission arising out of the conduct of the insured's profession. The covered acts need not be limited to environmental work. The second type of coverage is pollution legal liability. It will cover claims for bodily injury or property damage from pollution conditions arising out of the performance of contracting services by the insured. Some policies will cover cleanup costs and others do not mention the term. Thus, it is important to be sure that the environmental risks are covered.

Key exclusions include off-site waste liability, express warranties and guarantees, known claims or circumstances existing prior to the inception of coverage, the cost to repair faulty workmanship, and claims for return of fees.

Counsel representing professionals and contractors often review and evaluate contracts with overly broad indemnity provisions, including, for example, claims arising from the sole or partial negligence of the owner. While it is important to seek coverage for these contractual obligations, such indemnity language is often excluded from the definition of an insured contract or the coverage provided is limited to liability that would be available under the common law. It is equally important to carefully delineate the scope of the professional services to be covered because pollution conditions and liabilities falling outside the scope of the defined services will not be covered.²⁶

Contractor and consultant policies are generally similar to professional policies.²⁷ These policies will cover claims resulting from pollution conditions arising from covered operations. Unlike the other types of environmental coverages, the contractor forms are available on an occurrence as well as a claims made basis.²⁸ A number of different forms are available. Some are drafted for remediation or tank contractors. Others are designed for general contractors with incidental environmental exposure. As in the case of the professional policies, the nature of the covered operations must be broadly and carefully described.

Transporter Insurance Policies

Like its title, this insurance will cover a transporter for off-site spills and liability for disposal of waste at a non-owned location. This form is designed for oil, asphalt, sand and gravel, construction material, chemicals, and other toxic materials. Bodily injury, property damage, and cleanup costs are covered. Key exclusions include known conditions, completed operations, and deliberate acts.

[30 ELR 10370]

Storage Tank Pollution Liability Policies

The storage tank pollution liability policy covers releases from scheduled storage tank systems for corrective action on-site and off-site. Bodily injury and property damage are covered. The coverage can be used to meet U.S. Environmental Protection Agency (EPA) and state financial responsibility requirements.²⁹

Closure and Post Closure Policies

The closure or post closure policy is designed for regulated facilities with financial assurance obligations. The policy offers an alternative to bonds, letters of credit, and trust funds. The policy is formatted so as to comply with the required financial assurance for closure or post closure. It would insure against the premature closure of the covered facility. The policy does not include liability coverage or associated defense. Such insurance could be utilized by solid waste landfills, hazardous waste treatment, storage and disposal facilities, and some manufacturing and materials processing facilities.

Finite Risk Insurance

Finite risk is not traditional insurance coverage. It is a type of self-insurance funded by the insured and administered by an insurance company. Finite risk can be used in connection with a cleanup. For example, assume a cleanup is estimated to cost $ 5 million over three years. An annuity can be purchased to be managed by the insurance company or another financial institution. The annuity must be funded sufficiently so that it will grow to $ 5 million in time to make the cleanup cost payments over the three-year period.

General Considerations in the Purchase of Environmental Insurance

Proper understanding of environmental coverage requires the combination of a solid knowledge of the environmental liabilities affecting the property or business as well as law of insurance. At the risk of oversimplification, there are two basic steps to evaluating environmental insurance coverage. The first step (often overlooked) is to correctly identify the potential sources of loss and the insurable interests in the transaction. The next is to match (or negotiate) the available coverage with the anticipated loss exposure and the insurable interests. Each situation is fact-sensitive. No two situations are alike and neither are the environmental issues.

A potential concern with specialized environmental insurance policies is that they may not cover the risks that the policyholder or the business community expects. Policy terms, particularly the insuring agreements, exclusions, definitions, and conditions, need to be carefully reviewed and analyzed to determine if the policyholder is purchasing the intended type and scope of coverage.³⁰ It is unwise to assume, without verification, that the coverage is precisely as described or matches a broadly worded example in advertising or promotional literature. Expectations may defer. There may be nuances to each of the terms that may not be fully appreciated or understood without reference to the specific situation. Terms can usually be negotiated and should not be accepted without thoughtful review and documentation.

Case Law Interpretation

Basic principles of insurance coverage law will apply to environmental policies, but there are only a handful of cases specifically interpreting the newer environmental coverages.³¹ Some case law exists interpreting the older, generally outdated "environmental impairment" policies, but this field is also limited.³² An experienced insurance practitioner reviewing environmental policies will quickly see that certain definitions, conditions, and exclusions have incorporated the "lessons" learned by the insurance industry during the coverage battles involving the application of the general liability policies to contaminated sites. A general understanding of insurance law as applied to the older policies can be helpful from the historical and legal perspective in interpreting the intent of the new coverage.³³

Financial Viability of the Carrier

Like any indemnity, an insurance policy is only as strong as the assets of the insurance company. Review the size and ratings of the carriers being evaluated for the transaction.

Advance Payment

These policies usually require the entire premium to be paid at inception before coverage is issued. Unless negotiated, premiums will not be spread over the multi-year term of coverage.

Claims Experience

While environmental insurance is important as a source of funds for a claim, another important consideration is the level of service offered in connection with the claim, e.g., how "hands-on" the carrier is and the level of experience and expertise of its claims personnel. Many environmental carriers employ in-house counsel with technical and environmental [30 ELR 10371] backgrounds who are assisted by in-house consultants. It is important to determine who will be handling your claim.

Claims Made and Reported Policies

Almost all environmental policies are written on a "claims made and reported" basis. Unlike occurrence policies, where the occurrence must happen within the policy period, the environmental claim must be received by the policyholder and reported to the company within the policy period (or within an extended reporting period).³⁴ The claims made language is intended to avoid coverage being extended well beyond the policy period. Use of the claims made form is one of the ways environmental carriers have been able to better define, limit, and price the risk that is being underwritten. Nevertheless, this is a substantial restriction upon coverage. In order to remain covered for events that occur when prior environmental policy periods expire, the policyholder must continue to renew the coverage at the end of each term. To date, the only exception exists in connection with contractor policies that can be written on either a claims made or occurrence basis.

Defense Within Limits

Most, but not all, environmental coverages include defense costs within the limits of the policy. Because attorneys fees and costs spent in the defense of a claim may consume much of the limits otherwise available to pay the claim, costs of defense must be monitored. Special claims handling duties on the part of the carrier and defense counsel arise in such situations.³⁵

Timing Considerations

Currently, there is a great deal of competition in the field of environmental insurance. Competing quotes should be obtained and specimen policies reviewed and analyzed before a decision is made to proceed. Environmental insurance companies respond relatively quickly to the competitive pressures of the market and understand the exigencies of timing in the business deal. If environmental insurance can be considered early in the transaction, the additional time allowed will be of benefit to the parties.

The Devil Is in the Details: Specific Policy Terms and Conditions

While no list can possibly be complete, the following terms and conditions merit close attention in the review and analysis of environmental insurance. Modification of terms and conditions will depend upon the details and size of the transaction and premium, the specific needs of the policyholder, and the flexibility of the underwriter.

Key Definitions

[] Bodily Injury. The standard definition of the term is limited to physical injury, actual disease, mental anguish from a sickness, or similar language. Definition of the term should include medical monitoring.³⁶ Depending on the law of the forum state, medical monitoring can be a cause of action as well as an element of damages.³⁷ Monitoring costs can prove to be expensive to the policyholder and should not be ignored.

[] Property Damage. The definition will include physical injury to tangible property of others and loss of use of property that has not been physically injured. The definition should cover both real and personal property damage. Most property damage definitions will not include diminution (or loss) in value, which is a common element in third-party property contamination cases.³⁸ Claims for future monitoring of contaminated or potentially contaminated real property are often included in toxic tort pleadings. The practitioner or risk manager should, therefore, attempt to have the definition expanded to include these elements.³⁹ Another item to watch is whether the definition is broad enough to cover natural resource damage claims.

[] Cleanup Costs. This term is particular to environmental coverage. It may be expressed as remediation expense.⁴⁰ The definition should be broad enough to encompass the cost of preparation of remedial action plans, site characterization, and monitoring in addition to cleanup activities. Some cost cap policies do not include post closure monitoring that can result in an important gap.⁴¹ The term should also include attorneys fees in connection with the negotiation of remedial plans and other dealings with agencies. If work is expected to be done wholly or partially in-house, the costs relative to employees of the policyholder should be included.

[30 ELR 10372]

[] Pollution Conditions. The term should be broad enough to cover contamination of soil, surface water, groundwater, and the air. In short, everything that you can imagine.⁴²

[] Insured. This defined term needs to be examined in light of the organization of the policyholder's business to be sure that all persons and entities are included within the scope of coverage as an insured.⁴³ If the policyholder is a public body, care should be taken to be sure that elected or appointed officials are included. In purchase and sale transactions, if both the buyer and the seller are to be insureds, be sure that the definition so provides. An additional insured is only covered for claims for which the insured is also responsible, but adding parties as additional insureds can dilute the coverage available to the named and other insureds.

[] Known Condition. Preexisting conditions known to the "insured" are excluded in environmental policies. In the case of an organization, a question can arise as to who has knowledge of the condition. It is best to limit the definition of the "insured" used in the known condition exclusion to a person with environmental management responsibilities, such as a "responsible insured." This will limit the risk of denial of coverage because an unnamed employee, not in a position of environmental authority, may have known of a pollution condition that was not disclosed to the proper person in management.

[] Responsible Insured. Likewise, the policy may place notification requirements upon a "responsible insured," who is defined as the person in charge of environmental affairs for the named insured. As previously discussed, the definition of "responsible insured" should be limited to a specific individual or job title to avoid impairment of coverage because a low-level person falling into a loose definition of "responsible insured" may possess information that was not properly communicated.⁴⁴

Key Exclusions

[] Intentional/Deliberate Acts. This exclusion is intended to exclude coverage for deliberate noncompliance with environmental laws.⁴⁵ At first blush, the exclusion seems reasonable, but it can become dangerous if the terms are broadly drafted. Determining whether previously unknown contamination originated from legal or illegal activity is, to say the least, challenging and sometimes practically impossible. The exclusion could also be construed to deny coverage for decisions rendered in good faithor upon the advice of counsel. The effect of the exclusion should be limited to specific individuals with management level environmental responsibilities. It is also advisable to carve out a good-faith exception to cover situations where a person may, in good faith (or acting in reliance upon legal advice), believe that a law or regulation is inapplicable or an order is invalid.⁴⁶

[] Transferred or Divested Property. An exclusion or other policy provision may divest coverage upon the sale or transfer of the property or upon the transfer of operational control of the premises or cleanup. In some property transfers, the policyholder may no longer wish to insure either the property or the cleanup. In other instances, an insured may wish to continue coverage, particularly if the risk of liability has been retained.

[] Specific Contaminants or Structures. USTs are commonly excluded in these policies unless added by endorsement. Lead, radon gas, radionuclides, and asbestos may be excluded as well. The policyholder may have no knowledge of the existence of an UST or the presence of other specific contaminants within buildings on the property and may wish these items to be insured.

[] Contractual Liability. The language of this exclusion will vary from company to company. Some policies will specifically cover contract damages.⁴⁷ If applicable, an exclusion may deny coverage for liability that does not otherwise arise by operation of law.⁴⁸ Contractual liability may also be excluded unless the contracts are specifically endorsed or listed on the policy. The problem is obvious because environmental insurance is often sought in connection with transactions in which liability for environmental risk and cleanup costs has been allocated by contract through indemnities. If the policyholder has given an environmental indemnity, it is important to be sure that the contract is properly scheduled. In addition, consider modification of the exclusion to reflect the scope of the indemnity.

[] Preexisting Conditions Known to Insured. The key element to analyze in this exclusion is who must possess the knowledge.⁴⁹ As previously discussed, language should [30 ELR 10373] limit knowledge of a pollution condition to a specifically defined "responsible insured" and not extend knowledge to any officer, director, or employee of the organization who may qualify as an "insured."

Key Conditions

[] Notice. Claims made policies generally require the policyholder to provide notice to the insurance company of discovery of the pollution condition as well as a claim. The timing of the notice may be characterized as "immediate" or "as soon as practicable." The policyholder's risk manager must be instructed to notify the carrier as soon as possible in the event of the discovery of a pollution condition or upon receipt of a claim. At the same time, protections should be built into the policy in the event of a mistake. In many jurisdictions, coverage cannot be denied for late notice unless the insurance company can prove that it was prejudiced.⁵⁰ However, there are a sizeable number of jurisdictions that recognize the late notice coverage defense without proof of prejudice.⁵¹ Counsel should attempt to strike language requiring "immediate" notice in favor of a more liberal standard. Also consider adding an endorsement requiring the carrier to prove that it was prejudiced by the timing of the notice.⁵²

In "claims made and reported" policies, notice of the claim must be received by the insured and reported to the company during the policy period or extended reporting period. Most companies include an extended reporting period of 30 days. Extended reporting normally applies only to claims based on conditions during the original policy period. The period should be extended to 60 or 90 days or some other more reasonable period of time. Longer extended reporting periods may be offered but often only at a high premium.

[] Choice of Law/Forum. Some policies contain a provision mandating the use of the law of a particular state such as New York as well as a specific forum to litigate coverage disputes. The law of the state of New York is generally favorable to the insurer.⁵³ Litigation in that forum can prove to be costly, especially with insureds residing a substantial distance from the state. These clauses have been upheld provided there is sufficient contact between the carrier and the state.⁵⁴ If significant differences exist between the policyholder's jurisdiction and a selected forum, consider specification of the law and forum of the jurisdiction where the insured resides or carries on its business. Alternatively, if operations are to be conducted over a number of states, consider deletion of the condition altogether.

[] Policy Period and Retroactive Date. If the policy is a claims made policy, pollution conditions discovered and reported and claims made and reported during the policy period are covered. Policies will often contain retroactive dates excluding conditions or claims that existed before the retroactive date. Thus, the transaction or the work being performed should be analyzed in order to broaden coverage as much as possible.

[] Other Insurance. Many policies provide that they are excess over other available insurance. No one wants to be locked in a battle to determine which company is primary or excess over the risk. Seek to make the insurance primary. If it is not, then attempt to require the underlying insurance to be both valid and collectible. Some policies already provide for this, others do not. In the event of a dispute over whether the underlying insurance is valid and collectible, language should provide that the company will agree to pay the claim as if it were primary.

[] Subrogation. All policies will provide a right of subrogation in favor of the insurer. Some policies simply provide that the company is subrogated to all rights of the insured.⁵⁵ Other policies may contain a priority of recovery between the insured and the insurer.⁵⁶ As in the case of notice, there are different views among the jurisdictions regarding the order of recovery. Some jurisdictions require the insured to be paid first and others do not.⁵⁷ Unless the insured is willing to abide by whatever state law is deemed applicable to a particular claim, the order of recovery should be specified in the policy. Consider adding language to confirm that recovery of subrogated benefits will serve to reinstate coverage. It is also important to seek to have the carrier waive subrogation against any insured.

[] Defense Counsel. Most policies provide that the carrier will select counsel for the insured. Some policies will permit [30 ELR 10374] the insured to select counsel. If the insured wants the ability to choose counsel, that right should be clearly specified in the policy.

[] Emergency Cleanups. Policies often provide only for reimbursement of cleanup costs that have been pre-approved by the company. Some spills require immediate remedial action. In appropriate situations, be sure that a provision is made for these emergency situations in order to assure that the insured will be reimbursed for such costs.

[] Consent. Consent is often required before cleanup or remediation expenses are incurred, before in-house personnel are used on cleanups, and before consultants and contractors are hired. In cases where advance consent or agreement by the company is required, it should be stated that the consent or agreement will not be unreasonably withheld.⁵⁸

[] Severability of Interests. The policy should contain a severability clause so that the policy will apply to each insured as if it were the only insured and separately as to each insured against whom a claim is made. Misrepresentation or breach of condition by one insured should not prejudice the interest of coverage for another insured.⁵⁹

[] Cancellation. Cancellation by the company is of particular concern in longer term policies. Many states have statutes providing minimum periods of notice. The policy must provide adequate advance notice of cancellation and must clearly specify the circumstances under which cancellation may occur. Ambiguous language such as "changed conditions" or "changes in operations," should be avoided if possible.⁶⁰

[] Assignment. Assignment of the policy is prohibited without the consent of the company. If it is contemplated that the property or business may be transferred or sold, it would be wise to provide that the policy can be assigned with consent that will not be unreasonably withheld.

The Insurance Application

Each carrier has its own application form. Some are available over the Internet.⁶¹ Many companies have environmental consultant engineers and attorneys on staff who evaluate the application. The application process for environmental insurance will require the production of all consultant reports and investigations that have been performed on the premises. If no such investigation has been done, a Phase I will be ordered. Depending on the results, a Phase II may be required. The reports will be evaluated by environmental consultants and engineers. The application is referenced and made a part of the policy of insurance. Care must be taken to avoid any misstatements or omissions that might be asserted as a defense to coverage.

Companies acquiring environmental insurance will often work through brokers and agents. There are a number of brokers specializing in environmental coverages. During the negotiation process, care must be exercised to document all representations from the broker and underwriter pertaining to the coverage provided. It is good practice to reduce the representations to policy endorsements and to maintain a file of all correspondence. Such documentation may prove relevant in subsequent coverage disputes.⁶²

Applications should be reviewed for completeness by qualified personnel. In the event a large number of documents are provided to the company, it is a good idea to create a record of what was provided to the underwriters for review. Consider incorporating the list as an endorsement to the policy.⁶³

Conclusion

Environmental insurance can provide substantial risk shifting protections to parties to a transaction involving a contaminated property and can also provide important risk management options for many industrial, business, contracting, and professional operations. Carriers offering this coverage are competitive, and premiums have been substantially reduced. Counsel and risk managers familiar with the intricacies of this emerging insurance market and coverage products are in a position to provide substantial benefit to their clients and employers.

1. Environmental insurance has been in existence from the mid-1970s. Originally and sometimes still described as designated "environmental impairment insurance," the product was marketed through a number of pools as well as by individual companies. Underwriting of the risks proved difficult during the early years, and the number of firms writing the coverage dropped during the early 1980s due to poor claims experience. New policy forms were developed in the late 1980s and early 1990s with the advent of voluntary cleanup statutes and brownfields transactions. Improved underwriting, increased competition, and a decrease in premiums have greatly expanded the environmental insurance market over the last several years. See Gavin Souter, Flourishing Market Sprouts More Options, Broader Environmental Policies Gain Favor, BUS. INS., Feb. 7, 2000, at 3.

2. For example, in 1999, it was reported that at least 36 other insurance providers offered professional liability for environmental and design professionals with no pollution exclusion. Additionally, several insurers will underwrite contractors, owners of underground storage tanks (USTs), and certain industries that have incidental environmental exposures. See Rodney Taylor, Environmental Insurance, Part 1: Market Analysis and 1999 Forecast, RISK MGMT. LETTER (1999) http://www.griffincom.com/rmls01.htm.

3. The number of products and level of increased attention from the insurance industry is an indication of overall profitability of the product line. Ultimately, the number of entrants may be limited by the availability of underwriters with sufficient expertise. Souter, supra note 1, at 6.

4. It was reported that some liability carriers will consider modifying the pollution exclusion in their commercial general liability policy to provide for certain named perils or a limited-time element form of accidental pollution coverage. Examples of such approaches include discovery of the pollution release within 7 days of its commencement and reporting to the carrier within 30 days thereafter. While this limited coverage may respond to "bodily injury" and "property damage," the policies may not respond to all cleanup costs. Taylor, supra note 2.

5. A detailed history of insurance litigation seeking coverage for environmental liabilities under general liability policies is rich, complex, and well beyond the scope of this Dialogue. At the beginning of environmental regulation, the insurance industry developed an exclusion for gradual contamination claims, which attempted to disclaim coverage for discharges of pollutants unless the discharge was "sudden and accidental." That exception to the pollution exclusion was attacked in every jurisdiction with varying degrees of success by policyholders facing aggressive regulatory activity and potentially crippling environmental liabilities. The "sudden and accidental" exclusion was replaced by the "absolute" pollution exclusion in 1985-1986. A practitioner facing an environmental claim is always well advised to investigate the circumstances of the release and to obtain and review older general liability policies for potential coverage, particularly if the discharge occurred prior to 1986. The degree of success in obtaining coverage depends upon the particular jurisdiction and law applied.

6. The "absolute" pollution exclusion is designed to eliminate coverage for cleanup liabilities, as well as claims for "bodily injury" and "property damage" arising from the discharge or release of pollutants. In the majority of situations, courts have enforced the terms of the "absolute" exclusion. However, a few courts have found ambiguity and coverage for limited situations outside of the traditional contamination site. See, e.g., Amy Wolvington, Circumventing the Absolute Pollution Exclusion, 20 INS. LITIG. REP. 244 (1998).

7. According to John Hannah, Vice President, Marsh USA Inc., quoted in, Souter, supra note 1, at 4, capacity of more than $ 100 million is "easily accessed, and for some specially structured deals, up to $ 1 billion in capacity is available."

8. The American Society for Testing and Materials (ASTM) has published two standards for environmental site assessments: the Transaction Screen Process (E-1528) and the Phase I Environmental Site Assessment Process (E-1527).

9. Phase I assessments do not include testing of the property. Such testing is ordinarily done in a Phase II assessment. Separate ASTM standards apply to the Phase II.

10. Phase I and Phase II assessments can contain errors, sometimes substantial. Errors and omissions on the part of consultants can give rise to professional liability claims. See Chris A. Mattison, Professional Liability of Environmental Consultants, 40 FOR THE DEF. 3, 34 (1998).

11. There are other tools to enhance marketability or close the deal with respect to contaminated property. Examples can include fixed cost to closure contracts, selling to a brownfields company or an agency-approved remedial action plan in conjunction with fixed cost to closure contract indemnities. This type of transaction is also protected by insurance, generally borne by the environmental contractor.

12. For example, no policy will provide insurance against criminal liabilities. Most will not cover civil or administrative fines and penalties. Such liability may be uninsurable as a matter of public policy. Many policies also have an exclusion for liability based upon intentional and deliberate noncompliance with environmental laws.

13. Insurance is not a substitute for an effective environmental management system but can be a part of it. The International Organization for Standardization (ISO) 14001 provides organizations with standards including analytical and auditing guidelines, to follow in setting up an environmental management system. Certifications under ISO 14001 have been obtained by a number of businesses. ISO structure and certification are reported to be helpful, but not outcome-determinative in environmental insurance underwriting decisions. See Roberto Ceniceros, ISO 14001 Can Enhance Overall Plan, BUS. INS., Feb. 7, 2000, at 3.

14. An example is the ECS (Reliance) Form PLL-1(9-87) that covered only loss for pollution conditions emanating from the locations described in the Declarations.

15. ECS has a "Pollution and Remediation Legal Liability Policy" covering pollution legal liability on and off the premises, remediation legal liability on and off the premises, and legal defense under three coverages grants A, B, and C, AIG's policy, known as the "Pollution Legal Liability Select Policy," is a bit more complex. It covers on-site and off-site pollution conditions. The form contains 10 separate coverages distinguishing between on-site cleanup of preexisting and new conditions (Coverages A and B) third-party claims for third-party bodily injury and property damage claims for on-site and off-site conditions (Coverages C and F), third-party claims for off-site cleanup from preexisting and new conditions (Coverages D and E), non-owned locations (Coverages G and H), and transported cargo and business interpretation (Coverages I and J). Kemper markets an "Environmental Liability Insurance Policy" and an "Environmental Response, Compensation and Liability Insurance Policy." Zurich offers an "Environmental Impairment Liability Policy."

16. See id.

17. Some environmental carriers make their specimen policies available over the Internet. Policies used by ECS can be located at http://www.ecsinc.com/uw/inter_uw/forms/formdir.htm. Kemper forms are found at http://www.kemperenvironmental.com/policy.html. However, the site is password protected. Overviews of the coverage are provided. Other companies provide descriptions of their coverage. For AIG, see http://www.AIG.com and chose "environmental" in the "brokers and agents" section. For Zurich, see http://zurichamerican.com/za/industry/envtl/realestate.htm. For United Capitol, see http://www.unitedcapitolins.com/p-e-division.html. A website for United Coastal was not located.

18. Oftentimes companies will reveal overall underwriting capacity on their websites. See websites in supra note 17.

19. Policies related to property transfer are described on the websites identified in supra note 17.

20. Some carriers may insist upon a self-insured percentage of the vertical component of the risk transfer.

21. Personal Interview with David Cox, Senior Vice President, Environmental Practice Leader, Marsh USA, Inc., (Feb. 4, 2000). It has also been reported that in recent months some underwriters have become more conservative in the way they underwrite cost cap coverage because they have experienced some significant losses. See supra note 7 and accompanying text.

22. The ECS form is called the "Commercial Property Redevelopment Pollution Policy" and covers pollution legal liability, remediation legal liability, legal defense, and remediation stop loss. The Kemper form is called the "Brownfields Restoration and Development Policy." See policy descriptions that can be accessed at carrier websites, supra note 17.

23. 901 F.2d 1550, 20 ELR 20832 (11th Cir. 1990). The potential liabilities faced by the lending community have been addressed in a number of state statutes as well as other decisions that have not followed Fleet Factors. While the circumstances under which liability based upon a security instrument are limited, some risk nevertheless remains today.

24. According to Joseph Boren, President & CEO, AIG Environmental, quoted in, Souter, supra note 1, at 4, the insurance can even serve as a replacement for Phase I engineering studies.

25. See coverage descriptions accessible at carrier websites, supra note 17.

26. See, e.g., TerraMatrix v. U.S. Fire Ins. Co., 939 P.2d 483 (Colo. App. 1997) where bodily injury caused by ammonia vapors from a printer in the engineer's office was not the result of a "professional service," and was not covered by the engineer's environmental policy. See also NuWay Envtl. v. Planet Ins. Co., No. 95 Civ. 573 [HB] (S.D.N.Y. Oct. 2, 1996) where the coverage suit centered around whether liability resulting from contamination of material excavated to manufacture bricks involved a "pollution condition" arising out of the performance of a "covered operation."

27. Such policies have been written for general contractors experiencing some environmental risk as well as for cleanup contractors. Carriers have offered a wide variety of specific forms. See supra note 17.

28. By way of example, Kemper markets a "General Contractors Pollution Legal Liability Insurance (Claims Made)" and a "General Contractors Pollution Legal Liability Insurance (Occurrence Form)." ECS, AIG, and others have similar products. See supra note 17.

29. All petroleum marketers and facilities that handle an average of 10,000 gallons of petroleum per month are required to demonstrate at least $ 1 million per occurrence coverage. Petroleum nonmarketers are required to demonstrate at least $ 5,000 per occurrence. Owners and operators of over 100 USTs are required to demonstrate at least $ 2 million in annual aggregate coverage. Owners and operators of 100 or less tanks are required to demonstrate at least $ 1 million in annual aggregate coverage.

30. Insurance policies make difficult reading for most people. They are truly integrated documents and must be read as a whole. Some professionals have suggested that it helps to review the policy definitions first, followed by the exclusions, and finally the insuring agreements and policy conditions. What matters most is to take the time to review the policy, in detail, so as to fully understand what is being offered, what is covered, and what is not covered by the policy.

31. See, e.g., TerraMatrix, 939 P.2d at 483 and NuWay Envtl., No. 95 Civ. at 573. See also infra notes 32, 34. Additional case law will probably develop over this decade as claims experience increases.

32. The lack of case law interpreting the environmental impairment liability insurance policy was noted in Masonite Corp. v. Great Am. Surplus Lines Ins. Co., 224 Cal. App. 3d 912, 916 (1990).

33. There are treatises involving the application of general liability policies to environmental claims. See, e.g., MITCHELL LATHROP, INSURANCE COVERAGE FOR ENVIRONMENTAL CLAIMS (Matthew Bender & Co. 1999).

34. See Central Ill. Pub. Serv. Co. v. American Empire Surplus Lines Ins. Co., 267 Ill. App. 3d 1043 (1994) where no claim was made against the utility during the policy period of the claims made policy despite the insured's conclusion that a future claim was inevitable from the pollution incident. See also Alan Corp. v. International Surplus Lines Ins. Co., 823 F. Supp. 33 (D. Mass. 1999) also involving late reporting of a claim under an environmental impairment policy.

35. See generally Stephen Pepper, Applying the Fundamentals of Lawyer's Ethics to Insurance Defense Practice, 4 CONN. INS. L.J. 27 (1977).

36. For example, a definition might provide: Bodily injury means physical injury, sickness, disease, mental anguish, shock, and emotional distress sustained by any person, including death resulting therefrom and includes claims for medical monitoring.

37. See James M. Garner et al., Medical Monitoring: The Evolution of a Cause of Action, 30 ELR 10024 (Jan. 2000).

38. A "typical" definition might read:

Property Damage means:

(1) Physical injury to or destruction of tangible property including the resulting loss of use therefrom or

(2) loss of use of tangible property that has not been physically injured or destroyed.

Loss of use and physical injury to tangible property may not encompass loss of value or stigma to a building or lot on contaminated ground that is not otherwise damaged.

39. Consider obtaining a diminution in value endorsement in such cases.

40. For example, AIG uses the term "cleanup costs" in its policies. ECS, on the other hand, uses "remediation expenses." Both are defined terms under their policies.

41. A cost cap policy might contain the following definition: Cleanup means the removal, disposal, treatment (including insitu treatment), or neutralization of pollutants, but does not include any monitoring activities required under the remedial action plan after the completion of such removal, disposal, treatment, or neutralization. Counsel should consider whether this limitation is acceptable under the circumstances.

42. Most policies contain broad definitions. For example, a good definition reads: Pollution Conditions means the discharge, disposal, release, seepage, migration, or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials, including medical, infectious and pathological wastes, or other irritants, contaminants, or pollutants into or upon land, or structures thereupon, the atmosphere or any watercourse or body of water including ground water.

43. For example, a definition of "insured" as any "director, officer, partner, or employee" might not include elected or appointed officials of a municipal corporation.

44. For example, consider an endorsement providing: The term "responsible insured" shall mean the manager of . . . .

45. An exclusion might read: This policy does not apply to loss arising from pollution conditions that result from an intentional or illegal act or omission of a responsible insured if he or she knew or reasonably could have expected that pollution conditions would result.

46. The foregoing exclusion might be modified by providing: This exclusion shall not apply to actions taken in good faith upon the advice of counsel.

47. The recent decision in Vandenberg v. Superior Court, 88 Cal. Rptr. 2d 366 (1999) has potentially recast the issue. Some contractual obligations may now be recognized and included within coverage as constituting damages that the insured is "legally obligated to pay." The effect of the exclusion may vary from state to state.

48. A contractual exclusion might read: This policy does not apply to loss . . . based upon or arising as a result of liability of others assumed by the insured under any contract or agreement unless the liability would exist in the absence of a contract or agreement; however, this exclusion does not apply to insured contracts, if any, stated in a schedule to the policy.

49. A typical exclusion might read: This policy does not apply to loss . . . based on or arising from pollution conditions existing prior to the inception date of the policy and reported to any officer, director, partner, or other employee responsible for environmental affairs of the named insured, unless all materials facts relating to the pollution conditions were disclosed to the company prior to the inception of the policy. This policy language is unclear as to whether the "officer, director, partner" needed to have actual environmental responsibilities. Another question is what is meant by "material."

50. See discussions and cases cited in 13 LEE R. RUSS & THOMAS F. SEGALLA, COUCH ON INSURANCE 3D § 193:49-63 (West Group 1999).

51. See id. § 193:32-40.

52. Consider an endorsement providing: If the company contests a claim on the basis the claim was not reported to the company as soon as practicable, the company's obligation under this policy shall be reduced only to the extent the company can prove it was prejudiced by such additional delay in reporting the claim.

53. See, e.g., Yankee Caithness Joint Venture L.P. v. Planet Ins. Co., No. 94 Civ. 8939 (KMW)(JCF) (S.D.N.Y. July 30, 1996).

54. New York courts have recognized, as controlling, contractual provisions pertaining to which state law governs, provided the law chosen bears a reasonable relationship to the transaction. See Reger v. National Ass'n Bedding Mfg., 372 N.Y.S.2d 97 (1975); National Union Fire Ins. Co. v. Christopher, 223 A.D.2d 395 (1996); Marine Midland Bank v. Missouri Bank, 223 A.D.2d 119 (1996); and Freedman v. Chemical Constr. Corp., 43 N.Y.2d 260 (1977). In New York, it is settled that a selection of forum clause affords a basis for the exercise of personal jurisdiction over a foreign defendant. See National Union Fire Ins. Co. v. Weir, 131 A.D.2d 380 (1987). In New York, a selection of forum clause renders the designated forum convenient as a matter of law. See VOR Assocs. v. Ontario Aircraft Sales & Leasing, 198 A.D.2d 638 (1993). New York provides for certain exceptions in the event of a showing that the clause results from "fraud or over-reaching, that they are unreasonable or unfair, or that their enforcement would contravene some strong public policy of the forum." See DiRuocco v. Flamingo Beach Hotel & Casino, 163 A.D.2d 270 (1990). See also Koch Erecting Co. v. New York Convention Ctr. Dev. Corp., 656 F. Supp. 464 (S.D.N.Y. 1987), aff'd, 838 F.2d 656 (2d Cir. 1988).

55. A typical subrogation clause provides: In the event of any payment under this policy, the company shall be subrogated to all the insured's rights of recovery therefrom against any person or organization, and the insured shall execute and deliver the instruments and papers and do whatever else is necessary to secure such rights. The insured shall do nothing after the loss to prejudice such rights.

56. An example of an allocation in a subrogation clause reads: Any recovery as a result of subrogation proceedings arising out of the payment of loss covered under this policy shall first accrue to the insured to the extent of payments in excess of the limit of coverage; then to the company to the extent of its payment under the policy; then to the insured to the extent of its deductible.

57. See Elaine Rinaldi, Apportionment of Recovery Between Insured and Insurer in a Subrogation Case, 39 TORT & INS. L.J. 803 (1994).

58. For example, consider an endorsement providing: It is hereby agreed that where company consent or approval is required in this policy, the consent or approval shall not be unreasonably withheld.

59. An example of a severability of interest clause would read:

Except with respect to the limit of liability and any rights and duties specifically assigned to the named insured or any insured, this insurance applies:

(1) As if each insured were the only insured; and

(2) Separately to each insured against whom claim is made.

Misrepresentation, concealment, breach of condition, or notation of any other duty under this policy by one insured shall not prejudice the interest of coverage for another insured under this policy.

60. A policy that provides for cancellation in the event of a "change in operations . . . which materially increases a risk covered in this policy" may prove to be too broad or ambiguous for many policyholders, particularly after the premium has been paid up front.

61. See supra note 17.

62. See, e.g., Monsanto Co. v. International Ins. Co., 652 A.2d 36, 38 (Del. 1994), which permitted the introduction of an underwriter's letters and telexes to the insured under Missouri's parole evidence rule to interpret an environmental impairment policy.

63. An endorsement might read: It is agreed that the following documents have been received and reviewed by the company [list of documents]. This constitutes disclosure of pollution conditions by the insured.