Limitations on CGL coverage for Pollution

In a harder market, insurance carriers raise prices. That’s pretty obvious. They also restrict classes of business they write, and tighten underwriting for new and existing clients.

Less obviously, carriers may change coverage. They can do that by changing forms for entire classes. In Personal Insurance that usually requires regulatory approval and a process to notify clients. In Commercial Insurance, failure to properly notify clients will guarantee litigation against the carrier.

But action on a single client can slip by the attention of the client and their broker.  We expect underwriters to try to put in coverage restrictions for clients who have had a number of losses, or a serious loss.  But some underwriters have introduced coverage restrictions in anticipation of losses, after a period in which the coverage has been provided.  If the underwriter does not signal the change, and the broker and client do not catch it, trouble can start for all three.

A note from the International Risk Management Institute (IRMI) made us think about some recent examples of restrictions on pollution liability.

One of our recycling clients was hit with a much more restrictive form for their main location.  The carrier is a solid national company but our client had suffered a number of small property losses (non-pollution) and the the carrier wanted to tighten up its exposure.  After a lot of discussion, we went to another carrier to regain most of the lost coverage, at a slightly higher price.  Not a great outcome, but better than the original renewal offer.

In another case, an individual underwriter at a carrier put on a very restrictive form, without reducing the renewal price, and didn’t tell us or the client.  That we caught because we have been getting more paranoid about coverage.  After some “forthright” discussions, we got the coverage back, though at a higher price.

IRMI uses the example of a large insured where an underwriter introduced an absolute pollution exclusion to the CGL without telling the client or broker.  The insurer removed the exclusion when requested.

Poor execution in imposing coverage restrictions can harm insureds, carriers, and producers.  As in almost any risk management case, restrictions in coverage are a problem; an unexamined risk can be fatal.

If you’d like to talk about coverage restriction problems, give us a call at 1-800-548-2329.

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http://www.irmi.com/newsletters/irmi-update.aspx

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