General Liability Policies

British insurers need to reassess the way they underwrite pollution risks as corporate environmental liabilities expand due to new legislation and heightened public concern, some reinsurance executives contend. Although British insurers and Lloyd's of London underwriters exclude gradual pollution coverage from standard contractor general liability insurance, most of the policies still cover sudden and accidental pollution.

This coverage is written as part of a company's liability policy often without any pollution-specific questions being asked, without any risk assessment or evaluation, up to the full general limit and, amazingly, free of charge, said a member of the executive board of Cologne Reinsurance Co. in Cologne, Germany. Recently, Mr. Zeller called for British insurers to exclude pollution completely from general liability policies, as have insurers in France, Germany, Italy and the United States.

Such exclusion, he argued, would encourage the development of a proper market for environmental impairment liability insurance in the United Kingdom, allowing insurers to better underwrite risks and providing risk managers an opportunity to buy coverage for gradual pollution as well as sudden and accidental events. Insurers need to develop a separate insurance product and to transfer the exposure from public and general liability to stand alone EIL contracts. The reinsurance industry must provide the capacity needed for such a reform, open up general liability treaties to all fortuitous pollution events and no longer restrict them to sudden and accidental events, said Mr. Zeller.

Insurance buyers would welcome such a move as it would allow them a chance to buy comprehensive EIL coverage in line with their needs, he predicted. Reaction from insurers and reinsures to his call for stand-alone coverage was very favorable, he said. "In calling for total pollution exclusion, Mr. Zeller has my total support," said Brian Street, director of underwriting operations for environmental liability underwriting manager ECS Underwriting Ltd. in London.

By providing sudden and accidental pollution coverage as part of general liability policies, British underwriters are "giving away environmental coverage on a blanket site basis without any inspection and for no premium," said Mr. Street. And while underwriters might think that they are excluding gradual pollution, massive pollution claims will result in massive litigation. For the first time, reinsures are saying that they are crazy to be doing this predicting that it will only be a matter of time before reinsures exclude pollution coverage written as part of a general liability policy, forcing British insurers to underwrite it separately.

Mr. Street of ECS, who has been attempting to market EIL policies in the United Kingdom since joining the specialty insurer and consultant in 2003, agreed that British insurers have stifled development of an EIL market by continuing to offer coverage for sudden and accidental pollution as part of a general liability insurance package. Meanwhile, demand for coverage for gradual pollution has been slack due to the extensive site surveys most underwriters demand before they will write the coverage.