A. Reporting of Pollution Conditions that could potentially give rise to future Claims;
B. The preservation of coverage for future Claims that are made subsequent to the expiration of the policy period in which the Pollution Condition was reported;
C. The availability and operation of Automatic Extended Reporting Period (AERP) Provisions; and
D. The availability and operation of Optional Extended Reporting Period (OERP) Provisions.
I. CARRIER ONE - AIG:
A. Reporting of Notice of Possible Claim - Yes. Not Mandatory. Can be reported anytime during the active Policy Period.
B. Preservation - Coverage is preserved for future Claims made against the Insured within 5 years after the end of the Policy Period of the Policy for which such Possible Claim was reported or any continuous, uninterrupted renewal thereof. Comment: 5 year window is considered reasonable under normal circumstances.
C. AERP - Yes. Provided the Insured has not renewed with AIG or purchased any other insurance to replace such insurance which applies to a Claim otherwise covered hereunder. Period: 90 days to provide the carrier with notice of Claims made against the Insured during the active Policy Period. Comment: Typical and Reasonable.
D. OERP - Yes. Available upon termination of coverage. Covering Claims first made against the Insured during the OERP. Comment: Unlike a number of other carriers, AIG does not require that in order to be covered the Claim must result from a Pollution Condition that was previously reported during the active Policy Period. This is significant. What’s required is that the Pollution Condition giving rise to the Claim commenced prior to the end of the active Policy Period. Period of OERP: Up to 40 months. Comment: Whenever possible, and prior to placing the policy into effect, it is best to negotiate the elimination of this “open-ended” period. Premium: Up to 200% of the Policy premium.
Even though AIG is exiting the mono-line Site market, commentary here is necessary to provide a baseline for which to compare other carrier’s offerings.
II. ALTERNATE CARRIER TWO
A.
Reporting of Notice of Possible Claim - Yes.
Mandatory reporting as soon as practicable.
B. Preservation - Yes, for 5 years; but unlike AIG, this carrier requires that the Insured continuously maintains such coverage with the Company during that 5 year period. Comment: For a number of reasons, continuation of coverage may not always be possible or preferred. Alas, this could become complicated to the point where the only option an Insured has is to purchase an OERP. It is best to steer clear from policies with this type of restriction so as to eliminate exposures to unknown contingencies.
C. AERP - Yes. If cancelled or non-renewed. Applies to Claims first made against an Insured and reported to the carrier during the 90 Day ERP but only with respect to:
• Pollution Conditions discovered during the active policy period, and that were reported to the carrier during the active policy period. Comment: This is incredibly restrictive. Compare with AIG who does not require that such Pollution Condition be discovered and reported to the carrier during the active policy period; or
• Pollution Conditions discovered within 24 hours prior to the termination of the policy and reported to the carrier within five days immediately following termination of the active policy period.
Comment: This exception is cumbersome. Again, compare with AIG where the only requirement is that the Claim be made during the Policy Period.
D. OERP - Yes. 3 years for an additional premium of 250%. However, what one would be buying under this carrier’s OERP is the exact same coverage restrictions imposed by its AERP, except that for a 250% Additional Premium the carrier is providing the Insured the privilege to stretch out the time period for reporting from 90 days to 3 years. Comment: I would not want to be in a position where I had to explain to management of a firm that requires a legitimate OERP that such is unavailable.
III. ALTERNATE CARRIER THREE
A. Reporting of Notice of Possible Claim - No. Reporting of matters other than a third-party Claims or a Pollution Condition that results in a First-Party Claim would be rejected by the carrier.
Comment: No. the definition of Claim does not include Potential Claims; and as such is potentially problematic especially in view of ¶ C and D.*
B. Preservation - N/A since reporting of a Possible Claim is not required and would not be accepted as a Claim by the carrier.
C. AERP - Yes. But only in the event of termination of insurance before the policy’s expiration date.
• Comment: Yikes; and no, this carrier’s Claim Reporting Provision does not provide for a 30, 60, or 90 day Post Termination/Expiration Reporting provision to report Claims that were made against the Insured during the active policy period; and
• The Claim arises from a Pollution Condition reported to the carrier prior to such termination.*
D. OERP - Yes. Upon cancellation or non-renewal - 3 years for a 200% Additional Premium. However: The Claim, same as the AERP, must result from a Pollution Condition reported to the carrier during the Policy Period.*
*Problem: Since this carrier’s policy is not triggered by the reporting of Potential Claims it is constructively impossible to comply with these provisions.
•Additional Comment: That is why this carrier has been amenable to fix these deficient provisions for the right deal.
Final Observations and Comments:
• It is unlikely that AIG's exit from the Site market is attributable to its providing appropriate ERPs and Potential Claim Reporting provisions. Besides AIG, there are other first tier markets that either provide or are willing to negotiate viable ERPs and Potential Claim Reporting provisions.
• Historically, this author has had numerous conversations with Environmental insurers (including General Counsel and Product Line Managers) that continue to provide less than acceptable policy provisions relative to ERPs and the Reporting of Potential Claims. Typical response: if we wrote the policy the way you wanted it, it would be akin to converting a Claims-Made policy in to an Occurrence Based Policy. I then ask these markets to explain why then do they provide proper provisions in their Claims Made Environmental Consultants Professional Liability policy wordings. Their response - choppy.
Contact
Eli Morawiec to determine whether your or your client’s policy has any of these issues; and what action can be taken to protect from same.