When a company is faced with environmental liabilities, it is important to review the company’s insurance policies.  In addition to evaluating the policies insuring agreements and exclusions, it is also important to review the limits of liability language to determine whether there are aggregate limits in the insurance policies and whether those aggregate limits apply.

Most comprehensive general liability (“CGL”) policies have a listed per-occurrence limit and an aggregate limit.  A policy’s per occurrence limit caps the amount of money that an insurance company pays for an occurrence, which is often defined in policies as “an accident including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured.”  An aggregate limit caps the total amount that an insurance company pays no matter how many occurrences or claims are made under the policy.

Many CGL policies issued before 1986 contain language in the Limits of Liability section of the policy that applied the aggregate limits to only certain risks:  bodily injury and property damage arising from products hazards and completed operations, and property damage arising out of premises or operations rated on a remuneration basis.  What does it mean that a policy was rated on a “remuneration basis”?  How a policy was rated determines how the policy premiums were calculated.  Policies may be rated on the basis of sales, remuneration (payroll), area, and receipts. 

Environmental liabilities are considered part of the premises/operations hazard in the policies.  When a company disposes of waste from its manufacturing operations, those disposal activities are a premises/operation hazard.  InDetrex Chemical Industries, Inc. v. Employers Insurance of Wausau, 746 F. Supp. 1310 (N. D. Ohio 1990), Wausau Insurance Company acknowledged that environmental liabilities are part of the premises or operations hazard.   

If the premium basis of the policy is not remuneration, but instead sales, for instance, then the aggregate limit may not apply to the company’s environmental liabilities.  Moreover, even if the policy is rated on a remuneration basis, there may be more than one aggregate limit in the policy because many policies provide that the aggregate limit for the premises/operations hazard “shall apply separately with respect to each project away from premises owned or rented to the named insured.”  Thus, each disposal could be considered a separate “project” away from the premises or each environmental site could be considered a separate “project”. 

Recognizing the problems with the pre-1986 policy language, the insurance companies changed the policy wording in 1986 to make sure that the aggregate limits applied to all hazards.   Nevertheless, a great deal of coverage may be available to policyholders as a result of the pre-1986 policy language.

A careful review of all triggered insurance policies is a must for any company faced with environmental liabilities.  That review should include the limits of liability language in the policies and the applicability of any aggregate limits.