By Chris Bunbury, eS
Chris Bunbury is an Environmental Strategist and President of Environmental Strategist, Inc. (ESI), located in LeLand, Michigan. He graduated from Michigan State University with a Bachelor of Science degree in Natural Resources. In 1988, he worked in the commercial property and casualty insurance industry as a retail commercial insurance producer. As the environmental insurance industry evolved, it was a natural transition for Chris to move into this evolving field.
As Environmental Risk Managers, a common problem we see are contracts asking for the wrong environmental insurance coverage.
The introduction of “environmental indemnification” in contracts has indeed created a multitude of challenges.
Here are some of the key issues that have arisen:
- Increased Financial Burden: Companies are now faced with the necessity of securing financial assurance for potential environmental liabilities since the vast majority can’t afford to self insure.
- Complexity of Coverage: Attorneys may draft indemnifications that are overly complex or ambiguous, leading to confusion regarding the extent of coverage required. This complexity can result in companies being underinsured or misaligned with the coverage they believe they have.
- Inadequate Legal Guidance: Many attorneys may not fully understand the nuances of environmental financial assurance, leading to inadequate advice for their clients. This gap in knowledge can result in companies failing to secure the necessary protections, increasing their exposure to potential environmental liabilities.
- Reliance on Vendors: Companies often depend on vendors and their insurance to provide adequate coverage. If these vendors do not have the correct policies in place or fail to complete warranty applications properly, the contracting companies may find themselves inadequately protected.
- Vulnerability to Liability Claims: The reliance on insurance coverage raises concerns about the potential for other liability claims to deplete policy limits. Companies may find themselves in a precarious position if they face multiple claims simultaneously, which can lead to insufficient coverage for environmental damages.
- Lack of Industry Standards: The private sector has often lagged behind government regulations in requiring financial assurance. Without a standardized approach, companies face uneven requirements and expectations, leading to confusion and potential gaps in coverage.
- Government Solutions vs. Private Sector Response: While the government has established solutions for environmental financial assurance, the slow response from attorneys and the private sector has left many companies vulnerable. This disconnect highlights the need for improved communication and education regarding available options, such as bonds, letters of credit, escrow accounts, and specialized insurance policies.
In summary, the issues stemming from environmental indemnifications in contracts reflect a significant gap in understanding and implementation of financial assurance.
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