An interesting claim case occurred at a day care center. An employee misapplied ammonia when cleaning a toilet seat causing rashes on several children.
The company reserved their rights on the claim based on the environmental exclusion in the general liability policy.
A reservation of rights essentially lets the insured know that the company will investigate the claim, but feels the company may not be responsible for payments due to an exclusion or coverage issue.
Although the reservation of rights is a stretch in this case, the action indicates the insurance industry desire to limit environmental coverage by exclusion and activism.
The ammonia was not released by accident, it was simply misapplied to the surface being cleaned. Other chemicals would have been a much better choice.
Suppose the ammonia application was followed by a second employee applying bleach to the same area. The chemical reaction can be very toxic. Would this action create an excluded event?
Under the coverage, the exclusion defines an event as sudden and accidental. The combination of the chemicals certainly is sudden and accidental even when both people purposely applied the chemical. The insurance carrier might apply the exclusion to this event successfully.
Certainly if both bottles spilled in a store room, the exclusion would apply.
The important consideration for business owners is that the insurance industry is frightened of environmental claims and is doing what it can to exclude them from liability policies. As astute risk managers, business managers must rethink strategies to eliminate environmental risk and transfer what’s left.
Train employees on chemical and cleaning supply usage. Restrict usage to knowledgeable employees. Store chemicals appropriately to avoid leaks and spills. Do not store incompatible chemicals in the same area. Check the MSDS for pertinent information.
Look into environmental liability coverage as a separate line of coverage. Even the most benign chemicals can become problematic in the long-run. Why is the insurance industry afraid of environmental claims? Think asbestos. Think about underground storage tanks.
