What is Pollution Insurance?

Pollution insurance is a type of insurance which offers assistance with the economic costs associated with pollution. These costs can range from liability suits associated with pollution to regulatory charges for polluters. This specialty insurance is offered by a limited number of insurance companies, and it varies widely in cost and scope. For the most part, it is aimed at companies involved in polluting industries, such as oil refineries, although pollution insurance for contractors and more ordinary businesspeople is also available.

Pollution can be extremely costly. Growing environmental regulation and concerns about pollution in the late 20th century led to an increased interest in pollution insurance coverage among companies which could potentially be liable for large payouts to deal with environmental problems, ranging from companies which exercised poor site control and allowed pollutants to escape to companies which used industrywide practices which were later revealed to be harmful.

Like other types of insurance, pollution insurance pays out when circumstances meet the requirements of the insurance contract. For example, if a large company goes bankrupt, pollution insurance can kick in to pay for environmental cleanup associated with the company's operations, sparing governments the cost of cleanup. Pollution insurance can also pay out in the wake of liability suits, providing damages to people injured or killed by pollution or paying for remediation of sites damaged by pollution.

In real estate transactions, a type of pollution insurance known as transaction insurance can be purchased to deal with environmental problems which crop up after a sale. For example, when a strip mall is sold, the seller could be liable for pollution which is traced to his or her ownership of the property, such as dry cleaning chemicals which leaked into the soil while the seller owned the property. Transaction insurance covers the environmental remediation, reducing the risk of exposure to liability suits.

In some regions, companies may be required to purchase pollution insurance if they wish to work in particular industries. Governments require insurance when they have a reasonable fear that they would be forced to bear the costs of pollution. Other companies purchase such insurance because they feel that it is economically sensible to have insurance coverage in the event of a polluting incident, as the policy can be much cheaper to maintain than the liability judgments in the wake of a major incident. The cost of the insurance is based on the type of coverage provided, and the industry, with high-risk industries being expensive to insure.