Toxins and teddy bears: Manufacturing’s environmental insurance risks

Manufacturing is a business sector with seemingly infinite variants. A Fortune 500 corporation that produces pesticides and a middle market company that makes customized teddy bears are both manufacturers, despite their wildly different products and processes. But here is something virtually every manufacturer has in common, no matter what their end product is: environmental liability risks.

That chemical giant making pesticides is probably well aware of its exposures, while the teddy bear manufacturer may believe its risks are limited and covered by a general liability policy, as its business doesn’t heavily involve potentially dangerous materials. Unfortunately, our friends in the bear biz could be in for an unwelcome surprise.

The fact is, nearly every manufacturer has something in their processes or on their premises that could potentially cause harm to people, animals, or the land and water they depend on. And because most general liability policies have a pollution exclusion, another layer of protection may be needed: environmental insurance.

Reconsider what “pollution” means

One reason manufacturers can underestimate their environmental exposures is that they think of pollution as the release of hazardous materials, chemical waste, or a substance with significant, lingering effects on air or water quality. That is indeed pollution, but pollution exclusions in general liability policies often also include contamination, which does not have to involve inherently dangerous substances.

Consider a candy manufacturer whose facilities are damaged and large amounts of glucose syrup are spilled into a drainage system. Glucose may be worlds away from a chemical toxin – the human body needs it for fuel, after all. But if introduced in large enough quantities to a river or stream, it could harm wildlife. Accidents of this sort may be rare, but it only takes one costly incident to potentially put a company’s operations in jeopardy.

Site-specific risk exposures

Manufacturers’ environmental exposures aren’t limited to materials used in manufacturing. They can come from the business site itself. A company may enjoy the rare fortune of having almost no risks connected to their processes or materials. However, if the factory site they purchased used asbestos or other hazardous building materials during construction, the company may be held responsible if the building is damaged or destroyed and those materials are released into the wider environment…even though the manufacturer played no part in the original construction.

Another scenario: A forklift operator accidentally punctures a bag of cleaning chemicals stored on site at a manufacturing facility. The chemicals were made by a different company and have no connection to what the manufacturer produces. They are basic maintenance products and it’s the kind of accident that could happen anywhere. But if those cleaning agents spill outside – carried by wind or water into the neighboring community where they could cause harm – this commonplace mishap can become a liability nightmare.

Breakdown dangers and environmental impact

The example above shows how human error can turn everyday supplies into potential contaminants. Mechanical breakdowns can result in the same effect. Whether it’s forklifts or a small fleet of trucks kept on site, major diesel fuel leaks can also become pollution problems.

Breakdowns, in fact, might pose a more serious danger than human error or even outright negligence, if what’s breaking down is key to environmental practices. Many manufacturers have a wastewater treatment system on site to clean wastewater so it won’t be harmful to humans or wildlife. If these treatment systems fail, the ecological fallout could be very serious, depending on the amount of water treated and where it’s returned in the environment.

Legislation and legal action

Beyond the countless on-site scenarios that could result in hazards, we live in a time when global awareness of environmental crises is growing and governments and society at large are giving more scrutiny to how business operations impact the world around them. In pursuing protective measures for the greater public good, environmental legislation is often understandably strict and rigid, and manufacturers need to ensure they are meeting both federal and state environmental regulations in their operations.

As general liability policies are designed for a broader realm of risks, pollution exclusions often mean those policies will not cover legal action rising from that often-complex legislation. Similarly, if a legal decision finds a manufacturer is responsible for an environmental incident, general liability policies may not cover clean-up and remediation costs. Environmental insurance, or pollution liability insurance, can help address the multitude of exposures manufacturers face, whether from core operations or risks arising from seemingly benign activities not directly related to production.

Zurich’s Environmental Insurance can be tailored to address site-specific risks that can vary greatly for different types of manufacturers. In addition to customized coverage, our team of Risk Engineers and environmental consultants can work with you on everything from site reviews to emergency cleanup and crisis response in the event an incident occurs.

Learn more about Zurich Environmental Insurance.