The pollution exclusion is one of the most overlooked and devastating exclusions in a Product Liability policy.
Many manufacturers, assemblers, and importers of equipment such as machinery, piping, and hoses overlook the fact that chemicals will be passing through their products. They think that their Product Liability policy will cover them in the event a chemical is released causing property damage or bodily injury. A defective product that releases chemicals into the environment can render business property completely unusable and potentially cause far reaching and long lasting environmental damage. That could require massive amounts of money to rectify, easily reaching into the millions of dollars.
Most general liability and product liability policies specifically deny coverage for bodily injury or property damage arising from the discharge of pollutants “which arises of ‘your work’ … or … which arises out of ‘your product.’”
The next time you and your risk managers meet, I highly recommend that you discuss your pollution liability exposure. You may agree that your pollution liability may be roughly the same or higher than your product liability exposure.
Remember, the primary reason you should buy insurance is to cover severity and catastrophic loss. Even a minor pollution spill may be too expensive to cover out of pocket and could possibly expose the officers and owners of the business to personal liability.
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