One of the most overlooked and devastating exclusions in a product liability policy is the pollution exclusion.
Many manufacturers, assemblers and importers of equipment such as machinery, piping and hoses overlook the fact that chemicals will be passing through their products and 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 take massive amounts of money to rectify. The damages could easily reach into the million 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 – to cover severity and catastrophic loss. Even a minor pollution spill may be too expensive to cover out of pocket and possibly expose the officers and owners of the business to personal liability.
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