A New Tank, a New Tenant, a Sold Neighbour: Pollution Risk Moves Mid-Term

Miriam Havergal of Zurich Canada told Insurance Business this week that risk is changing too fast for a submission refreshed with new values once a year. Her examples were supply chains and weather. Pollution exposure has the same timing problem at the level of a single site, with one feature property risk does not share: once the insured knows about a pollution condition, the next renewal can exclude it.

A site pollution policy is underwritten on the site as the application describes it. Between renewals, a client installs a fuel tank, leases a bay to an auto body shop, or watches the lot next door sell to a buyer whose lender orders a Phase II. Each of those changes the exposure, and none of them prompts a call to the broker unless someone has told the client to make it.

What Zurich Canada said, and why it matters for pollution

Havergal, Zurich Canada's senior vice-president and technical director, said underwriters are looking past revenue and building values to how a client's supply chain could fail, down to suppliers three steps removed. She said loss models built on past weather may already be out of date. Her answer is a year-round conversation, where the client brings a clear view of its vulnerabilities and keeps talking to the insurer as a risk develops, instead of waiting for a renewal that may be months away. She also argued that ongoing scenario testing can support longer-term cover that does not swing with each volatile year.

For pollution liability, the reason to talk mid-term comes from how Canadian courts assign liability for contamination. In Huang v. Fraser Hillary's Limited, 2018 ONCA 527, an Ottawa dry cleaner had released tetrachloroethylene and trichloroethylene into the ground between 1960 and 1974, following practices accepted at the time. Eddy Huang bought the neighbouring properties in the 1990s. In 2002 his bank suggested a Phase I, and the assessment work that followed confirmed solvent contamination on his land. The trial court awarded him more than $1.8 million in nuisance and under section 99 of Ontario's Environmental Protection Act. The Court of Appeal upheld the award in June 2018, holding that foreseeability is not an element of nuisance and that section 99(2) applied even though the spills ended years before Part X of the Act came into force in 1985.

Three years earlier, in Midwest Properties Ltd. v. Thordarson, 2015 ONCA 819, the same court confirmed that section 99(2) gives a stand-alone right to compensation without proof of fault or negligence. Put the two cases together and the trigger for a six- or seven-figure pollution claim can be a neighbour's refinancing, on a release no one living remembers.

How it reaches an insured

The following is a hypothetical built on those facts.

Scenario. A family company owns a 1970s industrial plaza in Hamilton, insured on a one-year Site Pollution Liability (SPL) policy renewing January 1. In March it leases an end unit to an auto body shop with a paint booth and solvent storage. In May it installs a 5,000 litre above-ground diesel tank for its own trucks. In August the lot to the south sells, and the buyer's lender requires a Phase II. The consultant finds chlorinated solvents in groundwater along the shared boundary and traces the plume back toward the plaza, where a metal finisher operated in the 1980s.

Mechanism. In September the neighbour's consultant sends the plaza owner a copy of the Phase II findings with a request for site access. No demand letter has arrived. Under a claims-made pollution policy, coverage for the eventual claim turns on three wordings: whether the historic condition falls within the policy's coverage for pre-existing conditions, whether the owner gives notice of the circumstance before the policy period ends, and whether the next application's known conditions question captures it. The tank and the tenant raise different wordings. Some SPL forms exclude storage tanks that are not scheduled, and the body shop's CGL almost certainly carries a total pollution exclusion, which leaves the landlord's policy as the one that answers when a regulator or neighbour comes to the owner.

Outcome. If the owner reports the Phase II findings as a circumstance in September, a claim that arrives in 2027 can attach to the 2026 policy under its notice of circumstances provision. If the owner waits for renewal, the application asks whether the insured is aware of any pollution condition. An honest answer gets the plume excluded. A wrong answer puts the whole policy at risk. The tank and the tenant are cheaper to fix: an endorsement scheduling the tank and an updated occupancy, placed before anything leaks.

Where programs fall short

Pollution programs are built on the application snapshot: a list of locations, tanks, occupancies and prior reports. Most renewal checklists ask about values and payroll and say little about changes in land use on or around the site. Clients do not report a new lease or a neighbour's drilling rig because nobody told them it was an insurance event. The underwriter learns about it from the claim file.

Knowledge is the part generalist programs miss. A claims-made pollution policy rewards early notice. A client who files a consultant's letter in a drawer until renewal turns an unknown pre-existing condition, which SPL exists to cover, into a known one that the next policy will carve out. Brokers who leave notice of circumstances to the claims department lose that coverage for their clients without noticing.

Multi-year terms make the gap wider. Three- and five-year SPL terms are common, and they deliver the price stability Havergal describes. They also mean the underwriter may not see the site again for years, so a mid-term call is the only update the policy will get. At TerrAssure we would rather take that call in March than read about the change in a claim file in November.

Expect underwriters to ask more about change during the term. Questions about new tanks, new tenants and their operations, nearby redevelopment, and any environmental report commissioned by anyone, including a neighbour or a lender, belong on every renewal and in the mid-term conversation as well.

What brokers should do now

• Landlords of multi-tenant industrial and commercial plazas: ask for every lease signed since binding and the actual use of each unit. Dry cleaners, auto body, metal finishing and printing all change the pollution picture.
• Owners adding fuel or chemical storage: get the tank's size, location, secondary containment and install date, then check whether the current form requires tanks to be scheduled.
• Clients next to a site that has sold, been rezoned or started redevelopment: ask whether anyone has requested access, installed monitoring wells near the property line, or shared a Phase II. If so, decide with the client whether to give notice now.
• Clients who commissioned their own Phase I or II mid-term: read the report before renewal. A refinancing or sale preparation report is often the first place a condition shows up.
• Contractors who have added a service line: Contractors Pollution Liability (CPL) is rated on operations. A contractor who starts tank removals, demolition or contaminated soil work mid-term should tell the underwriter before the first job.

If a client's site, tenants or neighbours have changed since the last renewal, we can review the current wording against those changes and tell you what needs reporting, scheduling or endorsing. TerrAssure underwrites environmental liability only, and these mid-term calls are part of the work. Contact our underwriting team to start that review.

Sources

• Insurance Business Canada: Risk is changing too fast for once-a-year renewals, Zurich Canada exec warns
• McCarthy Tétrault: Uncertain ground, owners may be liable for unforeseeable environmental effects (Huang v. Fraser Hillary's)
• Canadian Underwriter: Chemical spills from 1960s cost property owner $2 million
• Bennett Jones: Post-Midwest, section 99(2) of the EPA proves a powerful tool
• Ontario e-Laws: Environmental Protection Act, R.S.O. 1990, c. E.19