A Road Map for Managing Risk
Convenience stores have become a pillar of the retail industry, in large part due to their ability to evolve. But while the industry began offering gasoline decades ago, that does not mean the environmental risk management has kept pace. This evolution has consequently opened stores up to environmental risks not present in other retail channels. It’s a tall order for store owners (particularly petroleum dealers) to properly protect their business from associated risks across multiple stores, but it can be done.
Common Coverage Routes
Liabilities can be grouped into three broad categories: owned or operated site liabilities, transport liabilities, and product and service liabilities. These three categories can be insured via different means.
Owned or Operated Site Liabilities: These encompass spills, explosions and leaks that result in cleanup costs or thirdparty liabilities related to the activities at owned or operated sites. Managing and insuring these exposures may be addressed differently for a location with exclusively aboveground storage tanks (AST) vs. underground storage tanks (UST) that have numerous regulatory requirements.
This risk is commonly insured with a pollution legal liability (PLL) policy and/or a storage-tank policy. For those locations consisting solely of ASTs and/or package products, a pollution legal liability policy can address a wide range of exposures, including on-site/first-party cleanup, off-site liability and cleanup, and bodily injury and property damage.
USTs are regulated by the EPA, and there are financial responsibility requirements in place nationwide. Additionally, most states have their own requirements regarding financial responsibility specific to USTs. While the AST exposure can readily be addressed through a PLL policy applicable to the entire site, normally the UST risk must be addressed through a tank policy that meets specific regulatory requirements. Increasingly, banks and lending institutions are requiring distributors to secure higher and higher environmental liability limits. While historically many distributors have chosen to insure the UST exposure, increased litigation, well-publicized large claims and growing scrutiny among lenders have led to more distributors securing PLL coverage and often higher limits.
Transport Liabilities: These include the transportation by the petroleum distributor’s vehicles and hired transportation. It also includes loading and unloading operations. The most common method of insuring transportation exposure is through a commercial business automobile policy. However, these policies cover only operating fluids and specifically exclude transported cargo/pollutants unless properly amended to include coverage for transported pollutants. At the same time, it is important that the umbrella or excess liability policy follow the terms of the underlying automobile liability policy as it relates to transported pollutants.
Products and Service Liabilities: Petroleum products are environmental pollutants by their nature. And services, such as tank maintenance and HVAC service, also present environmental risks.
Most businesses can rely on their commercial general-liability policy to provide broad coverage for their operations and products. This is less true for petroleum distributors, given the variety of pollution exclusions in all general liability policies. An unendorsed policy normally provides coverage for pollution claims caused by petroleum products. However, it is common for petroleum distributors to have much more stringent pollution exclusions that include a “total exclusion” to eliminate any coverage for all pollution events.
For those distributors with the risk of creating pollution through their work, such as HVAC maintenance, tank installation and repair, etc., the exclusions within most commercial general-liability policies would apply should any of these services result in a release. For this reason, distributors with these operations often insure them through a contractors pollution liability (CPL) policy.
The abovementioned liabilities may seem complicated, but with the right insurance broker, c-stores can protect themselves and keep their businesses on the map.