What About Soil & Water?

This is where propane retailers should be especially careful about how pollution coverage is described.

It would be misleading to suggest that every propane release will create a conventional soil or groundwater contamination claim. Propane’s volatility makes that scenario fundamentally different from a spill involving a persistent liquid contaminant.

Likewise, simply saying that propane “pollutes water” can create the wrong impression. A propane release into water does not behave like an oil spill that leaves a long-lasting petroleum film.

Instead, the insurance discussion should focus on what happened, what was affected, what response was required and what liabilities resulted.

That may include circumstances where a release affects air quality, creates a hazardous atmosphere, triggers emergency response, impacts third-party property or requires investigation and specialized cleanup of materials associated with the incident.

The actual policy language matters enormously.

A Pollution Policy Is Not a Propane Safety Policy

Another important point is that pollution insurance should not be viewed as protection against the inherent hazards of propane itself.

Retailers already purchase other forms of insurance that may address different parts of the exposure, including general liability, commercial auto, property, workers’ compensation and umbrella or excess liability coverage.

The question is whether those policies adequately respond to an environmental or pollution-related event. General liability policies frequently contain pollution exclusions or limitations. Some policies may provide limited exceptions for certain accidental releases, but the scope of those exceptions varies.

A pollution policy can potentially fill some of those gaps.

However, retailers should never assume that a policy covers a particular propane release simply because the policy is labeled “pollution liability.” Coverage depends on the specific wording.

Transportation Makes the Question More Important

Propane retailers are not simply storing a product behind a fence. They are transporting it.

Bobtails travel public roads. Employees deliver product to homes, farms, businesses and industrial facilities. Hoses are connected and disconnected hundreds or thousands of times. Equipment is loaded and unloaded. Service personnel work on customer property. That mobility creates an unusual insurance exposure.

Consider a vehicle accident involving a propane delivery truck. The incident might require emergency responders, traffic control, product recovery, atmospheric testing, specialized contractors and other expenses.

The propane itself may ultimately dissipate. Nevertheless, the incident can produce substantial costs.

The retailer should therefore determine whether its commercial auto, general liability, pollution liability and umbrella policies work together to address this type of event.

Third-Party Claims May Be More Important Than Cleanup

For many propane retailers, the most compelling reason to examine pollution coverage may not be environmental remediation at all. It may be third-party liability.

A release could occur at a customer’s property and result in an evacuation. A neighboring business might allege that its operations were interrupted. A property owner could claim that specialized cleanup was necessary. A release inside a building could result in allegations of bodily injury or property damage.

Whether such claims are covered is a matter of policy language and facts.

The point is that an environmental liability claim does not necessarily begin with a contaminated field. It can begin with a phone call from a customer saying, “Your delivery caused us to evacuate our building.”

The Right Question for Propane Retailers

Rather than asking, “Does propane contaminate soil?” retailers should ask a broader insurance question: “Where could a release occur, what could it affect and which policy would respond?”

That analysis should include the bulk plant, delivery vehicles, loading and unloading operations, customer locations, storage tanks, transfer equipment, service operations and contractors. Retailers should then examine how their existing policies address accidental releases.

• Are pollution exclusions present?
• Is transportation pollution addressed?
• Are emergency response expenses adequately covered?
• What happens if a release occurs on a customer’s property?
• What happens if a claim involves vapor, air, water or third-party property instead of contaminated soil?
• Are defense costs included within the policy limit? Are known conditions excluded?
• Are there coverage requirements or reporting provisions that could affect a claim?

These questions are more useful than simply asking whether propane leaves a residue.

Pollution Insurance May Be a Gap-Filling Decision

Ultimately, the decision to purchase pollution insurance is a risk-management decision — not an admission that propane routinely creates long-term environmental contamination.

A retailer may reasonably conclude that its existing insurance program provides adequate protection. Another retailer may determine that the potential gap is too significant to leave uninsured.

The important thing to remember is to make that decision based on the actual policy language and the retailer’s operations. Propane’s rapid vaporization is certainly relevant. It may reduce the likelihood of certain types of long-term contamination claims. But it does not make an accidental release financially inconsequential.

The product can disappear while the claim remains. That is perhaps the most useful way for a propane retailer to think about pollution insurance.

The environmental residue may be temporary or nonexistent. The emergency response may last hours or days. The investigation may continue longer. Third-party allegations may take months to resolve. Legal expenses can continue even when testing shows that no persistent contamination remains.

Pollution insurance, where appropriately designed, can provide another layer of protection for those types of exposures. For propane retailers, therefore, the question should not simply be whether propane contaminates soil or water. The better question is whether the company’s insurance program is prepared for the financial consequences of an accidental release — even when the propane itself is long gone.

As always, retailers should review the actual terms, conditions, exclusions, definitions and endorsements of their policies with qualified insurance and legal professionals before concluding that a particular incident is covered.