When thinking of environmental insurance, the usual suspectscome to mind: companies that handle large volumes of toxicmaterials and firms involved in waste management. But recentnatural and man-made disasters have led to significantenvironmental consequences for unprepared companies of all sizesand industries—construction, higher education, hospitality,technology, retail, life sciences, pharmaceutical,telecommunications, agriculture, and more. No wonder more businessowners today are rethinking the need for environmental impairmentliability (EIL) coverage.

[Related: Does you current insurance program protect youagainst stormwater discharge claims?]

Here are four important reasons why businesses of all sizes andclasses are potentially at risk.

1. Passive liability

When it comes to environmental exposure, the two most importantwords for any business owner to remember are passiveliability. In other words, the property owner where anenvironmental spill settles is legally liable for thecleanup—regardless of whether or not the incident was the company'sfault or even its material. Even conscientious property owners whodo everything possible to comply with environmental regulations mayfind themselves at risk for this type of exposure.

Several commercial building owners in lower Manhattan foundthemselves faced with passive liability situations when floodingoccurred in the underground parking garages of their properties.The storm surge floodwaters compromised boilers, diesel tanks, andtransformers, filling lower floors with contaminated water. In somecases, the extensive cleanup meant tenants could not return formore than two months and the building owners suddenly had toconfront the reality of an incident that had a hugely disruptiveeffect on their business.

Most commercial general liability (CGL) policies havesignificant limitations or exclude pollution-related claimsoutright. EIL insurance protects clients actively involved in aspill as well as those passively involved but still liable. EILpolicies provide coverage for bodily injury, property damage,defense costs, cleanup and restoration expenses, loss of rents andbusiness interruption.

Lower Manhattan during a power outage. (FelixLipov/Shutterstock.com)

2. Power outages

EIL exposure comes from both natural and man-made disasters andthis exposure is particularly evident in our nation's electricalgrid, which—terrorist threats aside—already has more blackouts thanin any other developed nation. In the past decade, the number ofU.S. power outages lasting more than an hour has steadilyincreased. According to federal data, the U.S. electric grid losespower nearly four times more often than it did in 1984 whenblackout data was first collected. These outages have cost Americanbusinesses as much as $150 billion per year as reported by the U.S.Department of Energy.

Any company could easily find itself in a similar situation toone manufacturer, a cellphone case maker, that uses a processinvolving plastic extrusion. A sudden disruption in the local powersupply shut down its pollution control equipment, resulting in adischarge of untreated waste that exposed neighbors to harmfulfumes and spilled contaminants into the sewer. Almost immediately,local, state, and federal environmental officials came knocking atthe manufacturer's door, along with concerned citizens and media.While losing power once meant no lights for a few hours, withtoday's IT infrastructures powered by electricity, the operationalconsequences of even a minor blackout can be far-reaching. Evenhaving a backup generator is no guarantee against disruption, sincegenerators often run out of fuel or suffer performance problemswhen operating continuously for more than a limited period.

EIL covers contamination resulting from waste water dischargedinto a body of water as well as waste material seeping into thesoil or penetrating the ground water. EIL policies also coverexposures arising from toxic air emissions, including problemsimpacting a facility's indoor air quality as a result of problemswith the HVAC systems, for example.

3. Not as harmless as youthink

Materials need not be classified as a hazardous waste, orchemical, fuel or petroleum product to create an EIL loss exposure.Environmental claims encompass a broad spectrum of potentialcontaminants, some of which are seemingly benign, yet wreak havocwhen spilled in large quantities into habitats where they're notsupposed to be. For example, environmental claims have resultedfrom cooking grease poured down a drain over a prolonged period oftime that ultimately created noxious fumes in a city's sewersystem.

EIL fills the coverage gaps created by a host of environmentalexclusions common in CGL policies, including pollution, fungus,mold, bacteria, lead and more depending on the policy.

(Photo: ChiccoDodiFC/Shutterstock.com)

4. Public scrutiny

A badly handled environmental problem can diminish a brand andhaunt a business for years. Because the majority of environmentalincidents can negatively impact people's health, quickly respondingto—and minimizing—an environmental event is crucial. There's abusiness imperative to do something, and if you don't, thecompany's reputation may be irreparably damaged.

[Related: Market checkup: Environmentalcover]

The general public's sensitivity to the consequences ofenvironmental events is far greater than it was 30 years ago,heightened by catastrophic occurrences such as oil spills and theincreased frequency of intense natural disasters like HurricaneKatrina and the 100-year Colorado flooding. Furthermore, withtoday's improved testing methods and modern record-keepingtechnology, it's far easier to assign liability and link people orcompanies to the trash and waste streams they've created. As such,businesses face greater EIL exposure. While public reaction cannotbe controlled solely by having coverage, an EIL policy can helpmitigate the effect of an environmental event, allowing businessesto respond quickly and minimize negative commentary.

Today, social media allows everyone to interact, expressopinions, and mobilize around environmental issues againstcorporate offenders, large and small. Indeed, local citizens areincreasingly driving national conversations. When the six-day banon drinking water in West Virginia due to contamination was lifted,a citizen with fewer than 1,500 Twitter followers questioned thedecision by posting a photo of her bathtub filled with thestill-murky water. "Would you drink this?" she asked. Within hoursthe photo was shared 3,500 times, reaching an audience of millionsand prompting state officials to redouble their efforts. In theInternet age, bad news travels fast and lives forever.

William McElroy is senior vice president of EnvironmentalLiability for Liberty International Underwriters.