by Bill Selman, Vice President
Convenience Stores (c-stores) have become a pillar in the retail industry, in large part due to their ability to evolve with the ever-changing business environment. As people have become busier and more time strapped than ever, convenience stores have evolved by expanding their product and service offerings to include retail gas. 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 several, sometimes even hundreds, of individual stores, but it can be done. This article will highlight the liabilities affecting c-stores that distribute petroleum and provide ideas for owners and risk managers to consider as they grapple with the often-daunting task of protecting their balance sheet from potential risk.
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 liability categories can be insured through different means. Let’s take a closer look.
Owned or Operated Site Liabilities
These liabilities encompass spills, explosions and leaks that result in cleanup costs or third-party 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) versus 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 Environmental Protection Agency (EPA), and there are financial responsibility requirements in place nationwide. Additionally, most states have their own requirements regarding financial responsibility specific for 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 include the transportation by the petroleum distributor’s vehicles, hired transportation and rail and barge transport. This also includes loading and unloading operations.
The most common method of insuring transportation exposure is through a Commercial Business Automobile Policy. However, these policies only cover 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 contained 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 above-mentioned liabilities may seem complicated at first, but with the right insurance broker, convenience stores can protect themselves and keep their businesses on the map.
Philadelphia, PA, 19102