The growth of clean technology is explosive. The U.S. government injects billions of dollars into the market to support demand. For example, the American Recovery and Reinvestment Act of 2009 includes more than $100 billion for the cleantech industry and several states require cleantech policies. In the private sector, global venture capital in the cleantech area “has increased from $500 million in 2001 to nearly $8 billion in 2010.”
Their unique nature means cleantech companies need to carefully consider their risk of exposure and uninsured loss and carefully tailor the necessary insurance products. The appropriate insurance depends on the cleantech operation—biofuels, carbon, solar, water, wind, green building, fuel cells, batteries, renewable energy, energy efficiency, and other alternative energy and sustainable technologies. Generally speaking, the types of risks to avoid include property and casualty, environmental liability, intellectual property, and financial injury. For example, environmental liability losses for a pollution claim can be incurred through torts (e.g., negligence, intentional torts, or strict liability), contractual obligations (e.g., a general contractor agrees to hold harmless and indemnify a project owner for a claim that arises if an employee of a subcontractor at the project is injured as a result of breathing ammonia), or violations of statutes (e.g., Comprehensive Environmental Response, Compensation, and Liability Act, Clean Water Act, Clean Air Act, Toxic Substance Control Act, Oil Pollution Act, and Resource Conservation and Recovery Act). Having the proper insurance in place is important to limit these types of risks.
Types of Policies for a Cleantech Company to Consider
Reliance on one type of policy is risky because gaps in coverage exist. A standard general liability policy does not cover all losses or damages. Cleantech companies need to either negotiate special endorsements or purchase specialized policies. The types of policies that should be considered include:
- Property liability
- Controlled master policy (if company has international exposure)
- Errors & omissions
- Technology errors & omissions
- Commercial general liability
- Professional liability (D&O)
- Pollution liability
- Intellectual property
- Workers’ compensation
- Excess casualty
- Ocean marine
- Business interruption
Some factors to consider when purchasing a policy are the size of the company, revenue, potential for global exposure, and the types of risks associated with the cleantech operation. An insured can purchase a policy independently or negotiate a hybrid policy to accommodate the special risks unique to that company.
Cleantech companies are more likely to require some of these coverages than other companies. For example, intellectual property is essential to the industry. Intellectual property (IP) insurance coverage can protect businesses in case of copyright, trademark, or patent infringement claims. There are two general types of IP insurance. The first is a more typical defense policy, and it protects you if you are sued for infringement. A second type, which may be appropriate in certain fields, is called a ‘pursuit’ policy, and it will help pay legal expenses incurred to sue an alleged infringer.
Potential Coverage Issues
Once the insurance is purchased, a cleantech company must be mindful of its duties and obligations under the policy. For example, an insured must evaluate whether there is an obligation to disclose to the carrier prior claims or lawsuits in the application form. What constitutes prior knowledge? What knowledge, risks, or defects in the product constitute knowledge of circumstances that could lead to a claim? When does a company’s risk manager need to report a potential claim? How soon does a company need to report to the carrier? The answers to these and other coverage questions are fact-specific to each claim but must be considered.
The importance of cleantech insurance coverage is undeniable. To avoid the risk of out-of-pocket expenses for uninsured loss, a company must be proactive and purchase insurance coverage and then meet its duties and obligations under the policy.