Waste facilities, such as recycling, waste processing and waste-to-energy (WTE) facilities, have insurance risks that are often missed or not considered.
Waste processing facilities are exposed to an increasingly unpredictable waste stream that includes lithium-ion batteries that can cause fires and create hazards and/or damage facilities and result in environmental claims.
Waste Facility Insurance
Waste facilities, such as WTE projects (including anaerobic digestion, energy from waste methane, direct combustion and gasification) face unique risks from property damage and transportation liabilities to fire hazards and pollution events.
As such, securing proper waste-to-energy insurance can help mitigate these perils, thereby reducing the risk of financial losses, operational shutdowns, or even bankruptcy.
The following are coverages you should have for your waste processing facility:
- Property Damage Coverage: Protects buildings, equipment (e.g., digesters, boilers, turbines), and upgrades from damage such as fire, flood, hailstorms, or mechanical failures.
- Liability Coverage: Includes general liability (e.g., third-party bodily injury and/or property damage), auto liability, pollution liability (e.g., emissions, spills), and contractor pollution liability.
- Business Interruption Coverage: Covers income loss and extra expenses during downtime caused by insured events.
- Environmental Insurance: Addresses exposures to CERCLA (Comprehensive Environmental Response, Compensation and Liability Act) liabilities, pollution legal liability, etc.
In addition to working with an experienced energy-focused insurance broker, you should focus on fuel quality control, up-to-date fire protection systems, and regular coverage reviews to mitigate costs and ensure comprehensive protection.
Property Damage Coverage
Property insurance safeguards your facility’s buildings, structures, and specialized equipment from risks like fire, storms, earthquakes, floods, vandalism, and equipment breakdowns.
These are first party policies that should protect your business with replacement cost coverage for high-value components such as cranes, buildings, digesters, gasification plants, boilers, and turbines… They can also cover cleanup costs.
In facilities where waste is processed or stored, fires continue to be a problem.
For instance, in 2022, more than 300 fires at waste and recycling facilities underscored the significant fire risks these operations face… This is primarily the result of increasing numbers of lithium-ion batteries being discarded into the waste stream.
While thermal runaway risks in large BESS installations are reducing over time, the use of lithium-ion batteries in everything from phones to cars to lawn mowers means fires in the waste stream continue to proliferate.
Building and Equipment Protection
This property insurance shields your plant structures and production assets – including your buildings, rooftop installations, turbine foundations, control systems, racks and/or other mounting equipment – from environmental damage, power disruptions, and mechanical failures.
However, insurers may impose strict fuel quality requirements and exclude damage caused by off-specification fuels or experimental gasification technologies.
While structural protection is crucial, ensuring the safety of complex machinery is equally important.
Boiler and Machinery Coverage for Gasification Facilities
Also known as equipment breakdown insurance, this coverage helps protect essential mechanical systems, such as boilers, turbines, steam systems, and transformers, from issues like failures, accidents, erosion, corrosion, or manufacturing defects.
Waste-to-energy plants are particularly vulnerable to equipment breakdown due to the challenges of non-standard fuels and intense operating conditions that can accelerate wear and tear.
When underwriting boiler and machinery coverage, insurers evaluate factors such as fuel management practices, fire and explosion prevention systems, and boiler technology.
Proven technologies like fluidized bed or moving grate systems may be preferred over newer, less-tested gasification methods.
Facilities that invest in robust fire detection systems, explosion protection, and strict fuel quality controls may benefit from lower premiums because they demonstrate strong risk management practices…
Liability Coverages
Beyond property protection, liability coverage plays a critical role in safeguarding waste-to-energy facilities from third-party bodily injury and/or property damage claims linked to operations.
WTE plants face unique challenges due to hazardous processes and materials, emissions, and heavy truck activity… As such, insurers consider waste-to-energy plants high-risk facilities.
Additionally, large-scale losses at U.S. facilities have prompted reinsurers to increase premiums across the industry, with some plants facing steep cost hikes that necessitated upward adjustments to tipping fees.
Commercial General Liability
Commercial General Liability (aka CGL) provides coverage for third-party bodily injury and property damage resulting from non-pollution-related incidents at your facility.
Examples include:
- A 3rd party truck driver is injured on the tipping floor due to unsafe conditions.
- A 3rd party vendor trips over facility equipment during a tour.
- Falling debris damaging a 3rd party contractor’s vehicle.
This coverage often also extends to products and completed operations. Additional protections include personal and advertising injury, premises liability, and medical payments.
Given the high-risk nature of waste-to-energy operations, experts often recommend higher coverage limits – typically $2–$5 million or more, including or supplemented by excess or umbrella policies.
However, it’s important to note that standard CGL policies almost always exclude pollution-related claims, which makes specialized environmental liability coverage essential.
Environmental Liability Insurance
Pollution liability policies, site pollution and pollution legal liability (PLL) insurance, help cover what general liability policies exclude.
Environmental policies address bodily injury, property damage, and cleanup costs stemming from “pollutants”.1 This coverage may include sudden and/or gradual pollution events.
Coverage scenarios include:
- Air emissions exceeding permit limits.
- Ash, dust or other residue contaminating nearby land or stormwater.
- Fuel, aerosol or chemical spills or hazards escaping and/or seeping into soil or drainage systems.
- Cleanup costs
These policies may cover on-site and off-site impacts, legal defense costs, and regulatory actions.
In some cases, they may also include civil fines and penalties when insurable. Additional coverage may extend to the transportation of waste and non-owned disposal sites.
When pricing these policies, underwriters assess factors such as risk management practices, plant design, containment systems, monitoring processes, and emergency response plans.
They may also require documented spill-prevention and emissions-control measures.
Contractors Pollution Liability
Pollution incidents can occur during construction, maintenance, or environmental services at your facility.
Contractors Pollution Liability (CPL) protects contractors and/or service providers against pollution-related injuries, property damage, and cleanup costs arising from their activities. Examples include:
- Handling ash or disturbing existing contamination.
- Unwanted material or chemical spills during tasks, such as tank cleaning.
- Pollution incidents during transportation.
Facility owners often require contractors to carry CPL policies with limits ranging from $1–$5 million per occurrence, which may include umbrella limits.
Contractors are also typically required to name the facility and its owners as additional insureds. This helps ensure that the contractor’s coverage, rather than the facility’s environmental policy, responds first in the event of an incident.2
A broker with environmental insurance experience can help ensure your contractor coverage aligns with the specific risks associated with your operations.
Pollution Legal Liability
Pollution Legal Liability (PLL) coverage provides protection against third-party claims for bodily injury, property damage, and cleanup costs linked to both sudden and/or gradual pollution incidents.
Unlike standard insurance, which may only cover sudden, accidental events, or a “hostile fire”, PLL addresses ongoing risks such as groundwater contamination, excessive air emissions, off-site migration of pollutants, and contamination from incineration byproducts, ash handling, and leachate.
These policies may also include coverage for legal defense costs, which can sometimes surpass cleanup expenses in environmental litigation. Additionally, they may cover remediation efforts and CERCLA-related regulatory compliance costs.
Securing PLL coverage involves detailed site evaluations, analysis of pollution history, and stringent risk controls like emission monitoring and compliance with EPA standards. Insurers often require annual audits and thorough documentation of environmental permits before issuing policies.
Because of the complexity and high potential for losses, many waste-to-energy operators work with specialized environmental underwriters and turn to the excess and surplus (E&S) market for the flexibility and coverage limits they need.
B.F. Goodrich vs. Murtha
B.F. Goodrich Co. v. Murtha is a landmark decision in environmental law.
Indeed, some view it as the most critical case for demonstrating the potentially extreme reach of Joint and Several Liability under CERCLA (Superfund) for waste facility owners and operators.
The “Murtha” case involved two landfills in Connecticut (Beacon Heights and Laurel Park), both owned and operated by the Murtha family, which the EPA prosecuted due to environmentally hazardous substances causing groundwater contamination.
Because of the massive cleanup costs, the EPA initially went after the “deepest pockets” the major industrial chemical companies (like B.F. Goodrich) seeking to hold them liable for the entire cleanup.
However, B.F. Goodrich and other industrial chemical companies then filed third-party contribution lawsuits against other “potentially responsible parties” (aka “PRPs”) under CERCLA.
The chemical companies sued hundreds of small businesses and Connecticut municipalities that had arranged for standard municipal solid waste (MSW)—household garbage—to be disposed of at the Murtha landfills.
While the municipalities and small businesses vigorously defended themselves, arguing that CERCLA was intended to target industrial polluters, not local governments managing regular household trash, the court ultimately rejected their argument.
The courts ruled that the small businesses and towns could be held liable.
This established several critical precedents:
- No “Household Waste” Exception: The court ruled that CERCLA contains no specific exemption for “municipal solid waste”.
- Strict Liability Confirmed: The court reaffirmed that fault is irrelevant. If an entity “arranged for disposal” of waste, and that waste contains hazardous substances (which standard household garbage inevitably does), they are a PRP.
- Quantity is Irrelevant: An entity is liable whether they contributed 1 ton of high-level industrial waste or 1,000 tons of relatively benign MSW.
As a result, the large chemical companies used the concept of joint and several liability to drag many small businesses and towns into a potentially catastrophic legal battle.
Business Interruption Coverage
It’s bad enough when a fire damages your operations… But when the business halts as a result of the fire, the resulting loss of income and ongoing expenses can put incremental pressure on finances.
Business interruption coverage, which is a form of property insurance, steps in to replace lost income and helps manage these ongoing costs during periods of downtime.
This is especially critical for municipal waste haulers, waste processors and waste-to-energy plants, where key pieces of specialized equipment – like boilers, turbines, and pollution-control systems – often require lengthy repair or replacement timelines.
You may also need to re-route waste to a new facility.
To determine coverage limits, insurers typically request a business income worksheet, or recently audited financial statements, and projected output over an indemnity period, which could span 18 to 24 months.
Extra Expense Coverage
Extra expense coverage reimburses the additional costs incurred to resume operations and minimize overall losses.
For waste services companies, this might include expedited shipping for essential parts, temporary power solutions, or alternative waste disposal arrangements.
This type of coverage is particularly valuable for addressing contractual obligations, such as sourcing replacement power to meet power purchase agreements (PPAs) or securing alternative waste disposal methods during outages.
For example, operators might need to purchase replacement power to fulfill PPA commitments, pay penalties for non-performance, or fund alternative waste disposal to maintain service levels.
To mitigate longer-term reputational and contractual risks, extra expense coverage should be structured with limits that account for these potential costs.
Maximizing the benefits of extra expense coverage often requires proactive planning. This includes setting up alternative waste routing agreements, identifying equipment vendors who can expedite deliveries, and developing contingency plans to sustain partial throughput or power generation.
A broker who focuses on renewable and sustainable operations, can help tailor your coverage to meet the specific risks and contractual obligations of your waste services company.
Conclusion
Municipal waste processors and waste-to-energy facilities face a unique set of risks that call for specialized insurance solutions.
From property damage and equipment breakdowns – like boiler and machinery failures – to environmental liabilities and business interruptions, these operations encounter exposures that standard general liability policies may not address.
Challenges like fuel quality inconsistencies, advanced gasification technologies, and fire or explosion hazards demand insurance programs tailored to the realities of each facility’s operations.
To address these risks effectively, proactive measures are essential. This includes enforcing strict fuel quality standards, conducting regular preventive maintenance, installing advanced fire protection systems, and reviewing insurance coverage annually with experts who understand waste-to-energy operations.
There’s no one-size-fits-all approach to waste processor insurance.
You should work with a partner who grasps the technical demands, regulatory requirements, and shifting market dynamics to design insurance programs that safeguard both their operations and financial health.
Footnotes
- What is a "pollutant" in commercial insurance? A pollution incident involves the contamination of an environment by substances regarded as pollutants. Pollutants are considered irritants or contaminants, whether in solid, liquid, or gaseous form, including, but not limited to irritation or contamination by smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste. If you have exposure to pollution-related risks in your general, auto, and/or umbrella liability policies, you may need a separate "environmental impairment liability" policy... This is because most standard liability policies contain "pollution exclusions" that exclude coverage for losses caused by "pollution".
- However, facility owners or other parties who are downstream additional insureds should verify that subcontractors policies have sufficient limits to cover them in the event of a claim.
