Environmental Liability Risks Increasingly Excluded from Standard Property Insurance Policies

Property insurance brokers are being warned that standard commercial wordings are increasingly excluding environmental liabilities, such as pollution, asbestos, and PFAS contamination. Recent regulatory shifts in Australia and New Zealand, including a $2 billion legal claim against manufacturer 3M, highlight the growing financial exposure for businesses that lack specialized coverage. This trend necessitates a shift toward environmental impairment liability insurance to address risks that sudden property events, like fires or floods, can trigger.

Property losses stemming from natural disasters like storms or bushfires are frequently triggering secondary environmental liability claims that many clients are unprepared for. Anthony Saunders, partnership director for EnviroSure at Gow-Gates Insurance Australasia, warns that standard property and general liability wordings in Australia and New Zealand now almost universally exclude pollution, asbestos, and PFAS. This gap in coverage is becoming more critical as Australia moves to ban specific PFAS substances by July 2025 and the Commonwealth pursues a landmark $2 billion legal action against 3M over contamination at 28 Defence sites.

The regulatory landscape is tightening across the Tasman, with New Zealand following Australia's lead by phasing out PFAS-containing firefighting foams by December 2025 and banning the chemicals in cosmetics by late 2026. Evidence of long-term contamination has already been identified at New Zealand Defence Force bases, such as Ohakea and Woodbourne, where firefighting foam PFAS was detected in soil and groundwater as early as 2017. These developments underscore that environmental exposures eventually find an owner, making it dangerous for brokers to assume that pollution risks are either negligible or already covered under existing policies.

To mitigate these risks, Saunders recommends a rigorous six-step checklist for brokers that includes engaging accredited site auditors, mapping environmental risks, and validating fire protection standards, as fire is a primary driver of pollution events. He emphasizes that even a 1 in 10,000 chance of an environmental externality must be priced logically, often by setting an uninsured absorption level as an excess for specialized cover. Crucially, Saunders notes that because specialized environmental insurance is now available, brokers who fail to secure this coverage for their clients may face direct exposure against their own professional indemnity insurance policies.