Is your construction company prepared for a pollution claim?
Generally, insurance companies will attach a total pollution exclusion to the Commercial General Liability (CGL) policy to remove any and all coverages. Typical exclusionary language is “any bodily injury or property damage liability occurring as a result of actual, alleged, threatened discharge, seepage, migration, release or escape of ‘pollutants’ at any time.” This exclusion also eliminates any coverage for testing, cleaning up, treating, detoxifying and removing pollutants from the site.
The insurance industry offers multiple professional liability pollution policies. To properly define the policy you need, you must have a solid grasp of the exposures presented.
CPL POLICY Basics
The Contractors Pollution Liability (CPL) policy protects contractor projects against pollution conditions caused by their work, including work performed on their behalf by subcontractors. Covered losses under the CPL policy typically include third-party claims for bodily injury, property damage and environmental damage resulting from pollution conditions caused by the performance of covered operations defined in the policy.
Contractors can obtain pollution liability coverage on either a claims-made basis or an occurrence basis. The coverage usually has small deductibles depending on the size and scope of the contractor’s risk. Coverage can also be obtained on a project-specific basis with extended reporting terms up to five years, although longer terms can be negotiated.
The Contractors Pollution Liability (CPL) policy will respond to construction and remediation operations if remediation operations are designated as a covered contracting service performed by either the contractor or subcontractor, and the pollution liability insurance will include coverage for alleged improper subcontractor supervision. Coverage may also include non-owned disposal sites, transportation exposures and owned premises, etc. Some key coverage issues include the following:
- The waiver of subrogation required by contract
- Joint ventures
- Losses defined to include punitive damages where allowable by law
- Restoration costs included as part of the cleanup definition
The CPL policy typically covers site run-off, a leading cause of water contamination if the run-off contains pollutants.
Many contractors fail to understand the significance of the pollution exclusion. Some contractors only obtain pollution liability coverage coverage if the written contract specifications from the owner or general contractor require this, not realizing that their normal construction operations could be exposed to an uncovered event.
Who Needs Pollution Liability Insurance?
Contractors who work in the following areas generally need Contractors Pollution Liability (CPL) coverage:
- Street and road
- General contractors
- Sewer, waste and utility
- Electrical, HVAC and mechanical
- Industrial and pipeline
- Above/below ground storage tanks
- Grading, site and excavation
- Abatement and remediation
The liabilities associated with environmental claims can devastate a contractor’s business, not only financially, but professional liability claims tend to reach the media quickly, and the contractor’s reputation can be damaged. Claims tend to be costly, time-consuming and require expert legal/claims support.
Exposures for Contractors
The common exposures for contractors can be divided into four categories.
1. Operational: Operational exposures relate to the construction services performed, such as paving, mechanical or excavation/grading. Examples include:
- Excavation through spreading unknown pre-existing contaminated soil
- Disturbing naturally-occurring asbestos
- Fuel or chemical spills brought to project sites
- Completed operations from improper line hook-up
- HVAC construction or maintenance errors that release airborne bacteria or mold
- Impacting surface water or wetlands from excavation or drilling
2. Owned Premises: Exposures for owned premises will be found through the property ownership. These exposures could be pre-existing. Here are a few examples:
- Leaking underground or above-ground storage tanks
- Unidentified, pre-existing contamination from previous site owners
- Contamination from spills of oils, fuels, lubricants, etc.
3. Transportation: Transportation exposures typically relate to the movement of remediated or hazardous materials from a construction site to a disposal site. Examples include:
- Spills during transport to an off-site depository
- Pollution resulting from collisions
- Spills due to vandalism
- Leaks from externally-mounted fuel tanks
4. Disposal: Disposal issues include:
- Inappropriate product disposal
- Mishandled delivery of unidentified contaminated fill
- Retroactive liability under Superfund for past disposal practices
- Signing a hazardous waste manifest document as an agent for the owner
Pollution Legal Liability
Many insurance companies offer both Contractors Pollution Liability (CPL) and Pollution Legal Liability (PLL) under combined forms, which address both operational exposures and the exposures evident in owned premises.
PLL coverage protects property owners against contamination risks associated with ongoing facility operations including indoor air quality, fire/explosions and the release or escape of hazardous materials. Coverage may be tailored to address on- and off-site liabilities, cleanup costs and bodily injury or property damage arising from new and pre-existing pollution conditions. Typically, the owner’s employees do not have coverage available for injuries they incur due to contractor-caused pollution events including action over claims. Consequential damages resulting from a contractor-caused event will usually not be covered under the PLL policy.
Most PLL have product exclusions, contractual obligations and/or fines. Some PLL policies will only cover existing conditions. Contractor-caused pollution events will usually be defined as new conditions under the PLL, so read the policy carefully.
PLL typically will include coverage related to transportation/disposal, storage tanks, unknown pre-existing contamination from previous releases and the release or escape of hazardous materials.
PLL and the CPL are not standardized polices and insure different exposures. Each may require specific endorsements to respond appropriately to contractor risks. Some CPL policies can be endorsed to include PLL type coverages, and it is not uncommon for a contractor to procure both.