Understanding Environmental Exposure Risks: Contractor’s Pollution Liability
A majority of contractors purchase environmental liability coverage to satisfy a contractual obligation. Unfortunately, they often don’t realize the extent of their environmental exposures.
Whether the contractor specializes in excavation, utility, electrical, plumbing, mechanical/HVAC services, janitorial, street and road—basically any services performed under a contract for a third party—contractors have an exposure to environmental liability.
Typically, the first reaction most contractors have upon seeing a requirement for contractor’s pollution liability (CPL) coverage is to attempt to negotiate that out of the contract. However, both known and unknown environmental risks can cause economic challenges and damage the contractor’s reputation, even if they were successful in removing the contractual requirement.
When performing work for third parties, contractors have an inherent environmental exposure, no matter what services they are providing. For example, pollutants are not just limited to hazardous materials and petroleum products. Anything that is present in a large enough concentration in the wrong place can be considered a pollutant.
THE BASICS OF A CPL POLICY
The insurance marketplace has never been more competitive or had as much capacity as is currently available for CPL policies. Along with what would be expected, most CPL policies today define things like silt and sediment, mold (microbial matter), legionella and electromagnetic fields as “pollutants.” Even if these pollutants aren’t specified in the coverage, they can be added via endorsement if requested.
When requesting a CPL policy, make sure it includes the following:
- cleanup costs, onsite and offsite;
- third-party bodily injury and property damage claims;
- transportation to and from the jobsite;
- non-owned disposal site liability for materials removed from a jobsite;
- natural resource damage;
- legal expenses, even for groundless claims;
- business interruption or construction delay expenses, associated with a pollution condition;
- emergency response; and
- crisis management.
CPL policies can be issued as practice policies for all the contractor’s operations, or written on a project-specific basis depending on the contract. Both programs are underwritten based on the contractors operations and revenue. Practice policies are typically issued on a non-auditable basis. Project-specific policies should include completed operations.
If the contractor has an equipment yard, maintenance facility or warehouse for materials used in their operations, a CPL policy can include site environmental liability coverage for those owned locations. This coverage is not automatically included and needs to be requested. Adding the site coverage to the CPL policy eliminates the need for a separate policy. In many cases, the contractor is in leased space and the landlord has a requirement in the lease to evidence the environmental liability coverage.
As a contractor, having a broad CPL program in place can provide a competitive advantage over uninsured or underinsured competitors. For owners selecting a contractor, scrutinize the contractor’s insurance program to ensure that coverage is broad and appropriate for the scope of work that the contractor is performing.
Fortunately, the environmental insurance marketplace is extremely competitive, particularly for CPLs. Most major carriers have programs they can offer either as part of a general liability policy or on a standalone basis.