Just about all types of contractors have environmental exposure. From a roofing contractor to an electrical contractor and everything in between, there are various degrees of environmental exposures.
Who needs Contractors Pollution Insurance?
Many contractors have a need for Contractors Pollution coverage, including, but not limited to:
- Utility, street, and road
- Heavy highway
- Industrial cleaning
- Fire sprinkler
- General contractors
Environmental Insurance Exposures Facing Contractors
Exposures that face contractors may include disturbance of asbestos, exacerbating contaminated soil, striking an underground storage tank or utility, fumes from equipment or materials, water intrusion that leads to mold, and spills from equipment and vapors, to name a few. Claims tend to be more of a severity issue than a frequency issue.
The following is an example of a Contractors Pollution claim:
Remediation Expense and Business Interruption: $80,000
A telecommunications contractor performed trenching to lay fiber optic cable. The contractor crushed a sewer line causing sewer back-ups at several businesses. This resulted in lost revenue to area businesses and clean-up costs in the amount of $80,000.
How are Pollution and Contamination Defined?
Within the Contractors Pollution form, the typical definition of Pollution Condition/Contamination is: The discharge, dispersal, release, or escape of any contaminants into or upon land, or any structure on land, the atmosphere or any watercourse or body of water, including groundwater.
The typical definition of a Pollutants/Contaminant is: any solid, liquid, gaseous or thermal irritant or pollutant, including but not limited to smoke, vapor, odors, soot, fumes, acids, alkalis, toxic chemicals, hazardous substances, petroleum hydrocarbons, legionella, electromagnetic fields, mold, and waste materials including but not limited to municipal, industrial, medical, pathological, and low-level radioactive waste and materials.
Pollution Insurance Coverage for Contractors
There are a number of insurance carriers that offer Contractors Pollution Liability (CPL) coverage to protect the contractor. Unlike 25 years ago, today’s Contractors Pollution Liability forms include a wealth of coverages. However, the fundamental coverage is third party coverage for bodily injury, property damage, defense, and remediation as a result of pollution conditions that arise from “contracting operations” performed by or on behalf of the contractor at the job site. The policy will respond to both sudden and gradual pollution conditions. Initially this coverage was offered on a claims-made basis only and as the marketplace matured, carriers introduced an occurrence trigger. Today, most carriers underwrite Contractors Pollution coverage with an occurrence trigger.
Other coverages that are typically included in the policy forms include:
1) Transportation – clean-up for pollution conditions during transporting materials or waste.
2) Non-Owned disposal site – disposal of waste or materials generated by your contracting operations at a location that is permitted to accept such waste and materials.
3) Your owned location – pollution conditions that are on, at, under, or migrate from your location.
4) Defense – traditionally, defense is included within the form, however some forms have defense outside the limit of liability.
Emergency Expense is an additional enhancement to Contractors Pollution policies. This coverage comes into play when emergency response costs are incurred and it is unique because it has a first party trigger. Should a contractor discover a pollution condition, they should address it immediately and there is usually a seven day window.
Since there are many insurance carriers offering some sort of Contractors Pollution Liability, each has adopted their own appetites. As an example, not all carriers will underwrite residential construction (single family homes) because it is viewed as a higher exposure when compared to a painting contractor. As each carrier has their own appetite, minimum premiums and limits available can also be distinct. Some carriers have minimum premiums of $500 and limits can be as low as $100,000. However, these policies do not offer the breadth of coverage that is often available in the marketplace. The type of contractor, project types, revenues, loss history, and limits will dictate the premium.
Contractors Pollution coverage is offered as a practice policy and also for projects. Practice policies are usually offered with a one year term, however multiyear terms are not unheard of. Project policies are offered to cover the “build” term plus completed operations which are usually the statute of repose for that particular state. Most carriers have a $25M capacity and should the project require higher limits, there is capacity in the marketplace to build a limit tower.
Since Contractors Pollution coverage is not always required by property owners, it is often not purchased by the contractor with the required general liability (excludes pollution), workers compensation, and automobile coverages. However, more property owners are including Contractors Pollution as a required coverage in their contracts and are also less likely to agree to negotiate the removal of the requirement. There are also some contractors that recognize the value of Contractors Pollution and use it as a valuable risk management tool.
Over the last 25 years, Contractors Pollution coverage has emerged from offering one basic coverage to multiple insuring agreements. Contractors and brokers have recognized the importance of this coverage and as a result, the insurance marketplace has responded with low minimum premiums, capacity, multi-year terms, and additional coverages.
This article was originally written by Will Hornsey, Product Manager, Tokio Marine Specialty Insurance Company. The information contained herein is for discussions and informational purposes and is not intended to be a full disclosure or complete analysis of the liabilities or risks posed to insured(s) in the marketplace. IMPORTANT NOTICE - The information and suggestions presented is for your consideration in your loss prevention efforts. They are not intended to be complete or definitive in identifying all hazards associated with your business, preventing workplace accidents, or complying with any safety related, or other, laws or regulations. You are encouraged to alter them to fit the specific hazards of your business and to have your legal counsel review all of your plans and company policies.