Viewpoint: Contractors Should Update Their Pollution Insurance Coverage
Contractors in every field face environmental issues that can lead to costly pollution incidents with significant cleanup costs, injuries to workers or third parties and property damage as well as loss of reputation for the firm and the owner of a project site. Some incidents, such as mold growth on lumber, can also damage construction materials and create project delays during cleanup or while waiting for replacement materials.
Whether you are an owner, general or trade contractor, there are steps you can take to mitigate the consequences of an environmental incident. The first step is to evaluate the environmental hazards on your jobsite and implement standard practices for managing risks. All employees should be trained to recognize and control environmental hazards through pollution prevention. Additionally, ensuring that all parties on a jobsite have adequate pollution liability insurance can buffer a project against potentially devastating financial consequences.
When a pollution event arises from a subcontractor’s work, the owner or contractor can be found to be a potentially responsible party, and all involved parties can be held liable for cleanup. Many owners and contractors require that subcontractors carry pollution liability insurance as part of their contracts; however, pollution coverage can be complex and confusing, and it may be difficult to determine whether that coverage is adequate.
Some contractors may rely on an endorsement to their general liability policies for pollution coverage. However, those policies often have a “total pollution exclusion” or coverage is offered in the form of a limited giveback for pollution liability. Insured companies should be aware that:
- Give-back pollution endorsements are often sub-limited.
- Costs to address environmental incidents can be expensive and erode the limits of a general liability policy.
- These policies provide coverage only for a pollution incident that begins and ends within 72 hours.
- Cleanup costs will be covered only if they are part of otherwise covered property damage.
- Pollutants such as asbestos, lead, mold, silica, legionella, bacteria and electromagnetic fields are often specifically excluded from coverage.
- A release of toxins during loading and unloading or transport of materials by the contractor typically is not covered.
- Tort liability resulting from disposal of wastes at non-owned disposal sites would also likely not be covered.
- Natural resource damage claims may not be covered.
With a contractor’s pollution liability (CPL) policy, the full policy limits are available to cover an environmental incident, and coverages and endorsements are available to meet any gaps in coverage. In addition to protecting against pollution exposures, a CPL policy can satisfy or be endorsed to satisfy other contract requirements such as completed operations or extended reporting.
To assess whether subcontractors have adequate pollution insurance, the project owner or contractor should review the subs’ policies to assess coverages, limitations and exclusions. However, most project owners and general contractors don’t have the expertise or time to review these policies.
The best alternative to verify contractors’ pollution coverage is working with a broker who specializes in environmental insurance or a national vetting company that can evaluate each contractor’s pollution coverage to determine if it meets contractual requirements.
