What is a Pollutant?
Any material, substance, liquid, product, etc… which is introduced into an environment for other than its intended use / purpose. Fresh water, cheese, and milk have all been classified as pollutants by Insurance Carriers under various circumstances.
Many non-environmental contractors assume that claims arising from operations are covered by the general liability policy. However, claims resulting from a “pollution incident” are excluded from most general liability policies, which leaves many of these contractors exposed to potentially uncovered claims. What pollutants are impacting your business?
Environmental Exposures
Include, but are not limited to: puncturing unknown underground storage tanks or utilities; release of oils/fuels from equipment; spills from mobile storage tanks; excavating through and/or spreading of unknown preexisting contaminated soil; using unknown contaminated material as fill; storm water runoff; puncturing unknown illegally buried drums or containers; lead; asbestos; silica; no auditing of waste handling and disposal companies; natural resource damages; vapor intrusion; storage and/or transportation of raw materials; business interruption expenses; leaks from hydraulic fluid; products pollution liability; raw materials stored and utilized in large quantities (i.e. acids, bases, compressed gases including cyanide and hydrogen chloride, diesel fuel and lubricant oils, flammable paints and solvents); uncertainties about the historical use and conditions of property; obsolete and remote equipment storage (bone) yards where contaminants percolate into the soil/groundwater; nuisance odors; no emergency response training for employees; halon releases from fire suppression equipment; spills and leaks from the storage and handling (loading/unloading) of material containers such as drums, totes or bags from vehicles and/or rail cars; improper characterization of hazardous waste…
Environmental Claim Scenarios
- A foundry residual recycling operation provided material for a jobsite that contained unknown pollutants. The excavation contractor unknowingly spread the contaminated material across a project site. Later during the project, the contamination was discovered and determined to have originated from the material. Project delays, cleanup costs, and 3rd party property damage claims exceeded $400,000.
- A commercial contractor hired a waste hauler to transport its used equipment oil and fluids. The waste hauler got into an accident which caused the contents of the tanker to be released directly into a creek. Under Federal law (CERCLA) you own your waste from cradle to grave so the carrier had to pay their apportionment of the remediation costs which totaled $450,000.
- A crushing contractor was preparing material for a new commercial project. Over the weekend a major thunderstorm destroyed the storm water runoff control system, causing the material to flow down grade through neighboring properties, roads, and into a nearby lake. The contractor was responsible for cleanup costs and natural resource damages, which exceeded $2,000,000.
- The concrete secondary containment of a 10,000-gallon diesel aboveground storage tank was cracked. A release from the tank spilled 8,000 gallons into the containment. The diesel seeped into the underlying soils. Total cost for investigation, removal, and disposal exceeded $320,000.
- A concrete recycling contractor hauled material from a jobsite that contained unknown contaminants. While transporting the material, heavy rains started, which allowed the contaminants in the material to escape from the truck. During the course of transporting the contaminants were found to have spread over a 35-mile route. EPA fines and remediation expenses were in excess of $300,000.
- A concrete demolition contractor ruptured a natural gas pipe while working on a job, which created a large high-pressure release. Due to safety concerns, local authorities evacuated a 2-block radius around the accident while it was being contained, shutting all businesses down within that radius. The contractor was subject to cleanup costs and business interruption expenses in excess of $1,000,000.
Overlooked Benefits of Environmental Liability Insurance
Because environmental losses are a severity risk, rather than a frequency risk, the majority of contractors lack the financial strength to self-insure their potential environmental liabilities. Since every contractor has notable environmental exposures, consideration to the economies of scale afforded with environmental liability insurance as part of your risk transfer strategy, versus self-insuring.
Three Overlooked Benefits of environmental liability insurance:
- Defense Costs: Environmental liabilities are relatively new and very litigious. Even if you do nothing wrong you can still get named in a suit and have to expense defense costs i.e. legal fees, environmental investigations, etc.
- Claim Management: All policies come with specialists to assist you in handling a claim. Who is in charge of communications, public relations, emergency response, government compliance, financial management, third party claims for bodily injury, property damage, natural resource damages….?
- Third Party Liability: The majority of the time the cost to clean up the environmental problem/s is far less than the associated claims that come in from third parties for bodily injury, property damage and business interruption. You need to look at your client’s and neighbors that can be impacted if you or a sub-contractor/vendor cause an environmental loss.
Environmental Liability Insurance Coverages
Contractors Pollution Liability (CPL)
Contractors Pollution Liability (CPL) insurance protects the insured should they cause or exacerbate an environmental condition while performing their contractor services. CPL protects the insured for covered operations performed by or on behalf of the insured, while operating away from any premises they own, rent, lease or occupy.
CPL can be offered on a claims made or occurrence basis. Coverage can be written on a job specific basis, or on a blanket basis to cover all the work performed by the insured. Most policies can be endorsed to cover transportation pollution liability, mold, lead, and asbestos, defense outside the limits, off-site disposal coverage, and more. Contractors incorporating CPL coverage as part of their risk transfer strategy, drive their growth and profits by marketing the benefits CPL coverage affords in reducing job interruption due to environmental issues. A major environmental liability exposure faced by all contactors lies in who they are doing business with. If there is an environmental loss at a job site, innocent contractors can and do get named in lawsuits. Do your subs/vendors have CPL insurance if they cause an environmental loss?
Environmental Impairment Liability (EIL)
EIL is for contractors that own, rent, lease, operate or have any other insurable interest in real property (a fixed site facility such as a shop, batch plants, cement manufacturing/mixing plant….) that can be susceptible to pollution liabilities that actually or allegedly originated from the insured property.
Coverage can include: Pre-existing unknown pollution, new pollution conditions, first party on-site clean up, third party bodily injury, property damage, business interruption and extra expense, off site cleanup costs, legal defense expenses, transportation pollution liability, offsite disposal coverage…. Multi year term policies can be negotiated.
Incidental Professional Liability
Professional exposures are generally excluded from General Liability and monoline Contractors Pollution Liability policies. In the course of their normal operations, contractors face all types of professional exposures. They may make slight adjustments on the provided plans to get the job done properly, they may supervise subcontractors, or provide other recommendations which could potentially be questioned in the event of a claim. In the event of a professional claim, will your insurance provide coverage?
Transportation Pollution Liability
Generally, Business Auto or Truckers policies will exclude pollution losses arising from spills or other releases of transported cargo. Transportation pollution liability affords coverage during the loading, unloading and transportation, for a spill, release or sudden upset and over turn of transported cargo.
Underground Storage Tanks
Financial responsibility requirements ensure that owners and operators of underground storage tank systems have the ability to financially handle a release from an underground storage tank. The responsibility encompasses the ability to pay funds for corrective action and third party bodily injury and property damage from non-sudden and sudden and accidental releases from a regulated underground tank system.
Property Transfer Liability
When buying or selling property there can be unknown preexisting environmental conditions. Since a Phase I or Phase II survey cannot guarantee uncovering all potential environmental liabilities, insurance companies have created property transfer insurance. This coverage protects the new owner or any party with an insurable interest, against unknown environmental conditions that may be discovered during the policy period, that were not caused by the new owner.
Property transfer coverage assists to keep the property at its maximum value while allowing the insured to negotiate more favorable loan terms than property not supported by this coverage.