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 Impacting HVAC Contractors
May include, but are not limited to: excavating through and spreading of unknown preexisting contaminated soil; storm water runoff; mold; lead; asbestos; HVAC causing build up or release of airborne bacteria; ground water contamination; completed operations exposures including incomplete line hookup or improper system construction causing spills or emissions; impacting underground utilities; puncturing unknown underground storage tanks; silica; no auditing of waste handling and disposal companies; natural resource damages; vapor intrusion, Legionella…
Environmental Claim Scenarios
- During the installation of a geothermal heat pump system, the HVAC contractor punctured an unmarked natural gas line causing gas to release from the pipe. Due to safety concerns, local authorities ordered the evacuation of businesses and homes within a 2-block radius while the situation was being handled. Claims for clean-up and 3rd party business interruption expenses were filed, which totaled over $200,000.
- A mechanical contractor installed a heating, ventilation, and air conditioning system in a new commercial office building. After three years, mold and mildew growth caused the release of airborne bacteria throughout the entire building, resulting in poor indoor air quality. Claims against the contractor for bodily injury and loss of property use exceeded $500,000. In addition, the contractor was responsible for decontaminating the HVAC system.
- Several office employees became ill from legionella. The cause of the legionella was the improper sealing of the ducts during the installation of a new HVAC unit which allowed condensation to build up. The employees sued the property owner and the contractor.
- A mechanical contractor removed ductwork from a hospital’s HVAC system. It was later determined that the ductwork was home to a dangerous fungus. The dismantling activities and the on-site storage of dismantled ductwork caused the fungus to spread into the hospital. Patients became infected with the fungus; some were even critically infected. The contractor was found liable for the spread of the fungus and faced bodily injury and property damage claims in excess of $1 million.
- An HVAC contractor was sued when mold was discovered in a commercial building recently worked on by the contractor. After further investigation, the contractor’s work was not the cause of the mold growth. The contractor was removed from the suit, after having to expense over $40,000 defending the claim.
- A mechanical contractor installed an HVAC system in an assisted living facility for seniors. The system was constructed improperly, which caused mold growth in a portion of the residences. The facility was forced to relocate several patients during the repair of the system, and the renovation of the moldy building materials. A claim for clean-up costs, property damage, and 3rd party business interruption was filed.
- While working on a historical property, a contractor used a hole saw to cut through a ceiling. Unknown to the contractor, the saw inadvertently disturbed and released asbestos-containing insulation material. The contractor had to pay cleanup costs for the asbestos fibers released throughout the building, costing in excess of $75,000.
- An HVAC contractor installed a new ventilation system as part of the renovation of a 25 story office building. An electrical fire broke out in the building’s basement two years after the renovation was complete. As the fire burned, ventilation shafts pumped PCBs and dioxins throughout the building. The contractor was later held liable for a large portion of the more than $40 million cleanup costs, since ventilation shaft openings were found to be too close to transformer equipment.
Overlooked Benefits of Environmental Liability Insurance
Because environmental losses are a severity risk, rather than a frequency risk, the majority of HVAC contractors lack the financial strength to self-insure their potential environmental liabilities. Since every HVAC 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.
Furthermore, most commercial insureds only consider the remediation costs associated with a pollution event. However, often times the clean-up costs are far less than other costs that often arise from the loss
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. Policies can be endorsed to cover transportation pollution liability, mold, lead, asbestos, defense outside the limits, off-site disposal coverage, etc. 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.
Environmental Impairment Liability (EIL)
EIL is for contractors that own, rent, lease, operate or have any other insurable interest in real property (i.e. an operating facility that may include onsite equipment storage, fuel tanks, offices, etc.) 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.
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.
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?
Underground Storage Tanks
Financial responsibility requirements ensure that owners and operators of underground storage tank systems can 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.