Contractors Pollution Liability Risk: Why Contractors & Project Owners are Waking Up to the Threat
Until recently, project owners and their contractors could feel comfortable with a basic contractors insurance program consisting of general liability, auto and workers compensation, with an umbrella or excess liability policy to add to limits.
Developments over the past few years suggest it’s time to add another important policy to that list: Contractors Pollution Liability (CPL).
Contractors General Liability & Restrictive Pollution Coverage
Pollution has long been excluded from general liability policies. Prior to the mid 1980’s there was coverage for “sudden and accidental” pollution, but the passage of major environmental laws, (the Resource Conservation and Recovery Act (RCRA) and the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA)), resulted in a tsunami of new pollution claims.
Fanciful and creative judicial decisions, such as the one that found that each drip over a period of years from a leaky pipe carrying pollutants constituted a separate “sudden and accidental” loss, drove insurers to adopt the Absolute Pollution Exclusion, introduced as an endorsement in 1985 and built into the CGL form in 1986. Insurers feared that judicial activism would find a way to overcome almost any pollution exclusion, so this first version of the exclusion was very broad; it also ended up excluding coverage for claims that an insurance buyer might have expected to be covered.
Coverage for some limited types of “pollution” claims has been added back to the more recent versions of the CGL policy, but for contractors, in particular, the form is still very restrictive. Worse, underwriters will still generally attach additional exclusions to further restrict coverage.
Total pollution exclusions, which remove even the limited pollution coverage in the CGL form, are common as are additional exclusions for things that might not fit into the definition of “pollutants”, such as silica, lead, mold and fungi, and similar.
At the same time, the range of possible pollution exposures faced by contractors continues to increase. Modern building materials, resources and techniques, fasteners and adhesives, paints and coatings and such all present loss exposures from injury or damage that could fall under the pollution exclusion. And even if some coverage could be found under the CGL policy, that policy only covers bodily injury or tangible property damage; there is absolutely no coverage for cleanup or remediation, which can be ruinously expensive in even minor events.
Limiting Exposure with a Contractors Pollution Liability Policy
The solution to this large uninsured exposure is a Contractors Pollution Liability (CPL) policy. These policies can insure against exposures such as those arising from job site contracting operations, transportation risk, non owned disposal sites, sudden and accidental pollution exposures at owned/leased/rented locations and emergency response events.
Covered perils can be broad, including traditional pollution and pollutant conditions, plus silica, lead, mold, fungi, bacteria and many more. And coverage is included not only for bodily injury and property damage, but also for defense, remediation and cleanup.
Industry data suggests that less than five percent of all contractors currently carry this coverage, but that’s poised to change, for two main reasons. First, project owners are beginning to wake up to the severity of contractors pollution liability risk and how an uninsured job related pollution loss might affect them, so requirements for CPL coverage are starting to appear in project insurance specifications. Second, savvy contractors are awakening to the threat to their own assets and survival from an uninsured pollution claim, and buying it for their own protection.
The insurance market for this type of coverage is large and vigorous, including almost four dozen carriers according to most recent information, and growing. Competition exists, coverage is broad and getting broader because of competition, and pricing has been stable. Multi Year policies are even available, and there is a growing trend toward combined professional/pollution liability policies that also address growing professional liability exposures for contractors.
So, word to the wise: if you are a property/project owner, consider adding a requirement for CPL coverage to the insurance requirements for your next jobs. And if you’re a contractor, protect your own pocketbook with one of these policies.