This competitive environmental intelligence focuses on environmental liabilities faced by commercial and residential contractors along with actual loss examples and environmental liability insurance to consider in a risk transfer strategy.

COMMERCIAL CONTRACTORS

Common environmental exposures for commercial contractors include:

Excavation/Site Preparation, Drilling/Geotechnical Contractors: excavation through and spreading of unknown preexisting contaminated soil; impacting groundwater from drilling and excavation work (i.e. cross contamination of aquifers, etc.); impacting underground utility lines and other underground structures and potential to cause collapse and/or or explosion; storm water runoff contamination; trench collapse due to improper shoring; overuse of herbicides; naturally occurring asbestos; No auditing of waste handling and disposal companies; mis-delivery of unidentified contaminated fill; Retroactive liability under Superfund for past disposal practices (i.e., construction debris in a landfill that is now on the Superfund list)

Loss Examples:

1. An excavation/grading contractor unknowingly spread petroleum-contaminated soil across a project site during fill operations for a housing project. The contractor was named in a lawsuit for exacerbating the extent of contamination. After lengthy deliberations, the contractor was eventually removed from the lawsuit. However, he had invested $250,000 in his defense.

2. An excavation contractor stockpiled soil on an adjacent property. The scope of the project included excavation of 357 feet of trench for one week at a cost of roughly $30,000. Prior to completion of the work a dioxin was discovered in the soil. The US Environmental Protection Agency investigated the situation and issued an administrative order finding the contractor and their client responsible for contamination of the adjacent property. Government mandated cleanup costs exceeded $250,000.

3. An excavation contractor was subject to cleanup costs and business interruption expenses in excess of $500,000 when they ruptured and unmarked petroleum pipeline.

4. An excavation contractor was subject to defense costs exceeding $25,000, in addition to property damage and bodily injury claims exceeding $400,000 from a residential community. During sewage installation, a subcontractor improperly tied in piping. This caused raw sewage to migrate into the underlying groundwater and contaminate residential wells.

Heavy Highway, Street and Paving Contractors: release of oils/fuels as a result of vandalism; site preparation/excavation work in preexisting contaminated soil (i.e. residual lead or petroleum contamination from fuels); storm water runoff contamination; spills of chemicals and fuels brought on-site (i.e. mobile refueling tanks); inadvertent mixing of incompatible wastes; naturally occurring asbestos; overuse of herbicides.

Loss Examples:

1. A highway/bridge contractor was subject to a $300,000 property damage claim for dust generated by a subcontractor performing abrasive sandblasting of a bridge in a residential area. Lead paint chips and dust became airborne and migrated onto residential properties, requiring cleanup.

2. A subcontractor working for a street/road contractor performed sandblasting on a bridge. The bridge was located near a residential area. Lead containing paint chips and dust from the sandblasting became airborne and migrated onto residential properties requiring cleanup. The residents filed property damage claims against the contractor for the dust generated by the subcontractor. Claims totaled $400,000.

3. An asphalt, paving contractor was subcontracted to pave a parking lot for a new commercial structure. At the end of the day, the tack coat was sprayed onto the sub-base prior to paving. During the evening, a major thunderstorm caused the tack coat to wash off and flow into a nearby stream. The general contractor was responsible for cleanup costs, which exceeded $200,000. To recoup these costs, the general contractor withheld the subcontractor’s payment. In turn, the subcontractor filed a claim with its insurance company to recover lost revenue. The insurance company denied reimbursement based upon the absolute pollution exclusion under the general liability policy.

General, Civil, Industrial, Mechanical or Utility Contractors/Trenchless Technology Contractors: completed operations exposures including incomplete line hookup, improper system construction, causing spills or emissions; fumes, emission and spills of chemicals applied during construction (finishers, sealants); heating ventilation, air conditioning construction or maintenance errors causing release of airborne bacteria; incidental exposures from asbestos containing building materials; lead paint; lubricant oils and other fluids from field equipment; release of oils/fuels as a result of vandalism; site preparation/excavation work through preexisting contaminated soil; inadvertent mixing of incompatible wastes; Retroactive liability under Superfund for past disposal practices (i.e., construction debris in a landfill that is now on the Superfund list); spills during application of asphalt for site operations; sprinkler system error or shutoff allowing potential toxic fire to spread; mis-delivery of unidentified contaminated fill

Loss Examples:

1. A HVAC contractor was hired to upgrade a strip malls heating system. While working in one of the stores, the contractor failed to vent the system properly, causing a release of carbon monoxide. Store employees and customers complaining of headaches and nausea were rushed to the local hospital. As a result, several bodily injury suits were filed against the strip mall owner.

2. A mechanical contractor installed a HVAC system in a new commercial office building. After three years, mold and mildew growth caused a 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.

3. A general contractor performing concrete etching in a commercial building used muriatic acid. The highly corrosive fumes from the acid were released into the building. Over $75,000 in property damage to chrome fixtures resulted from the fumes.

4. A utility contractor was working on a $500,000 sewer rehabilitation project. During excavation of a trench, the bucket of a backhoe hit a natural gas line. This forced evacuation of the immediate area, including a small strip mall. Storeowners filed loss of business claims against the contractor, which exceeded $75,000. The general contractors general liability carrier denied the claims based upon the absolute pollution exclusion.

5. A general contractor performing renovation to a city building had a negligence claim filed for creating unsafe air quality conditions in the ventilation and air filtration systems. Employees on the premises claimed to have suffered serious injuries from inhalation of and exposure to toxic fumes and airborne contaminants. A $10 million claim was filed against the general contractor.

6. An environmental contractor was hired as a subcontractor to clean up hazardous chemicals at a former manufacturing site. Under the direction of the general contractor, the environmental contractors employees placed incompatible chemicals in the same bin. This resulted in a chemical reaction that spewed toxic fumes into the area. Many businesses in the area were forced to shut down. Cleanup and business interruption claims amounted to nearly $1 million

7. A general construction company had a suit filed against them for construction that resulted in the presence of mold in a county courthouse, along with respiratory illness among some of the people who worked in the building. A jury awarded the plaintiffs $35 million.

Rigging Contractors: fluid discharge from large equipment; handling of transformers and dielectric fluids (PCBs).

Loss Example:

1. A contractor dropped a piece of heavy equipment from a crane onto a pipe leading to a hydrofluoric acid tank. Acid was emitted into the surrounding atmosphere, creating a vast vapor cloud. Approximately 3,000 residents were evacuated and 1,000 were treated for respiratory injuries. The court entered judgment holding the contractor 95% liable for the accident. Over 4,500 claims have been filed in excess of $23,000,000. The claims include bodily injury, property damage, lost profits and emergency response costs.

Demolition Contractors: air emissions of dust and debris; lead emission from incomplete lead abatement; impacting underground storage tanks and utility lines; PCBs released from sources within the demolished structure; storm water runoff contamination; inadvertent mixing of incompatible wastes; mis-delivery of unidentified contaminated fill; Retroactive liability under Superfund for past disposal practices (i.e., construction debris in a landfill that is now on the Superfund list)

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 and have to expense defense costs to get released.

Question: How do you buy your raw materials? FOB point of shipment or point of delivery? If you are buying them point of shipment, what is your strategy should there be a spill or release of these materials while they are in transit to your facility? If you bought the material point of shipment you just bought the resulting environmental damage. How do you sell your raw materials to your clients?

RESIDENTIAL CONTRACTORS

Common environmental exposures for residential contractors include:

Improper handling and disposal of CCA Treated lumber; storm water runoff; completed operations exposures including incomplete line hookup, improper system construction, causing spills or emissions; sewer backups; fumes, emission and spills of chemicals applied during construction (finishers, sealants, adhesives, solvents, curing compounds); heating, ventilation, air conditioning (HVAC) construction or maintenance errors, causing release of airborne bacteria, mold or carbon monoxide build-up; mold resulting from water intrusion or moisture encapsulation; release from mobile storage tanks; release of oils/fuels as a result of vandalism; site preparation/excavation work through preexisting contaminated soil; inadvertent mixing of incompatible wastes; lead paint in older residences. illegal disposal of waste by local residents in unprotected roll of boxes; mis-delivery of unidentified contaminated fill; discharge of lubricant oils and other fluids from large equipment; spills and releases from application of asphalt; Retroactive liability under Superfund for past disposal practices (i.e., construction debris in a landfill that is now on the Superfund list)

Loss Examples:

1. A residential contractor was reconditioning a tile floor in a building undergoing extensive renovations. Several workers in the building filed bodily injury claims totaling $25,000 against the contractor. The workers had inhaled toxic vapors from the sealants used in the reconditioning process.

2. A residential contractor used solvent to remove paint from a residential structure and improperly disposed of the materials on-site. A group of residents filed a $10 million toxic vapor inhalation suit against the contractor, citing bodily injury, trespass of pollutants and adverse effects to their quality of life.

3. A residential contractor developed a subdivision. Small sinkholes began to appear in the development, soon giving up all kinds of debris. Residents feared that the debris could extend underneath some of the homes. Homeowners filed a lawsuit against the contractor/developer. Because the contractor could not identify the owner of the debris, they were forced to clean it up as a cost exceeding $1 million.

4. A residential contractor disposed of sealants and solvents containing toluene in a covered, enclosed dumpster after performing routine finish work. Acting like a confined space, the dumpster trapped the toluene fumes. These fumes depleted the oxygen levels in the dumpster. After climbing into the dumpster for unknown reasons, two 10-year-old children were overcome by fumes and died. The contractor faced a claim in excess of $2 million for inadequate disposal of the waste toluene.

5. A residential contractor was subject to defense costs exceeding $25,000, in addition to property damage and bodily injury claims exceeding $400,000 from a residential community. During sewage installation, a subcontractor improperly tied in piping. This caused raw sewage to migrate into the underlying groundwater and contaminate residential wells.

6. A residential contractor unknowingly spread petroleum contaminated soil across a project site during fill operations for a housing project. The contractor was named in a lawsuit for exacerbating the extent of contamination. After lengthy deliberations, the contractor spent $250,000 in cleanup costs and his defense.

7. A contractor renovated the interior of a residential house built in the 1950s. The renovation involved paint removal from interior walls, window trim and door jambs. During the course of renovation, the contractor used plastic barrier to seal the areas he was working in. The homeowners continued to occupy the house during renovations. Additionally, the wife was six months pregnant. Renovation was finished prior to the birth of the baby; however, upon birth, the child tested positive for blood lead poisoning. Upon investigating the source of the lead, the couple sued the contractor for bodily injury as well as potential loss of future wage potential (due to a possible decreased IQ level for the baby) in the amount of $500,000.