What is a Pollutant?
Any material, substance, liquid, product, etc… which is introduced into an environment for other than its intended use / purpose. In other words, something that ends up where it doesn’t belong. Fresh water, cheese, and milk have all been classified as pollutants by Insurance Carriers under various circumstances.
Many insureds 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 insureds exposed to potentially uncovered claims. What pollutants are impacting your business?
Environmental Exposures Impacting Remediation Contractors
May include, but are not limited to: failure to identify or mischaracterize contamination during surveys; faulty design of remedial action and management plans causing bodily injury; diagnostic laboratory errors; hazardous air emission from incomplete abatement; inaccurate post-abatement certification; impacting underground structures from subsurface investigation activities; cross contamination of aquifers due to improper design, selection of materials, equipment leading to remedial system failure; improper installation and permitting of remedial systems leading to hazardous waste releases; failure to notify public and/or EPA of contamination or releases; failure to effectively monitor and maintain safe working conditions; CERCLA liability due to O&M activities at Superfund sites and from waste disposal site selection; vicarious liability due to use of subcontractors and sub-consultants; inadequate or improper storage of samples; performance of inappropriate/incorrect tests or analytical methods; exacerbation of preexisting contamination during excavation and cleanup efforts; inadvertent mixing of incompatible wastes; release of oils/fuels from equipment leaks and vandalism; trench collapse due to improper shoring; completed operations exposures due to incomplete or improper line hookup and remedial system construction….
Environmental Claim Scenarios
- A consultant hired a driller to perform sampling of subsurface soils. The consultant directed the driller to drill and draw a sample. The driller accidentally advanced through a UST. Both the consultant and driller were sued for $140,000 in damages, including UST repair and soil remediation.
- A consultant provided plans and specification for the installation of monitoring wells at a contaminated facility. Contamination had seeped from the ground surface into a shallow aquifer. Following installation of monitoring wells, sampling showed evidence of contamination in both the shallow aquifer and in lower lying aquifer. The facility owner filed a claim against the consultant, alleging that well placement (location and depth) was responsible for the cross-contamination of the lower lying aquifer. The settlement amounted to $250,000.
- During remedial activities at a Superfund Landfill site, a remedial action contractor (RAC) inadvertently crushed several drums that were improperly classified as empty. As a result, several gallons of hazardous contents were released, causing localized soil contamination. The RAC failed to notify the EPA of the release, which resulted in both criminal and civil actions against the contractor. The RAC was held liable under CERCLA and was required to pay penalties exceeding $6.1 million.
- A remediation contractor excavated a small underground diesel tank near a distribution warehouse and noted that stained soil surrounded the tank. The project manager advised the firm to continue excavating around the tank, which pulled up contaminated soil. Because of the foundations proximity to the distribution center, the excavation of contaminated material without proper shoring equipment caused the building’s wall to collapse. The distribution center’s walls and roof also collapsed. Reconstruction costs, business interruption, lost profits and additional remediation expenses totaled $1.2 million.
- A fire water restoration contractor was accused of not remediating mold at a home where he was contracted to do so. The homeowner had other work performed that caused the mold but brought all contractors and sub-contractors into a lawsuit. The insured incurred $30,000 in costs to defend themselves against the groundless claim.
- An environmental services contractor was hired to perform a tank cleaning by their client. During the tank cleaning, a 4-inch hose connected to the contractor’s vacuum truck failed. 127 gallons of fuel oil was released onto the ground and flowed into an adjacent waterway. The contractor called the 24-hour/7-days a week emergency response hotline, listed in their Contractor’s Pollution Liability (CPL) policy, immediately after the spill. The insurer coordinated with their local environmental technical consultant and the contractor to respond to the spill. An experienced environmental remediation firm was sent to the site of the release to start the remediation effort. The local firm also interacted with the State environmental agency on the contractor’s behalf. The contractor’s CPL policy paid $209,000 for expenses associated with this release.
- An asbestos abatement contractor was hired along with an electrical contractor to remove asbestos insulation from ceiling mounted light fixtures in an attic. The asbestos contractor removed the insulation and the electrical contractor was to remove and replace the fixtures. After hours, someone turned on the lights and the exposed bulb ignited the new insulation which started a fire. In trying to extinguish the fire, water was sprayed in the attic. The result was fire and smoke damage as well as water damage to the structure and contents.
- A mold abatement firm was contracted to remediate mold from a residential condominium complex. The scope of the contract was for mold remediation but only after the moisture intrusion problem had been repaired by the claimant. Under the direction of the construction manager and environmental consultant on the project, the Insured completed the mold abatement of the buildings. Plaintiff sued for Bodily Injury and Property Damage for mold recurrence. Insured alleges the repairs to the roof and chimney failed to correct the moisture problems. Carrier is incurring costs associated with the defense coverage.
- A remediation firm was hired for an abatement project in an old warehouse. During the selective demolition process, the contractor damaged a hidden water pipe behind the wall. They immediately shut off the water but contents stored in that area were damaged. Carrier is paying property damage for the structure and the warehouse contents.
- A fire and water damage restoration contractor was hired to do the emergency water extraction of a residence. The homeowner later found dust, had it tested and found that it contained lead. The homeowner’s personal insurance carrier is alleging the contractor was not properly qualified to do the emergency water extraction, thus causing lead contamination. Carrier has set the reserve at $15,000 for damages and $5,000 for defense costs.
- A contractor was subject to cleanup costs after vandals opened an onsite mobile refueling tank causing diesel fuel to be released onto virgin soil.
Benefits of Environmental Liability Insurance
Because environmental losses are a severity risk, rather than a frequency risk, the majority of remediation contractors lack the financial strength to self-insure their potential environmental liabilities. Since every remediation 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 for Remediation Contractors
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. 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, asbestos, defense outside the limits, off-site disposal coverage.
Environmental service providers 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 contractors 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?
Professional Liability
The absolute pollution exclusion in a standard commercial general liability policy excludes sudden and accidental, and gradual pollution losses due to the release of “solid, liquid, gaseous, or thermal irritants or contaminants, including smoke, vapor, soot, fumes, acid, alkalis, chemicals and waste”…. Engineering firms who work in solving environmental exposures faced by their clients need to have coverage for negligent acts, errors or omissions that may result in damages caused by pollution conditions.
There are various ways coverage can be written to protect the engineering firm and their clients. Professional liability on a standalone basis or professional liability including general liability (GL) is available. For engineering firms that may also get involved in doing hands on work at the job site, they can add to the coverage contractors pollution liability (CPL) insurance, (refer to contractors pollution liability insurance for more details). Coverage for the professional liability is done on a claims made basis. For the GL and CPL, coverage can be on a claims made or occurrence form basis.
You have to also keep in mind there are contractors that in the performance of their work may act in a consultants or engineers capacity. You need to make sure you offer your client the broadest program available to meet their needs. By combining the coverage’s under one contract you are eliminating potential gaps in coverage. Coverage can be purchased on a job specific basis or to cover all the work performed by your client on an annual basis.
Coverage applies specifically to services / operations identified under the policies declaration page.
Environmental Impairment Liability (EIL)
EIL is for environmental service providers that own, rent, lease, operate or have any other insurable interest in real property (a fixed site facility such as a service garage and shop, transfer/recycling facility, landfill….) 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 overturn 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.