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 Environmental Contractors
Asbestos/Lead/Mold Consultants
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….
Drilling/Geotechnical Contractors
Drilling through and spreading of unknown preexisting contaminated soil; impacting groundwater from soil boring and monitoring well installation work (i.e. cross contamination of aquifers, etc.); impacting underground utility lines and other underground structures….
Ecological Consultants
Incorrect identification/delineation of wetlands, forest and other government-regulated areas; improper selection and usage of pesticides and herbicides; improper design of irrigation systems….
Environmental Engineers and Consultants
failure to identify contamination during site assessment/audits; impacting underground structures from subsurface investigation activities; cross contamination of aquifers due to improper well design, improper selection of materials and 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….
Geotechnical Engineers
Impacting of underground structures and groundwater from subsurface investigations; inaccurate foundation design and structural damage from settling due to varying soil conditions; inaccurate lab results due to faulty sampling or field testing techniques; construction delays and cost overruns due to differing site conditions….
Laboratories
Failure to detect contaminants due to inaccurate data interpretation; inadequate or improper storage of samples; performance of inappropriate/incorrect tests or analytical methods; lack of adherence to QA/QC procedures; improper sample preparation; exceeding sample holding times, lab equipment not properly calibrated….
Remedial Action Contractors
Impacting underground utilities and other underground structures leading to collapse and/or explosion; exacerbation of preexisting contamination during excavation and cleanup efforts; air emissions and spills resulting from handling of hazardous substances; 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….
Some additional environmental issues include; Inadequate procedures to ensure incompatible wastes are properly segregated and maintained in separate areas; Storing and stacking 55-gallon drums of hazardous wastes at multiple locations around the facility in uncontained areas over soils and/or near water; Lack of secondary containment around aboveground tanks; Storm water runoff; Releases to on-site soils, and on-site surface impoundments or landfills….
Environmental Claim Scenarios
- A developer retained a consultant to perform a geologic/geotechnical investigation for a residential subdivision. During final grading on the site, a major landslide occurred which extended off-site and impacted adjacent properties. The developer filed suit against the consultant for breach of contract and negligence in failing to provide proper design engineering services during excavation of a sloped area. The resulting settlement totaled $300,000.
- A developer hired a consultant to perform a subsurface geotechnical engineering investigation to determine the type of foundation necessary to support a proposed hotel. The geotechnical report included conclusions about the subsurface soil composition and a design recommendation for a shallow footing foundation. The report also included a disclaimer, which indicated the possibility that conditions between soil borings would differ from those actually sampled. During construction of the hotels foundation, the developer had to change the type of foundation that was originally proposed due to organic materials. Despite the disclaimer, the developer brought a suit against the consultant for over $500,000 for professional negligence, increased construction cost, lost profits and delayed opening and interest incurred on his loan for the hotel.
- 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.
- The Department of Energy (DOE) hired several environmental contractors to assist in operation one of its facilities. Following an accidental release of air pollutants, local residents filed a class action nuisance suit against the contractors, alleging emotional distress and diminished property value. The case was settled in the resident’s favor, for which an $80 million trust fund was established. Both the government and the contractors were required to contribute to the fund.
- 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 consultant failed to delineate wetlands on property, which was to be developed into a new regional landfill. As a result, the landfill had to be re-engineered, thus delaying its opening. The settlement amounted to $7 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.
- An environmental consultant performed a phase I site assessment at a site that had been previously used for industrial purposes. The consultant submitted a report saying the negligible contamination had been found. The property was subsequently sold. During excavation an unregistered underground storage tank was discovered on the site that had been leaking. The property developer sued the consultant for $1.2 million for remediation expenses, lost profits, and diminution in value.
- A consultant performed a modified Phase I assessment on a property being considered for purchase and determined that is had minor groundwater contamination. During construction of the newly purchased property, the site contractor discovered extensive contamination that resulted in significant remediation costs. The consultant was sued for over $1 million.
- A contractor was subject to cleanup costs after vandals opened an onsite mobile refueling tank causing diesel fuel to be released onto virgin soil.
Overlooked Benefits of Environmental Liability Insurance
Because environmental losses are a severity risk, rather than a frequency risk, the majority of environmental contractors lack the financial strength to self-insure their potential environmental liabilities. Since every environmental 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 Coverages for Environmental 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.
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, 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 clean up costs, legal defense expenses, transportation pollution liability, off site 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 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.
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.
