Industrial pollution is a global problem. According to the U.S. Environmental Protective Agency (EPA), industry is responsible for approximately 50 percent of the pollution found in the environment today.
This includes waterways contaminated by industrial dumping, improper waste containment, and leaks and spills that seep into groundwater and soil. With an increasing concentration on environmental concerns, even the most conscientious companies are preparing against the litigation, penalties and financial consequences surrounding unforeseen disasters and accidents.
For instance, earlier this year a leading national hardware supply chain was fined by the EPA because several of its renovation contractors based in nine different states reportedly violated numerous lead paint safety standards. The contractors were cited by federal investigators for improperly establishing clean-up or decontamination areas in each home. The good news is that there were no claims of bodily injury. While this is a soft example, it does emphasize that no company, regardless of its stature or name brand, is immune from environmental liability, including vicarious environmental liability.
As a result, incidents like these are a leading motivator behind the purchase of contractor’s pollution liability (CPL) coverage. Purchased either on a “blanket” or “project” basis, CPL provides protection to any construction firm for pollution conditions that occur as a result of covered contracting operations performed by or on behalf of the named insured (the contractor). In addition to the “base” coverage for jobsite activities, CPL also offers the versatility to cover the transportation of waste and materials to and from non-owned disposal facilities, the insured’s legal liability at those disposal facilities, as well as some level of coverage for the insured’s owned/leased locations. Today, contractors can even include what is commonly known as emergency response cost coverage, which covers costs incurred by the insured to prevent further damage, while reducing the likelihood of third-party claims.
Today, approximately 40 insurance carriers offer some form of CPL coverage, with nearly all regularly modifying or updating their policy forms. With so many competitors in the market, CPL pricing has remained relatively soft during the last several years. That includes pricing on project policies that probably have dropped by about 50 percent in the past five years. This includes the carriers that are now offering 10-year completed operations periods on projects when required by contract.
In addition, capacity is not an issue. Limits for CPL from one company can be as much as $50 million, although most companies top out between $10 million and $25 million. Excess limits are typically available if needed with blanket or practice coverages mostly included in annual or practice policies. Furthermore, the supplemental coverage of defense expenses (defense outside the limits) at the $100,000 to unlimited range has expanded with several carriers participating in the trend.
Today, nearly all CPL policies are written on an occurrence basis, although there may be some coverage parts that remain with claims-made triggers, specifically, as pollution legal liability (PLL) for an insured’s locations. Non-owned disposal site coverage, “mold,” “microbial matter/bacteria” or bacteria, although predominantly offered on a claims-made basis, also can be provided on an occurrence basis depending on the carrier. When it comes to the actual definition of “pollutant” or “pollution conditions,” carriers are increasingly expanding the definition to include “legionella,” “bacteria,” “low-level radioactive waste,” “electromagntic fields,” and/or “medical/infectious/pathological wastes,” etc. Another aspect to note is that when claims-made coverages are converted to occurrence, a “nose” endorsement should always be included to eliminate potential liability and exposure gaps.
Another growing trend is that many companies are offering the above coverage parts included in the basic policy and as an extension of basic “jobsite” coverage forms. This includes the pollution conditions arising from the transportation of materials either by or on behalf of the named insured or the challenges associated with the named insured’s waste at a non-owned disposal site.
Further enhancements available from some companies either as a supplementary limit or a sublimit include:
- crisis management expenses to assist with the expenses associated with public relations, media management, etc., as a result of a pollution condition;
- litigation and subpoena expenses to assist with the expenses associated with loss of earnings and reasonable expenses for attendance at depositions, etc.;
- green building materials to assist with the increased expense for remediation if using environmentally sustainable/energy-efficient materials;
- first-party indemnification (an excess and “difference in conditions” coverage over a subcontractor’s pollution coverage); and
- mediation credit (if claim disputes are handled by an approved mediator then a benefit accrues to the insured, such as reduced retention).
Going forward, the availability of CPL is expected to stay plentiful with multiple carriers providing soft and competitive premiums coupled with enhancements and supplementary coverages. This trend is even expected to expand as the professional liability risk of contractors evolves and CPL-only policies increasingly combine with professional/pollution liability coverage forms.