Within two weeks, the United States suffered two of the most devastating storms ever to hit American shores. For four days, Hurricane Harvey pelted Houston, Texas and the surrounding area with upwards of 40 inches of rain and 130 mph winds to destroy an estimated 40,000 homes, businesses and infrastructure causing nearly $200 billion in damage.
Just days later, the Islands of the Caribbean and then Florida began to feel the effects of Hurricane Irma, which would ultimately leave more than six million Floridians without power, damage or destroy 90 percent of Key West homes and create extensive flooding in numerous cities like Jacksonville and along the Georgia coastline.
Now comes the hard part—rebuilding midway through an ever-widening hurricane season that could produce as many as seven more hurricane-level storms over the next few months, according to the National Oceanic and Atmospheric Administration. That’s because even after the water recedes, emergency personnel, builders and residents will still have to deal with a range of issues that could both impede reconstruction efforts and negatively affect the health of millions.
Waters contaminated by sewage and debris as well as the mold and other microbial matter that begins to grow immediately after major storm events are constant threats. Unfortunately, many of the infrastructure issues that created flooding in the first place will now foster the ideal conditions for fungal growth. This includes miles of concrete and tons of wood and drywall soaked by floodwaters combined with the warm, damp and humid climates found in both Texas and Florida.
In fact, this was the story after Hurricane Katrina. New Orleans was besieged by wrecked homes, miles of flooded real estate and mold everywhere. In the aftermath of Sandy, many homeowners, commercial businesses and public housing authorities spent hundreds of thousands to millions of dollars to overcome mold problems because many commercial insurance polices did not cover its removal.
However, the commercial insurance landscape has expanded greatly in recent years. Formerly, most contractors or real estate owners (insureds) only held commercial general liability or property policies (or builders risk insurance) to combat water damage or the effects of microbial growth (mold or bacteria). In comparison, many of these same insureds now have environmental liability insurance—either contractors pollution liability (CPL) and/or pollution legal liability (PLL) to protect against such conditions.
Furthermore, most CPL and PLL policies today are designed to offer some form of emergency response cost coverage, or mitigation coverage (to prevent a third-party claim from ever being made) in instances where the event doesn’t qualify as an emergent situation (as defined by the policy). Therefore, it is imperative for insurers and their insurance agents/brokers to be acutely aware of the recovery amounts available to them under these policies as well as the terms and conditions of filing claims on a timely basis.
Occurrence-Based vs. Claims-Made Triggers
When it comes to the construction industry, two extremely important aspects of this coverage concern the insuring agreement and claims reporting provision stated within the CPL policy. The insuring agreement or trigger can either be occurrence or claims-made based and differ by each CPL coverage part. Very simply, if the bodily injury, property damage and/or clean up presents itself during the policy period, the occurrence trigger will provide coverage regardless of when the claim is actually made to the carrier.
As for a claims-made trigger, the claim must be made within the policy period for pollution incidents that arise out of services or contracting work performed subsequent to a retroactive date. That’s why claims-made policies in the environmental world are truly referred to as claims made “and reported” policies.
Reporting of a claim or incident in a timely fashion is vital but even more so under a claims made insuring agreement. In retrospect, insureds who experience water damage/water intrusion or mold growth must be keenly aware of their rights under such policies and terms and limitations that will hopefully rectify the problem. This is also reflected by the claims reporting provision itself. Regardless of the trigger, carriers require strict compliance with claims reporting provisions.
The typical reporting provision under a CPL policy requires an insured to report the claim, damage or incident (in cases where the event can eventually result in a claim) in a reasonable time frame (usually as soon as practicable but sometimes immediate reporting is required), after a responsible insured (defined differently in each form) is made aware of the claim, damages or incident. Furthermore, carriers require as much detail as possible about the claim or event.
Lastly, carriers usually require that the insured not admit liability, settle any claim or make payment without consent from the carrier. Doing so may totally void coverage. All contractors need to pay strict attention to these obligations under their CPL and report any incidents to their carrier or insurance agent/broker as soon as possible.
Unfortunately, no one can truly predict Mother Nature or the consequences of her fury. But, what contractors can do is ensure the risk financing mechanisms that businesses have incorporated into their overall all risk management program fund the losses and damages that they were intended for.