As the world becomes more sensitive to environmental issues, the pressure on contractors to manage environmental risks continues to increase.
This article explores the value of having a Contractors Pollution Liability (CPL) policy, touches on limitations and exclusions, and presents pollution prevention practices to protect contractors’ businesses and the parties that hire them.
Limited Coverage
Insurance coverage for pollution incidents can be complicated. For instance, a common Pollution Liability endorsement on a Commercial General Liability (CGL) policy may read “Limited Pollution Coverage” or “Limited Pollution — Work Site Liability.” When a project owner asks for pollution liability coverage, endorsements like these should enable a contractor to be approved for the job, correct? Not necessarily.
“Limited” does not mean comprehensive. Further, Limited Pollution Liability endorsements are attached to CGL policies that often carry a list of pollution-related exclusions that include:
- Fungi or Bacteria Liability Exclusion1
- Lead Liability Exclusion2
- Asbestos Liability Exclusion3
- Absolute Pollution Liability Exclusion4
A Limited Pollution Liability endorsement may provide a coverage give-back for pollution events, but it’s not until you drill down into the endorsement that you may realize what you don’t have. For instance, you may find some of these limitations:
- The pollution event must begin and end within a 72-hour timeframe, which is not a lot of time, considering the release of pollutants may go undetected and grow gradually over time.
- Superfund sites may be excluded.
- Liability arising out of damage to underground storage tanks, which could certainly be located on work sites, may not be covered.
Comprehensive Coverage
In the same way that contractors may consider a stand-alone cyber policy rather than relying on a cyber endorsement to their CGL policy, obtaining a comprehensive solution with a CPL policy is often a more reliable approach as opposed to a pollution endorsement to your CGL policy (see Exhibit 1).
CPL insurance can provide coverage for third-party bodily injury and property damage, cleanup costs, defense expenses, as well as other coverages associated with “pollution conditions arising from covered contracting operations performed by or on behalf of the insured.”5
Environmental incidents related to construction projects have the potential to affect many different groups of stakeholders, such as nearby residents, workers, and users of natural resources, and these parties may seek retribution. When this happens, your company’s financial stability and reputation could be harmed if you don’t have comprehensive pollution liability insurance. An annual CPL policy can be distributed over several projects and may open a company up to be qualified to bid on more business.
Taking a Gamble When Not Required by Owner
Many contractors don’t consider purchasing CPL insurance unless they are required by a project owner or GC. An environmental incident can cause significant project delays and added project costs in addition to cleanup, natural resource damage, and third-party claims expenses.
When a contractor does not obtain environmental insurance, which is estimated at only 0.2% of project costs, and a pollution event does occur on a jobsite, the financial impact may not be limited to the contractor at fault for the environmental incident, but may also impact the owner and/or GC. To prevent unwanted claims, project delays, and costly cleanup, owners should ensure that all contractors on a jobsite carry adequate pollution liability insurance.
Additionally, the owner should require that all contractors on a jobsite name the owner as an additional insured on their pollution policies. This requirement provides an added measure of protection for the owner against litigation related to environmental incidents, including employee injuries, because the contractor’s pollution policy will provide defense for the owner.