By Ivy Riggs, PartnerOne Environmental Executive Underwriter
Have you ever been asked a question so peculiar you could only conclude that the person asking it had no idea what they were talking about? For many producers who work frequently with contractors, this situation may arise often. But it isn’t necessarily because the contractors themselves are unfamiliar with insurance jargon. Rather it is more often because they have been presented with contractual requirements that simply seem bizarre and they want YOU to satisfy them. What now?
This article examines two specific environmental insurance requirements that may appear in your clients’ contracts. At first glance, they are both a bit peculiar. We will give you some background for understanding these requests in context, as well as suggestions for how you might go about satisfying the intent, if not the actual letter, of these provisions.
The most common such request is for “sudden and gradual” pollution liability. This wording seems counter-intuitive: how can a pollution incident occur both suddenly and gradually? This language is actually a hold-over from the early days of environmental insurance, when coverage was available only for “legacy” pollution that occurred slowly over many years, such as gradual seepage from an unlined hazardous waste pit. During the same period, coverage for “sudden and accidental” pollution was sought under standard GL policies. As losses from both types of pollution increased, standard GL markets responded with the total pollution exclusion, while E&S carriers touted the GL coverage gap as a selling point for their own specialty environmental products.
Rather than argue which line of business should properly respond to which type of pollution, broader terms that covered many circumstances became desirable. This is how the “sudden and gradual” wording came about. It is best interpreted as an either-or statement, rather than a both-and requirement. What is interesting is that time element provisions rarely appear in occurrence-based Contractors Pollution Liability (CPL) insurance, being more applicable to Site Pollution policies where the distinction originated. CPL coverage is tied to a contractor’s work at a jobsite, regardless of whether that work results in an abrupt release of contaminants (e.g., accidentally severing a fuel line) or in a slow dispersal of hazardous substances (e.g., water damage resulting in mold growth). So simply reviewing the quoted CPL terms for any time element restriction easily satisfies this particular requirement.
Another common contract provision is to provide environmental liability coverage for both onsite and offsite pollution. Once again, this wording has been inherited from Site Pollution policies, wherein coverage is tied to a unique insured property. Generally speaking, this scheduled property is owned, leased, or controlled by the named insured. So an approachable way to explain the onsite versus offsite language is to contrast my property (1st party) versus your property (3rd party). But this distinction becomes irrelevant for most contractors because all of their jobsites are 3rd party locations (in fact, this is a condition precedent to coverage in most cases). Consequently, the requirement may be read as the client specifying that coverage shall apply at their property (the jobsite) and at any adjacent property that may be impacted by pollutants resulting from the contractor’s operations and migrating from the jobsite. This type of broad 3rd party liability is inherent to the average CPL policy. Thus, the onsite/offsite provision can be considered satisfied, assuming the contractor has verified he is not required to insure against pollution at his own facility.
Are contractors ever contractually required by a client to carry Site Pollution coverage for their own facilities? Yes, in certain types of situations, they are. Contact your PartnerOne Environmental representative for more information or to discuss any challenging questions you may have.