Contractors who regularly work with hazardous materials typically require a specialized coverage form. Standard insurance carriers either don’t want to write or aren’t equipped to properly write coverage for environmental exposures. That’s where surplus lines carriers enter the arena, offering combined forms including Commercial General Liability (CGL), Contractors Pollution Liability (CPL) and Professional Liability (PL). For the purpose of this discussion, we’ll focus on the CGL/CPL.
Because the CGL form excludes pollution liability, it’s important for environmental contractors to purchase both CGL and CPL. There are advantages to buying a combined policy form. Many carriers offer package credits for binding more than one line of coverage and a combined form also eliminates or lessens the chance there will be a gap in coverage. If there is a gray area, the carrier will determine whether it’s a CGL or CPL claim but if there are two carriers involved, claims handling becomes more complicated. Writing multiple lines with one carrier also helps retain the account at renewal and helps develop loyalty with the carrier.
For many carriers, the determining factor as to whether an account has enough “environmental” exposure is integral. Most carriers require a minimum of 25-50% environmental operations before they’ll consider offering a combined policy form. Contracting operations that fit this category include but are not limited to:
- Asbestos abatement
- Soil/Groundwater Remediation
- Lead Abatement
- Tank Contractors
- Mold Abatement
- Emergency Response
- Fire & Water Restoration
- Industrial Cleaning
In addition to writing the CGL and CPL lines, some contractors may have other exposures that may be addressed by adding endorsements. Your clients understand their own business but they rely on you to make sure they have the proper coverage to insure that business so it’s important for you to ask the right questions. You may be talking with an asbestos abatement contractor who clearly needs the CGL/CPL but do they transport the bagged asbestos to a disposal site or bring it back to their own site for temporary storage while awaiting a 3rd party to transport? These are exposures not typically covered in the policy forms but may be included by endorsement. Reviewing and understanding exclusions is equally important. Some carriers have exclusions for asbestos, lead, mold, EIFS or work performed by subcontractors. You should ask for and review specimen forms and endorsements to ensure you understand the policy you are offering to your clients.
What does it cover?
Within the CGL portion of the combined form, the policy provides coverage for Bodily Injury, Property Damage, and Defense Costs for claims arising out of the insured’s operations at premises owned or controlled by the insured as well as for their ongoing and completed operations performed away from their premises at a jobsite.
Within the CPL section of the combined form, the policy again provides coverage for Bodily Injury and Property Damage, but only for their operations performed at a jobsite as well as clean up costs at the site. Coverage applies to work done by the insured or on the insured’s behalf and includes defense costs coverage if the insured is involved in a lawsuit.
Depending on optional endorsements selected for a policy, coverage may also apply to 1st/3rd party transportation, non-owned disposal sites, temporary on-site storage, mold, punitive damages and terrorism.
Claim Scenarios
The Department of Energy (DOE) hired several environmental contractors to assist in operating 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 residents’ 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.
An excavation contractor was responsible for a portion of the cleanup costs at a landfill after the material discarded contained a variety of contaminants, including asbestos. Even though the contractor was unaware that the material was contaminated, the landfill filed suit against the contractor for improper classification and disposal of waste material.
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 the contaminated soil. Because of the foundation’s 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.
A family-operated gas station hired a UST contractor to remove two underground storage tanks and associated contaminated soil. During the course of storage tank removal, the contractor’s backhoe hit a natural gas pipeline causing an explosion. Claims exceeded $2.5 million
An industrial cleaning contractor vacuumed contents of large storage tanks at a chemical plant. In the process of venting the tanks, the contractor inadvertently pumped toxic gas into the space. Several of the facility’s employees were overcome and died from the fumes. The contractors CGL policy declined the claim citing the pollution exclusion in the policy. Their CPL policy declined due to the Actions Over exclusion
An asbestos abatement contractor was hired along with an electrical contractor to remove asbestos insulation from ceiling mounted light fixtures in an attic. The asbestos contractor removed the insulation and the electrical contractor was to remove and replace the fixtures. After hours, someone turned on the lights and the exposed bulb ignited the new insulation which started a fire. In trying to extinguish the fire, water was sprayed in the attic. The result was fire and smoke damage as well as water damage to the structure and contents.
A mold abatement firm was contracted to remediate mold from a residential condominium complex. The scope of the contract was for mold remediation but only after the moisture intrusion problem had been repaired by the claimant. Under the direction of the construction manager and environmental consultant on the project, the Insured completed the mold abatement of the buildings. Plaintiff sued for Bodily Injury and Property Damage for mold recurrence. Insured alleges the repairs to the roof and chimney failed to correct the moisture problems. Carrier is incurring costs associated with the defense coverage.
A firm was hired for an abatement project in an old warehouse. During the selective demolition process, the contractor damaged a hidden water pipe behind the wall. They immediately shut off the water but contents stored in that area were damaged. Carrier is paying property damage for the structure and the warehouse contents.
A fire and water damage restoration contractor was hired to do the emergency water extraction of a residence. The homeowner later found dust, had it tested and found that it contained lead. The homeowner’s personal insurance carrier is alleging the contractor was not properly qualified to do the emergency water extraction, thus causing lead contamination. Carrier has set the reserve at $15,000 for damages and $5,000 for defense costs.
Overcoming Hurdles when discussing ECP with your client
I have my GL on a Business Owners Policy (BOP) so I don’t need CGL.
The General Liability protection in the BOP policy insures against claims for arising out of your business activities at premises you own or control. This type of limited GL doesn’t provide coverage for your operations at a jobsite.
I’ve never had a claim. I’ll take my chances.
Things happen, no matter how careful you are or how qualified or well trained the staff. Since the policy provides defense cost, whether you’ve done anything negligent or are just being accused, defense expenses alone could bankrupt a company. With proper insurance, the carrier will handle the claim while you continue to run your business.
I don’t need the coverage/I’m not required to carry it.
More often than not, construction and contracting projects are being required to carry both GL and CPL by contract. The project owners are requiring this coverage before they will hire a contractor to do the work. By having an insurance policy in place with proper coverage, it may give you the advantage in winning the job. It makes your business more competitive and shows projects owners that you are a prudent business owner, having considered the value to insurance before it was required.
I sub most of my work.
The CGL/CPL policy form typically provides coverage for the negligent acts of your subcontractors (work performed by you or on your behalf). If you hire a subcontractor who doesn’t have their own insurance and who failed to list you as an additional insured on their policy, your policy will be the one to respond. So if the subcontractor you hired to drill a monitoring well accidentally hits an underground utility line and is sued by the utility company, your policy will respond if your subcontractor has no insurance or too little insurance.
It’s too expensive.
Insurance policies aren’t “one size fits all”. They can be tailored to meet the needs of you business. Coverage and pricing is based on the type of services offered as well as the gross revenues estimated for the year. Pricing may be adjusted upward or downward, depending on your needs but most policies start at $2,500 MP. Deductibles also affect the premiums.
Another carrier is cheaper.
As with insurance coverage and policies, no two carriers are the same. It’s important not only to compare price, which is important, but to also compare the carriers by reputation or financial stability, the policy forms, enhancements included/available for an additional premium, claims handling and service. If your client is at a jobsite and can’t get to work without an AI or if they need pricing for an increased limits bid, strong service may make the difference in a having satisfied insured.