Contractors in any trade can be the target of a pollution liability lawsuit – often to catastrophic levels. Consider the following true claims stories:

During excavation of a construction site, dewatering activities released contaminated groundwater into municipal storm drains resulting in substantial cleanup and restoration costs.

Renovating exterior fire escapes caused the release of lead-laden dust into a building interior, resulting in a serious cleanup project and class action suit for lead poisoning of minor-age tenants.

A general contractor completed a large mixed use commercial and residential development that had a systemic plumbing defect. Water damage caused an outbreak of toxic mold resulting in business interruption and costly remediation expenses.

These and many other exposures may not be insured due to an “absolute pollution exclusion” included in 98% of General Liability (GL) policies. The pollution exclusion was designed to deny coverage for any type of environmental-based event. Other risks, such as off-site transportation, i.e. release of hazardous materials from trucking accidents, and hazardous disposal site exposures are excluded under standard property and casualty policy forms as well.

Defining pollutants for contractors

A pollutant is anything governed by environmental law that can be released, can escape or disperse into the environment, resulting in damage or loss. Other environmental risks can be covered under the manuscript definition of “pollution.” Mold, for example, a common pollutant written into environmental insurance forms, is the number one loss leader in environmental insurance claims.

An environmental release can happen during any phase of construction. After completion, a contractor can be held liable for defects that cause pollution conditions. Consider the following risks for each phase:

  • Site Prep: Discovery of hazardous fill materials, pesticide-contaminated soil, abandoned hazardous liquid lines
  • Demolition: Release of asbestos, lead-based paint, discovery of sub-slab contamination, improper disposal of contaminated materials
  • Evacuation: Discovery of underground storage tanks, buried waste materials
  • Construction: Contaminated runoff, illicit abandonment, mold formation on wet materials, hazardous materials release
  • Post-Construction: Mold, water system contamination resulting in Legionnaires’ disease, off-gassing of carpets and surface coatings, sick building syndrome, reopener risks affected remediated sites

Pollution insurance coverage for contractors

Since the pollution risk is so great, and uninsurable on most GL policies, a dedicated environmental insurance policy provides the needed coverage.

Dedicated pollution insurance coverage can cover both first and third party damages arising out of the release, escape or dispersal of an irritation or contamination event. This includes liability for bodily injury, property damage, in most cases clean-up costs, damage to natural resources and defense costs.

There are two types of pollution coverage – pollution legal liability (site pollution liability), and contractor’s pollution liability coverage. Consider the differences:

  • Pollution Legal Liability (PLL), aka site pollution – This covers site owners only for: site cleanup arising from pollution conditions or emanating from the site, third-party legal liability for bodily injury and property damage claims, defense expenses arising from the pollution liability and business interruption caused by pollution.
  • Contractor’s Pollution Liability (CPL) – This policy covers contractors for: site cleanup arising from pollution conditions emanating from the construction site, third-party coverage for bodily injury and property damage claims, defense expenses arising from the pollution liability during the course of construction and from completed operations. Project owners can be added as additional insureds on the CPL policy.
  • Project-specific policies and Wrap-ups - Many large-scale projects (mixed use developments, stadiums, commercial centers) are covered with project-specific pollution liability policies. Owners and public entities often require dedicated CPL limits for complex projects in their contracts or RFPs. CPL policies can be integrated into owner-controlled or contractor-controlled Wrap-up programs. These types of solutions preserve limit capacity in large projects and sequester loss experience from operational, corporate CPL or PLL policies.

Ideally, construction and or redevelopment projects occurring on sites where known pollution conditions and or a high risk of the discovery of unknown pollution may occur, should be insured for environmental risk by both the PLL and CPL policies.

Because environmental or pollution insurance does not have a standard policy, it is critical to work with an experienced broker who can negotiate appropriate definitions of “pollutant” and limit exclusions based on your business’ activities and unique pollution risks.

Contact your HUB Construction specialist for more information on how you can secure pollution insurance for your business’ risk.