As we edge further into the summer months, many contractors see an increase in work volume with longer days and universally better weather. That said, Mother Nature is not always predictable, and an unexpected storm can quickly lead to a flash flood, or other natural disaster that might result in what insurers may classify as a pollution event. Even something seemingly as innocuous as water run-off from a job site following a summer shower has the potential to result in a third-party claim against a contractor for damage. Thus, it is imperative that contractors have the right pollution coverage in place to remain secure and profitable.
The standard Commercial General Liability (CGL) insurance that contractors typically procure, however, includes a “total pollution exclusion” that may preclude any coverage for a claim that an insurer characterizes as a pollution claim. For example, think about a paving contractor who sprays an oil-based binding layer on crushed aggregate, planning to complete the asphalt roadway the following day. Overnight, a heavy rain causes the binding layer to run off into the groundwater supply, contaminating residential wells. Assuming the paving contractor only carried CGL insurance, the insurer may take the position that any damage claims and cleanup costs associated with the contaminated groundwater are not covered due to the “total pollution exclusion.”
One option to maximize potential coverage for an event that CGL insurers might characterize as pollution-related is to obtain Contractors Pollution Liability (CPL) insurance. CPL policies provide contractor-based insurance on a claims-made or occurrence basis and provide third-party coverage for bodily injury, property damage, defense, and cleanup as a result of pollution conditions (both sudden/accidental and gradual) arising from contracting operations performed by or on behalf of the contractor.
Companies that purchase CPL insurance typically include the following:
- General contractors—commercial, residential, municipal, highway/road, infrastructure, maintenance, mechanical, demolition, industrial, excavation, grading
- Trade contractors—HVAC, paving, carpentry, concrete
- Specialty contractors—foundation, pipeline and tank installation, drillers
- Remediation contractors
CPL policies are non-standard, so each form is different and can be modified to cover the various needs of the contractor. Policies can be offered on a project or blanket program basis. Project policies provide coverage for all operations performed by the insured during the construction period and can include “tail” coverage (an extended reporting period, or ERP, for claims-made policies and completed operations for occurrence policies) to address the statutes of repose in many states, or other contractual requirements. A maximum term of 10 years is typically offered. Moreover, wrap-up programs can be implemented to afford coverage for all contractors regardless of activity undertaken (environmental or non-environmental) on a specific project. A blanket program provides coverage on an annual basis for all defined covered operations taking place during the policy term.
In addition to the basic form, there are many coverage considerations that should be discussed and which can be added via endorsement to the CPL form. These considerations can provide protection for issues that are typically excluded from CGL policies. Some examples include the following:
- Nonowned Disposal Sites (NODS)
- Naturally Occurring Hazardous Substances (NOHS)
Although the buying motivation for contractors purchasing CPL policies may vary—contractual requirement, asset protection and loss events can all come into play—the protection afforded by a CPL policy is something all contractors should consider. For this reason, every project should be assessed for potential “pollution” risk and the need for CPL insurance, even if its scope does not include remediation or other environmental work. After all, wherever there’s an environment, there’s a risk for which a CPL policy can offer protection.