Contractors' Insurance: Pollution & Professional Liability
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Pollution and environmental losses are real exposures for contractors. An increasing focus on the environment paired with an expanding list of known pollution sources have led to costly lawsuits that companies never anticipated. Many contractors assume that unless they’re engaged in pollution remediation, they have no pollution liability exposure. However, most contractors’ work entails the use and disposal of solvents, fuels and other chemicals or wastes.
Pollution Exposure Examples
There are a number of other pollution exposures contractors might not think about. For instance, a fuel line on an air compressor can suddenly rupture, discharging a fluid that scars a recently resurfaced parking lot. Also, if a contractor engages in an activity that interferes with the owner’s right to enjoy their property, the owner might bring an action alleging nuisance against the party causing the interference. Potential environmental liability exposures alleging nuisance can be loud noises, noxious odors and dust creation, among others.
Where You Are/Aren’t Covered
A standard commercial general liability (CGL) policy provides insured contractors with some coverage for third-party bodily injury, as well as property damage caused by pollutants arising out of operations. However, general and trade contractors can easily find themselves liable for damages that fall within the pollution exclusions of their CGL and auto policies, including the incidental transportation of waste or development of contaminated sites.
Most insurers will remove all coverage for pollution liability from the CGL by attaching a “total pollution exclusion” endorsement (CG 21 49) or “total pollution exclusion except for hostile fire” (CG 21 55) to the policy.
Pollution liability coverage is more widely available and affordable for contractors in recent years, including occurrence basis coverage, liabilities under the super fund and first party property damage. Most contractors’ pollution liability forms are designed to apply only to liabilities arising out of the contractor’s operations. Damages associated with pollution emanating from the contractor’s own premises and damage to the contractor’s own property is not covered. Also, both CGL and contractors’ pollution liability polices contain coverage restrictions for liabilities arising out of the ownership of automobiles. However, these coverages may be available by endorsement.
When contractors enter into design-build or construction management contracts, they take on certain responsibilities that require professional architectural and engineering expertise, as well as the corresponding professional liabilities.
- A hold harmless agreement may be declared unenforceable
- The design firm may not be in business when the claim is filed; most professional liability policies are written on claims made basis; therefore, the coverage is triggered when the claim is made
- The design firm’s professional liability policy doesn’t cover pure contractual liability
- The design firm’s professional liability policy limits may not be sufficient; most design firms carry relatively low limits of insurance
Since professional liability is excluded under many contractors’ CGL policies, if you answer ‘yes’ to any of the following questions, you likely have at least an incidental professional liability exposure:
- Does your firm enter into explicit design-build or construction management contracts?
- Does your firm perform services for a fee that involve no hands-on construction work? If yes, do these services involve skills that require special education, degrees or licenses?
- Does your firm have any licensed professionals, such as architects and engineers, on staff, or does it ever contract with such professionals for services?
Contractors’ pollution and professional liability can be written on a single policy with shared limits – reducing premium costs for an ancillary but important coverage that provides claim expertise, defense and indemnity.
- Pollution Liability Issues for Recyclers
- Commercial General Liability Webinar Recording
- Managing Risk Transference with Certificate Tracking Webinar (6/17)
- OSHA 10-Hour Construction Training (10/13)
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