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Thursday, Nov 30, 2023

General Liability Insurance

There is a common misconception in the real estate and construction industry that only environmental and remediation contractors and design firms face environmental exposures. In reality, all members of the construction team need to protect themselves from legal issues arising out of environmental liability.

Virtually all property owners, developers, designers, general contractors and specialty contractors face risk associated with environmental exposure.

Many firms think they are already covered for pollution claims under their commercial general liability (CGL) policy. This may be partially true. However, the standard 1986 edition of the CG0001 CGL form provides extremely limited coverage.

The 1986 CGL form specifically excludes coverage of bodily injury and property damage arising from pollution releases, along with any costs or expenses associated with the testing, monitoring, clean-up, treatment, etc. of pollutants.

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Some pollution damage caused by products/completed operations and certain types of sudden and accidental incidents away from an insured’s business location or jobsite may be covered by the 1986 CGL policy.

Regardless, nonstandard CGL forms are often used and/or an absolute pollution exclusion endorsement is added by the issuing carrier that excludes all pollution liability coverage. If you have environmental liability loss, your general liability insurance most likely won’t cover your claim.

& #711; Contractors Comprise

Largest Percentage

General contractors comprise the largest percentage of companies in the real estate and construction industry that are misinformed about environmental liability exposures. General contractors, especially those who do not provide any labor on projects, feel that they aren’t at risk because they aren’t actually self-performing any of the work.

In one case, a general contractor was retained for a tenant improvement project. The general contractor hired a contractor for asbestos abatement of the area to be remodeled. But the plans furnished to the asbestos contractor were incomplete, and an area was missed.

The demolition contractor came across the asbestos during their portion of the work, but by then, it was too late. The construction workers and building occupants were exposed.

Some specialty contractors are also at an especially-high risk. Take mechanical contractors, for instance. In one case, a mechanical contractor installed a new HVAC system in a commercial new office building. In less than three years, the building was diagnosed with “Sick Building Syndrome” due to mold and mildew growth causing the release of airborne bacteria throughout the building.

The contractor was slammed with claims totaling in excess of $100,000. The contractor also had to eat the cost of decontaminating the HVAC system.

& #711; Material Washed

In Storm Drain

Another pertinent case is where a paving contractor put down the tack coat the night before they layed the asphalt for a new parking lot. That night, there was a huge rainstorm, and the petroleum-based material washed into the storm sewers and contaminated a neighboring stream. The company had to pay more than $200,000 for the clean-up.

In many environmental liability cases, it can be proven that the contractor should not be held liable. But the contractor still has to go through the court system, and can spend hundreds of thousands of dollars in legal defense fees. If the company has environmental liability coverage, the insurance carrier will handle the battle on the contractor’s behalf.

Case in point: A general contractor was hired to build a new U.S. Postal Service facility. The general contractor excavated the site , which unknowingly, was contaminated , and moved the soil to another site, thus spreading the contamination. Although the contractor was indemnified from the owner that the site was not contaminated, it still had to go through the court system to prove that it was not at fault, thus spending a large amount on legal defense.

A company can be in business for decades without having a single exposure. Companies need this coverage for severity, not necessarily for the frequency. You may never have a claim. But if you do, and you aren’t properly insured, you stand to lose a lot of money.

There really is no excuse for companies to not add environmental liability coverage to their risk management plan. It is relatively inexpensive. For contractor’s pollution legal liability coverage, the cost usually runs between 5 cents to 20 cents per $100,000 of revenues for $1 million in coverage.

& #711; Thorough Research

Is Necessary

Firms also need to thoroughly research an insurance broker and carrier before purchasing environmental liability coverage. Few brokers have expertise in environmental liability, and few carriers even provide environmental liability coverage. Once a firm finds an insurance broker and carrier that provides the insurance, it has to make sure they understand the potential risks the company faces, and that they can provide it with a policy that offers adequate coverage.

Schabarum, CPCU, AFSB, is a principal with Cavignac & Associates, a commercial insurance brokerage firm specializing in insurance for the design and construction industry.


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