Contractor Pollution Liability Insurance 101
Sheboygan County is seeing an increase in Legionnaires’ disease.— Sheboygan Press (9/17/20)
When we read headlines of this nature, our mind’s go to losses that may be due to construction-related activities. Then, we start to think of insurance products that may cover our clients in the event of such a loss. In this case, contractor pollution liability insurance is at the top of the list.
Contractor pollution liability insurance (commonly referred to as CPL) became a necessary insurance solution when standard general liability policies incorporated absolute pollution exclusions, leaving all industries, including contractors, without any liability insurance protection. Dangerously, these companies still faced the risks and consequences of negligently-caused events that are alleged to have produced environmental related claims. As a result, the insurance industry developed products to meet this need including the contractor pollution liability policy. Similar products are available to other industries as well.
What does CPL cover?
The CPL is policy intended to cover the environmental property damage and bodily injury contractors face as a result of their construction activities. Importantly, it also intends to cover defense costs and cleanup costs as a result of pollution events alleged to be caused by the contractor, or for whom they may be responsible, whether suddenly occurring or gradually happening over time.
It’s important to note that pollutants are not limited to what we may envision as hazardous materials. “Irritants” released as a result of operations are included by the CPL in what can lead to environmental claims. For example: thousands of gallons of milk erupting from negligent construction activities at a plant into a stream leads to the destruction of thousands of fish resulting in significant property damage and cleanup costs.
If the Legionnaire’s disease outbreak referenced in the headline above was tied back to the activities of a contractor, it’s the CPL that would be triggered for coverage.
As a result, CPL now serves as the financial risk transfer insurance product purchased by contracting entities ranging from those such as environmental contractors and remediation contracting firms to general and specialty trade firms that face this exposure to potential loss.
Owners, Lenders, and General Contractors May Require You to Carry a CPL Policy
Many upstream parties such as owners, lenders, and general contractors have even made the CPL a mandatory additional liability policy in project insurance requirements.
Failure to carefully read these requirements may lead to the detriment of a contractor who has signed the contract, only then to find out the CPL is a required policy. As always, sharing these insurance requirements with your M3 team prior to signing will reduce the likelihood of this and other costly oversights. Our focused construction and real estate practice group is experienced in the review of insurance specifications and accurate certificate of insurance issuance which provides additional assurance to our clients.
Key considerations when purchasing CPL
CPL can be provided on an annual basis for all projects or on a project-specific basis when needed to match unusually high project requested limits. Coverage is written either on a claims made basis (with “tail” or extended reporting period availability) or on an occurrence basis. Additional insured status can be accommodated if required in the specifications for upstream parties.
Premium cost is determined, as you would imagine, by the environmental hazard potential of the industry faced by the contractor seeking coverage. Generally, minimum premiums are in the $2,500 to $5,000 range. Higher hazard contractors will pay more, and their annual revenue will factor into the cost. Limits are usually $1,000,000 to $5,000,000, and also determine premium cost. Higher limits are available if desired or mandated.
Review, discussion, and a well thought out risk management plan is needed to manage this risk. Take time to consult with your M3 account team to further evaluate your individual company need for CPL. Fortunately, as a top 50 U.S. insurance brokerage, we have many available insurance companies eager to provide solutions for the environmental risks you face directly or contractually stemming from your building activities.