Most construction contractors are acutely aware of their need for general liability, workers’ compensation and inland marine insurance.
Construction contractors rarely consider that their company may end up in court for performing work that damaged the environment, but it happens more frequently than imagined.
The U.S. Environmental Protection Agency has determined that construction contractors have a significantly high potential for contributing to environmental damages. The EPA considers general contractors, subcontractors, engineers and architects as suspect when it comes to environmental pollution and the resulting damages pollution causes. Unfortunately, some contractors may not recognize the significant risk of environmental claims.
A small family-owned grading contractor was hired to excavate some trenches on the perimeter of a construction project. The soil that was excavated was temporarily piled up on a nearby vacant industrial property. When the excavated trenches were backfilled by the contractor, the excess soil was spread across the construction site and used for grading purposes.
Shortly after the completion of the construction project, dioxin was found in other soil at the industrial site where the excavated soil was temporarily stored. After further testing, dioxin was also found in the soil that was spread around the construction project. After EPA testing had been completed, it was determined that the contamination had also seeped from the surface into a water supply.
A number of parties to the project were found liable for the pollution, which included the grading contractor, which became responsible for a multi-million-dollar cleanup. The grading contractor, a family-owned business that had survived for three generations, no longer exists.
IMPORTANT REASONS FOR CONSIDERATION
Certainly, a typical environmental pollution case should motivate contractors to consider environmental insurance, but if not, consider that:
- most general liability and professional liability policies exclude coverage for pollution claims;
- spills of toxic chemicals that are stored and used at jobsites such as solvents, finishers and fuel can lead to a pollution claim;
- exposure results from hazardous materials such as fiberglass, asbestos, lead paint and mercury that is not properly disposed of;
- due to lack of a safe drainage strategy, stormwater runoff from project sites may occur; and
- inadvertently puncturing an underground pipeline or storage tank may result in the release of hazardous materials.
All of the episodes listed above can affect general contractors and subcontractors as well. Any contractor or subcontractor that becomes a party to a project can be held directly or indirectly responsible for a pollution claim and the significant costs of remediation.
ENVIRONMENTAL INSURANCE COVERAGE
Fortunately for construction-related contractors, there is a standalone environmental insurance product that can provide financial protection for defense costs, settlement agreements and judgments awarded by the court.
Typically, there are several coverage options for environmental insurance coverage.
- It can be purchased on a claims-made or occurrence basis.
- It provides coverage for third-party claims of bodily injury or property damage and environmental damage that results in remediation costs.
- It can be site-specific for properties owned by the contractor.
- It provides coverage for storage and staging of equipment used at a covered job site.
- It has the ability to expand the definition of pollution conditions.
Construction is a highly regulated and litigious industry. General contractors and subcontractors should take steps to transfer the risk of polluting the environment and the costs associated with cleaning up environmental damages.
Anthony Kammas is a Partner at Skyline Risk Management, Inc. He serves as the secretary-elect of the Professional Insurance Association (PIA) of N.Y., is a member of the Hellenic American Chamber of Commerce and a member of the Hellenic American Leadership Council. With over a decade of property and casualty experience, Anthony is an industry leader specializing in real estate and construction insurance. In 2015, new construction costs in New York City for residential projects grew to an all-time high of $18 billion. Anthony and Skyline Risk Management procured insurance for almost $1 billion of that total cost in 2015.