In their day-to-day work, contractors often face a number of environmental risks that may pose a threat to the livelihood of their business. From soil erosion to toxic fumes, it takes just one hazardous incident to seriously damage the reputation, not to mention the balance sheet, of your contracting business.

While many contractors assume that protection against pollution events is covered in their commercial general liability policy, the truth is that often times CGLs don’t cover pollution incidents and may specifically exclude certain events, leaving contractors on the hook for environmental liabilities. That’s where Contractors Pollution Liability Insurance comes in.

What is Contractors Pollution Liability Insurance?

Contractors Pollution Liability Insurance provides contractors with third-party coverage for bodily injury, property damage, defense, and cleanup costs as a result of sudden and gradual pollution conditions resulting from a contractor’s work on a project.

Example:

Your company is working on a large solar PV installation at an older home. Unbeknownst to you, the installation accidentally disturbs asbestos that is located in the attic of the home. The asbestos pollutes the home and now your company is liable for a pollution claim. Contractors Pollution Liability Insurance would protect you from claims of bodily injury, property damage, defense, and cleanup costs as a result of the asbestos pollution.

Contractors Pollution Liability policies are often custom-tailored to the contractor, due to the wide variety of environmental risks and types of contractors, in addition to the range of projects that a contractor may work on. Policies are, however, always offered on either a claims-made or occurrence basis, and can be offered on a project or blanket program basis.

Do I need Contractors Pollution Liability Insurance?

If your business is involved in work that may expose you to environmental liabilities, then Contractors Pollution Liability Insurance may be a wise purchase. While the need for Pollution Liability Insurance may be obvious in high-risk work such as asbestos abatement or hazardous waste cleanup, it may not be so evident in lower-risk jobs such as hanging drywall or pouring concrete. The reality is most contracting work involves some level of environmental liability, but the range of risk does vary.

Example:

Your flooring company is working on a large residential project, refinishing 5,000 sq. ft of hardwood floor. In the process of refinishing, your crew accidentally spills hardwood floor sealant inside the residence, causing an excess amount of toxic fumes to permeate through the home. These fumes cause respiratory hazards for the residents, as well as the other contractors working on the home.

Example:

You are the general contractor for the renovation of a local office building. A few months after the renovation is completed, a few occupants of the building become ill and develop asthma. The occupants claim that their illness was caused by odors in the building, and further investigation by the building manager shows that mold has developed in many of the wall spaces. Your company is sued for failing to take the proper precautions to prevent mold growth.

These are some contracting professions that often purchase Contractors Pollution Liability Insurance:

Construction

• Managers
• Demolition and general
• Home builders / developers
• Marine
• Street and road

Environmental

• Abatement
• Environmental remediation
• Site restoration
• Cleanup
• Emergency spill response

Operations and Maintenance

• Airport fueling
• Maintenance
• Plant operations
• Waste water
• Sewer and utility

Trade

• Aboveground and underground storage tanks
• Electrical
• HVAC
• Industrial
• Mechanical
• Pipeline

Covering for gaps in your commercial general liability policy

Much of the need for purchasing Contractors Pollution Liability Insurance stems from the various pollution exclusions contained in many commercial general liability policies. Most CGL policies include a “total pollution exclusion,” which essentially removes coverage for any pollution event that the insurer deems as such. In this scenario, Contractors Pollution Liability Insurance is the only way to be protected from environmental liabilities.

Example:

A septic tank your company installed at a private residence ruptures, leaking hazardous waste into the soil. While your CGL policy covers the cost of the tank, it doesn’t cover the costs of cleaning up the leak and dealing with any resultant environmental damage.

CGL policies may also include exclusions in the form of an absolute pollution exclusion, though this is not as common. With an absolute pollution exclusion, coverage is removed for most pollution events that would occur during normal business operations. However, coverage for pollution damages, products and completed operations liability, and certain off-premises work may be included.

May be required for certain contracts

Contractors Pollution Liability Insurance may be necessary and required for certain jobs that your business takes on. Often times, project owners and general contractors will require that contractors show proof of coverage in the bidding process. Being able to demonstrate that your business takes the right precautions through Contractors Pollution Liability Insurance can potentially help you win more business.

Example:

The local city government is seeking bids for a road repaving project. Given the environmental risks associated with repaving roads, particularly near residential areas, the government is requiring that all contractors submit proof of Contractors Pollution Liability Insurance as part of the bidding process.

What does Contractors Pollution Liability Insurance cover?

Contractor Pollution Liability Insurance protects against environmental threats or pollution that might occur as a result of a contractor’s work. This type of insurance coverage protects against third-party claims of bodily injury, property damage, defense, and cleanup.

Contractors should keep in mind that Contractor Pollution Liability policies vary from insurer to insurer, as not all insurers subscribe to a single, standardized coverage model. Contractors should pay particular attention to two components of a policy:

• What constitutes as a coverable pollution incident
• Whether or not the policy covers gradual releases of pollutants, versus a sudden release

Policies that offer a broad definition of a “pollutant” as well as coverage for both gradual and sudden releases of pollutants will provide the contractor with much more protection. However, policies are generally customized to the contractor and to the line of work he or she is in, so narrower plans don’t necessarily mean the contractor is worse off.

How much does Contractors Pollution Liability Insurance cost?

The cost of Contractors Pollution Liability depends on a number of factors, including:

• The type of contractor and work being performed
• Details specific to the project, e.g., pollutants the contractor will come in contact with
• Financial history of the contractor
• Insurance coverage history
• Claims history

The insurance premium will also depend on coverage limits. The International Risk Management Institute recommends roughly $500,000 – $1,000,000 in coverage for every $10 million in annual revenue that the contracting company generates.

For a policy with a limit of liability of $1 million per loss / $1 million aggregate, a typical premium would start at around $5,000.

Retentions and Deductibles

Contractors Pollution Liability Insurance may also contained a self insured retention or a deductible. Deductibles are generally negotiated prior to the start of the policy, while retentions will depend on the insurer and the financial strength of the contracting company.