The Rising Threat of Professional and Environmental Liability
Source: Modern Contractor Solutions, February 2013
By: Jeff Slivka, New Day Underwriting Managers LLC
Green has become the new mantra for the construction industry. As a result, contractors nationwide are increasingly striving to meet owner demands for projects that are not only designed with sustainable and eco-friendly products, but also achieve measurable results such as Leadership in Energy and Environmental Design (LEED) points.
However, contractors should never sacrifice common sense and sound reasoning for good intentions or the need to land new business. For instance, here are just a few of the ways environmental liability can be found on today’s green sites:
Jobsite emissions. Over the past few years, contractors have been repeatedly sued over the third-party exposure to toxic elements, such as dust containing asbestos fibers and/or silica, as well as carbon monoxide fumes.
Products and materials. Many devastating environmental lawsuits are produced through unforeseen risks. Who knows what future results will come from the use of recycled products needed to achieve certain “green” standards? We still can’t forget “Chinese” drywall. It appeared to be an extremely benign product that ultimately created tremendous environmental problems. Still undetermined is its impact on indoor air quality and human health. Nonetheless, it is an excellent example of an unforeseen risk— just like asbestos, which was considered a breakthrough fire retardant nearly 40 years ago.
Real estate. The redevelopment of buildings on existing sites can provide a host of challenges for inexperienced contractors. That’s because environmental risks can be catastrophic when properties are not investigated or properly characterized. In addition, environmental assessments performed with little to no intrusive sampling will only generate reports containing previously recorded information. This is a problem for sites used, historically and possibly illegally, for the disposal of hazardous products or found to contain unregistered underground tanks and abandoned materials causing residual contamination.
Microbial growth. “Living buildings” are currently being designed nationwide with new green systems that include vegetative roofing, rainwater collection, permeable walls and exteriors, and ornamental water features. Unfortunately, mold is still a persistent liability problem that can be exacerbated by the use of innovative products that are yet unproven in the field or over time.
While the aforementioned examples are not exhaustive, they do offer an intelligent sampling of the environmental exposures that can occur during green construction. Owners, contractors, and designers all need to fully understand the potential sources of these exposures and explore the coverage options that will best protect their firms from the potentially crippling effects of litigation.
CONTRACTOR’S PROFESSIONAL LIABILITY PRODUCTS
Most contractors should strongly consider some form of contractor’s professional liability (CPrL) that provides coverage against third-party suits alleging negligence in the performance of professional services. In fact, in recent years asset protection and the demands of owners and general contractors (GCs) have been among the leading drivers of CPrL insurance purchases. This is due to the increased awareness of exposures and the potential for professional liability among owners and GCs, as well as the desire of contractors to finance professional liability loss through CPrL coverages. In addition, contractors who purchase CPrL coverage will be better able to bid projects that pose potential professional liability risks, while offering greater protection to their organizations.
Contractor’s Professional Liability (CPrL). CPrL is a third-party liability policy providing coverage for damages that result from negligent acts, errors, and omissions in professional services performed by or on behalf of the named insured. It is also available for all types of firms performing construction services, including design-builders, construction managers (at-risk and agency), general contractors (involved in various pre-construction consulting), environmental engineering/remediation firms, and specialty trades such as Mechanical/Electrical/Plumbing (MEP) contractors, who are typically responsible for both design and installation.
Approximately 15 domestic and foreign carriers currently offer various forms of CPrL coverage. However, this market can be difficult to navigate since nearly all provide dramatically different appetites. For example, one carrier may offer CPrL to environmental firms while another may only provide it to construction managers, design/build firms and non-environmental construction companies. In addition, some of these insurers will only take an excess position or cover smaller or middle-market specialty trade contractors.
Furthermore, each of these carriers offers their own manuscripted policies, making it necessary for contractors to pay special attention to wording accuracy. It is estimated that annual CPrL premiums are in the $300 million range and growing at a rate of about 15 to 20 percent each year.
Combined CPrL with Contractor’s Pollution Liability (CPL). Combined CPrL and Contractor’s Pollution Liability (CPL) programs were created to offer a cost-effective financing solution to contracting firms possessing both professional liability and environmental liability exposures. Simply put, CPL insurance covers bodily injury, property damage, defense, and cleanup as a result of pollution conditions caused by contracting operations performed by or on behalf of the contractor. Subsequently, this combined form of insurance offers the ease of providing both forms of coverage without the issue of two premiums, two retentions, and differing terms and conditions.
Because of these benefits, over the past 5 years the construction marketplace has seen a dramatic increase in smaller to midsize contractors buying the combined program versus separate CPrL or CPL policies. In this way, coverage isn’t sacrificed for cost and through the use of a combined program contractors can increase the aggregate to twice the per-claim limit, as well as enjoy the benefits and flexibility of both.
Contractors should not only thoroughly understand the liabilities associated with any new projects, but also their options for proper risk management. Insurance is a solid back stop, but nothing beats managing the risk at step one. ■
About The Author:
Jeff Slivka is executive vice president and chief operating officer of New Day Underwriting Managers in Bordentown, New Jersey. New Day is a specialty intermediary for insurance agents and brokers with expertise in environmental insurance, environmental risk management, and construction-related professional liability. Jeff can be reached at 609.298.3516, ext. 102, or email@example.com.