Understanding Coverage Enhancements in Contractors Pollution & Professional Liability Coverage Forms

By Sara Kooij, Senior Broker

Over the past five years, one particular product has shown enormous growth in the environmental space:  the combined Pollution and Professional Liability policy. General contractors and a variety of trade contractors tend to purchase this coverage, including, but not limited to, HVAC, plumbing, electrical, roofing, mechanical, carpentry, and masonry contractors. Many of the contractors who are purchasing this product may have purchased pollution coverage in the past due to contractual requirements, but now realize they have a professional liability exposure as it relates to their construction management, subcontracted design work, testing or monitoring of environmental conditions, supervision of subs, or jobsite modifications.

In the past there were only a handful of carriers who offered this type of combined policy form, but now many carriers are eagerly accepting new submissions. As a result of the increased competition, carriers must include special enhancements to make their quotes stand out amongst the crowd.  Understanding these new and unique features is essential for any agent going into a client presentation, but many of these coverages may seem like a foreign language, and not every carrier applies these coverages in the same ways.

Here’s a helpful guide to some of the features you may see on your combined Pollution and Professional Liability policy quotes:

Rectification Expense or Mitigation Expense:

Errors happen, even to the most well-established firms with ample credentials. Being able to address these errors in a timely fashion, before a claim is filed, can help your contractor maintain their public reputation and save their relationship with clients. Rectification expense is a first party coverage, designed so a contractor can address costs needed to correct or reduce the severity of a mistake before a claim is filed, allowing them to keep projects moving. Some policy forms may refer to this coverage as “Mitigation Expense”, and while that name is often referred to interchangeably with “Rectification Expense”, it is important for insureds to understand that the word “mitigate” versus “rectify” can possibly be interpreted as less broad. Addressing errors under Rectification or Mitigation Expense coverage, rather than a Professional Liability claim, can help keep these errors from becoming a more expensive and time-consuming problem. It should be noted that under this coverage, the associated costs and expenses must be approved by the carrier prior to being incurred. Some carriers may provide a short window of time when insureds can be indemnified for expenses that were made immediately following an error or omission (before the carrier could be notified), so long as the insured can prove that these costs were necessary to reduce the amount a loss would have otherwise been.

Protective Professional Indemnity:

Contractors engaged in sizeable projects presumably have done their due diligence to review their subcontracted design professional’s insurance and respective limits. But there is no real way to know if those limits are going to be enough until a negligent act, error, or omission on the part of the design professional results in a claim. Under Protective Professional Indemnity coverage, insureds can recover costs they have incurred that are in excess of their subcontracted design professional’s insurance, in the event their design professional’s limits are inadequate. This coverage can sometimes also provide a “Difference In Conditions” feature, allowing coverage to be applied on a broader basis than the Design Professional’s insurance. Note that generally a claim must be filed by the insured against the Design Professional, and it must be determined in court or through settlement or arbitration that the insured is legally entitled to recover this amount.

Contractors Protective Indemnity:

Also sometimes referred to as Pollution Protective, this coverage is similar to Protective Professional Indemnity coverage, but less commonly seen on policies. Under this coverage, the carrier would indemnify the insured in excess of a subcontractor’s insurance for costs resulting from certain pollution conditions. This coverage can sometimes also provide a “Difference In Conditions” feature, allowing coverage to possibly be applied on a broader basis than the subcontractor’s insurance. As with Protective Professional Indemnity coverage, the insured must first file a claim against the subcontractor, and it must be determined in court or through settlement or arbitration that the insured is legally entitled to recover this amount.

Contractors Pollution & Professional Liability policies are more affordable than ever, and the above enhancements are usually easily added upon request. It’s important to remember that no two policies are identical and may have conditions and exclusions that restrict coverage. Beacon Hill is able to provide coverage comparisons upon request. We are also happy to participate in conference calls to help your presentations run as smooth as possible. Please contact us for more information.