By Bill Pritchard, President of Beacon Hill Associates
Printed in the June 20, 2011 issue of Insurance Journal
The insurance needs of contractors continue to become more complex as the economy works its way out of the recession. Part of that increased complexity involves a company’s environmental exposures and how it chooses to address them. What was once a small concern has become one of the most important exposures a contractor needs to manage. Contractors are responsible to their clients for the environmental ramifications of their work, and the work of their subcontractors. Properly insuring that exposure is critical.
The biggest driver of the environmental insurance marketplace today is the increased awareness of the exposure by the general public. Twenty years ago companies had a very limited understanding of the impact their operations might have on the environment, and no understanding of how their insurance policies might respond if they did have a pollution loss. Today is entirely different. Most businesses are very aware of how their actions, and those of the contractors they may hire, can lead to environmental impacts they need to be protected from.
This problem exists for all types of contractors, not just ones who deal in hazardous substances. General Liability polices typically exclude ‘pollutants,’ a definition very broadly defined to include almost anything that does not exist naturally in the local environment which negatively impacts it.
Examples of recent pollution losses denied by standard carriers as pollution claims include: soil runoff at job sites onto neighboring properties, dust kicked up by earth moving operations, and a truck transporting milk overturning on the highway and causing the milk to spill into a nearby stream. While any of these might have been a non-issue in the past, as they negatively impact the environment, their clean up and restoration can be very expensive and may be excluded as a pollution event.
In response to this growing need is a wide range of products from many well known carriers. Coverage that was once only available to environmental firms is now utilized regularly by general and trade contractors. This includes both Occurrence and Claims Made Contractors Pollution Liability (CPL), CPL with Professional coverage, as well as options including Over the Road Pollution Liability, Limited Owned Premises coverage, Mold, and Non-Owned Disposal Sites to name just a few.
It is important to be sure this coverage is provided by quality carriers on quality forms. Unlike standard market policies, environmental forms are each unique to the carrier offering the coverage. While the titles may be the same, the coverage often is not. Selecting a carrier with a good track record of writing this type of coverage and reviewing specimen forms are both important steps towards making sure your clients understands the coverage being offered.
When reviewing forms, it is crucial to look for and understand available enhancements, as these are often the difference between basic coverage and broad coverage. Does the carrier offer Additional Insured status on a blanket basis for ongoing and completed operations, or will they make you buy it later? Is primary and noncontributory built in? Is Natural Resource damages defined and covered? Is there a give back on Damage to your work by subs? Are you covered for work performed “on your behalf”? Are Restoration Costs covered?
The market for these products is seeing some overall stabilization. While almost forty carriers have been writing this type of insurance over the last two years, we have now seen a separation begin to occur. Carriers that offer strong products and have track records in the business seem to be doing well. Their rates are stable, going up a bit where warranted, as well as down when they can. Some of the carriers that have recently entered the market have struggled more though, with a few leaving the segment entirely in the last few months.
What does this mean for a contractor client? Coverage is widely available in today’s market, with minimum premiums as low as $2,500 from top carriers. The product is clearly available and certainly affordable. A cheap price seldom means great coverage though, so getting the client to understand the real value of a product is critical.
For the agent it means some hard work finding the right products to utilize. This can be done by going to carriers that offer the product directly or by approaching specialty brokers that know and work with the products every day. The broker approach generally yields the best return. They typically have access to multiple markets for any risk, have good relationships with underwriters, and stay on top of product developments to be sure you are getting the best possible coverage. All brokers are not created equal of course, so selecting the right broker is important as well. It is typically a good idea to learn which carriers a broker uses, what their success rates are, how long they have been in business, etc.
Environmental coverages can do many things for an agency. First and foremost, you are providing your contractor clients with the broad protection you want them to have and that they are often contractually required to evidence. You are also rounding out the account and generating more revenue for your office. Finally, you are solidifying your relationship with the client by helping them protect what is a growing exposure that if left unaddressed could lead to a significant claim problem down the road.