CONSTRUCTION LAW
Controlling Environmental Risks
By William M. Coats
Many contractors in Texas are missing the boat because of
their aversion to environmental risks. Just as contractors
are adverse to environmental risks, so are owners, and rather
than just refusing to consider relieving owners of their environmental
risk burden, it is worth considering whether or not you can
take on the burden from the owner and then protect yourself
with insurance.
The basic tool for protecting contractors from environmental
risks is the Contractors Pollution Liability Policy, which
was developed in response to pollution exclusions in Comprehensive
General Liability policies. These policies afford a contractor
pollution liability and defense coverage for bodily injury,
property damage, and environmental cleanup costs for pollution
conditions arising out of the contractors operations.
Certainly this coverage is essential when you sign on to renovate
a known hazard (e.g. when you agree to remove tainted soil),
but it is also useful to have even when you don't sign on
to remove the known pollution condition since you can encounter
pollution exposures in the ordinary course of performing contracting
duties.
Risks of disturbing a present environmental condition or creating
a new environmental condition exist and can often lead to
significant liability claims against a contractor.
Unless the contractor has a CPL Policy, the contractor is
likely without coverage for such claims.
Certain insurers have specialty policy forms that combine
professional liability and CPL coverage to cover professional
liability exposures that result in a pollution condition.
By combining these coverages, the underwriter has one limit
of liability at issue and can charge a lower premium.
Another advantage for the contractor is that a single policy
covering pollution and other liability exposures diminishes
the chance of a dispute over which policy will respond to
a loss. The leading markets offering environmental insurance
to contractors are AIG, Chubb, Zurich, XL Environmental, Gulf
and Liberty Mutual.
Additional Environmental Insurance
There are also other environmental insurance products designed
to help you meet the needs of some owners. For larger projects,
a cost cap policy should be considered.
Suppose an owner gives you a Phase I environmental study and
asks you to remove all of the dirt from a site for a fixed
fee; if the dirt is all good, you are free to use it however
you want; but if it is bad, the owner wants you to remove
it anyway and bear the resulting cost.
There is an option to responding, "Are you crazy?"
You can buy a cost cap policy, and insure against the risk
that the dirt on the site turns out to be worse than expected.
Often, owners would prefer adding the premium to cover cost
overruns for the remediation expenses rather than retaining
the unknown risk.
Another more common policy for an owner is the Pollution Legal
Liability policy that covers the project site for third party
claims for bodily injury, property damage or cleanup costs,
on-site and off-site, and defense costs and Natural Resource
Damage claims arising from unknown pollutants or pollution
conditions.
Mold Protection Coverage
There are also environmental insurance answers to some of
the mold exposure which contractors are experiencing today.
Certainly, in negotiating situations where you are building
any closed structure with a risk of water leakage, it is advisable
to consider adding mold coverage to a pollution liability
policy or to purchase a separate mold policy.
Getting mold protection coverage at a reasonable price, either
on a specific project or generally for your operations, will
depend in large part on your ability to convince an insurer
that you have a comprehensive mold protection program and
sound mold mitigation techniques in your construction operations.
You cannot seal wet building materials and expect to avoid
mold. A good environmental insurance consultant and broker
can help you to present your firm's expertise in avoiding
mold, packaging your insurance submission, and providing assistance
with obtaining environmental coverage.
Saying "no" to all environmental risks may put you
on the sidelines with many owners who wish to package all
of their environmental risks in the general contract package.
There are insurance products available that allow you to say
"yes" without risking your firm.
William M. Coats is a director
and member of the executive committee and head of the Construction/Surety
section of Houston-based Coats, Rose, Yale, Ryman & Lee PC.
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