Every contractor working in the right way will have a widely varied list of protections in place for risk management, almost all of which include general liability, automotive, equipment, and workers’ compensation policies. With every project, however, comes additional or unique risks that need to be addressed. While the general liability policies carried by many contractors will cover them generally, that does not mean they are covered in every circumstance. That is particularly true when it comes to things like pollution exposures and professional liability exposures, both of which are excluded from almost all commercial general liability (CGL) policies. Even though most contractors have an understanding of pollution risks, they may not know that they also have professional liability exposures. Fortunately, there are ways to handle both of these risks. It’s just a matter of figuring out which ones need to be in place.
What Are the Risks?
When it comes to pollution, the risks involved primarily came about during the 1960s and ’70s when the federal government passed a number of statutes and created the Environmental Protection Agency (EPA). Climate change has only made things more complicated, especially when it comes to the design of new projects, because it opens up contractors to potential environmental claims. These risks are, seemingly, pretty obvious.
“Pollution conditions” are, generally speaking, defined as the dispersal, discharge, escape, or release of solid, liquid, gaseous, or thermal irritants or contaminants into or onto land, structures built on land, any water (including groundwater) or into the atmosphere. If one thing is clear in that definition, it should be that it is extremely broad in scope, and most contractors do not need to think hard to think of a time where they could be at risk of breaching it. That breach would be an exposure, and those exposures are not covered under CGL policies. Usually, these risks are going to be pretty clear, even if a contractor does not think about the exposures ahead of time (another reason to check with an insurance professional).
In terms of professional liability, it comes down to whether or not a contractor could face risks as a result of the performance of the work itself. Most contractors, again, are not going to think they face these risks because they believe they are doing a good job. Even so, the exposures are there.
Consider the following:
· The contractor had to change design team plans for some reason
· The time frame in the contract was exceeded
· The costs of the project changed
These three are broad and could apply to nearly any project and could, ultimately, be the source of claims. Consider the way many smaller contractors, such as plumbers or electricians, work. They do not consult design professionals when they work on projects. They show up to the job site, consider what the situation is, and then get to work and rely primarily on either their own experience or manufacturer specifications when it comes to design. The fact is, that does count as “design” when it comes to exposures, which means that the CGL policies that these companies have could potentially exclude those services and consider them to be “professional services” instead.
Even the best contractors would face these risks at some point, even in a perfect world of perfect conditions. In fact, an increasing number of projects are beginning to use a project delivery system called “design/build” where the same company designs and builds the final product. That, unfortunately, means that the contractor will have to now assume exposures related to the design of the project as well. This is not limited in scope to large projects either.
How to Mitigate Exposures
Society is certainly not become less litigious over time, so contractors would be doing themselves a huge favor by evaluating the way that they work and plugging any holes in their coverage before it is too late. The best way to do that is to speak with an insurance professional who can help you determine what levels of exposure you may face and whether a professional or pollution liability insurance policy is the way to go.
These policies are offered as separate insurance agreements that are subject to their own limits and endorsements. Again, the ins and outs of the specific policies will determine their scope. Purchasing decisions are often driven by two factors: “stomach” for risk and contractual obligations. The first factor is something each contractor will have to decide for themselves. The second is based on the projects.
Consider the following questions:
· How many projects are being worked on directly for project owners where there is no design professional in the picture?
· On those projects, how broad is the project in terms of scope of services?
After deciding whether a policy is needed, it is time to determine what the limits of liability are for that policy (or policies). These questions, again, are best answered with the assistance of an insurance professional. The broad scope of what can be included in pollution liability or professional liability make it an issue that nearly every contractor will have to deal with in their career at one point or another. Those exposures can prove to be devastating if there is not some way to offset them through risk management practices.
For more information or to get started on Pollution or Professional Liability policies for your business, contact Wayne Nesbit at 952-746-4312 or firstname.lastname@example.org.