Pollution liability: Risks are real for businesses, contractors

Many commercial property owners, developers, municipalities, manufacturers and others are faced with various challenges in today’s environmentally-conscious world. One of the biggest environmental concerns facing owners today is the allegation that “work done by you” has led to an unhealthy environment. A liability claim for which you are not covered is a very real possibility and pollution incidents can be costly.

The growing number of environmental regulations and concerns regarding pollution in the last century has led to increased awareness and vigilance around the issue. The costs associated with pollution matters range from liability suits regarding pollution to regulatory charges for polluters.

Some of the growing concerns such as dust, asbestos and others, especially mold, have brought pollution to the forefront in recent years. In fact, over the past few decades, mold has been the topic of media scrutiny and numerous liability claims. Many owners believe that their general liability insurance policy contains coverage for mold and other pollutants, however, a thorough reading of the policy may reveal otherwise.

Pollution liability insurance offers financial backing for costs associated with damages stemming from claims associated with the environment. The insurance is broad because of the number of regulations and mandates associated with today’s environment. While the highest number of claims and examples pertain to contractors, the new pollution liability exposures relate to a much wider audience, as there is an ever-increasing risk among businesses who could potentially be dealing with environmental concerns.

The allegations of environmental contamination can manifest itself in many ways, including odors, ill employees, dust on furniture, staining and damage to walls and fixtures. When these allegations lead to bodily injury, property damage or business interruption, the claims can become sizable. If the basis of the claims is the toxic nature of the contamination, pollution exclusions are often cited in general liability policies. So, pollution liability insurance is one method to help cover a company for such incidents.

Here are some actual examples of instances to highlight the issue:

A masonry contractor performing a renovation project at a historic building was sued by employees of a nearby office building. The claimants asserted they were exposed to silica dust coming from the jobsite. The claimants reported damages for bodily injury declaring the required measures were not used to prevent or minimize dust emission during the project.

In another instance, a company purchased a piece of property with an underground fuel tank. The underground fuel storage tank failed and several hundred gallons of heating fuel leached into the basement of the business next door. The contamination was widespread and the resulting damage forced closure of all operations at the neighboring facility, until cleanup was completed and machinery was repaired. Environmental site liability insurance, not general liability insurance, paid for the business interruption and extra expenses, as well as the remediation costs to restore the neighboring operation. Without the proper policy and coverage, the owner would have had to pay for all of the expenses incurred by the neighbor.

Also, keep in mind that when a contractor hires subcontractors to do work such as electrical, plumbing, remodeling or construction, the contractor runs the risk of being held liable for pollution stemming from the subcontractor’s work. Generally, the contractor will require the sub to carry his or her own insurance and name the contractor as an additional insured, but if the subcontractor causes a pollution condition and the sub’s various liability coverage is inadequate, the contractor may have to defend itself against claims relating to work because they hired the subcontractor.

Here’s one more example. A drywall contractor was hanging new drywall at a construction project when an employee accidentally drilled a pinhole through a small water pipe located behind the drywall. The installer did not realize the leak occurred and a substantial amount of toxic mold grew between the walls before anyone noticed. The drywall contractor was held liable for cleanup as well as defense of third-party bodily injury claims.

Recently, owners as well as contractors have been held liable in the growing number of pollution and mold-related claims. The trend of holding business owners and commercial property owners not just contractors - to a high standard in effect giving them a “professional” liability exposure and it is on the rise. And while addressing pollution and professional liability is important for everyone involved, one of the keys to success is addressing mold at the same time. There are very few insurance products that combine all three elements. Knowing how to get the appropriate coverage and covering all the bases is crucial to staying protected.

While a thorough reading of a business’s policy or policies is important, having a reliable insurance broker or agent is imperative. An important financial decision in managing a business is investing in well-rounded insurance. After all, it’s the insurance policies that protect and cover a company’s most costly and treasured assets.

Dan Gubbels is an independent insurance broker with L/P Insurance Services in Reno. Contact him at 775-996-6010 or dan.gubbels@lpins.net.