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Construction companies rarely consider that they may end up in court for performing work that damaged the environment, but it happens more frequently than contractors may think.

The U.S. Environmental Protection Agency (EPA) has determined that construction contractors have a significantly high potential for contributing to environmental damages. The agency considers general contractors, subcontractors, engineers and architects as suspect when it comes to environmental pollution and the resulting damages pollution causes. Yet, some contractors do not recognize the significant risk of environmental claims.

Case Study

A small family-owned grading contractor was hired to excavate some trenches on the perimeter of a construction project. The soil that was excavated was temporarily piled up on a nearby vacant industrial property. When the contractor backfilled excavated trenches, the excess soil was spread across the construction site and used for grading purposes.

Shortly after the completion of the construction project, dioxin was found in other soil at the industrial site where the excavated soil was temporarily stored. After further testing, dioxin also was found in the soil that was spread around the construction project. After EPA testing was completed, it was determined that the contamination had also seeped from the surface into a water supply.

A number of parties to the project were found liable for the pollution, including the grading contractor, which became responsible for a multi-million-dollar cleanup. That contractor—a family-owned business that had survived for three generations—no longer exists.

More Reasons to Consider Coverage

A typical environmental pollution case should motivate contractors to consider environmental insurance, but if not, consider that:
  • most general liability and professional liability policies exclude coverage for pollution claims;
  • spills of toxic chemicals that are stored and used at jobsites such as solvents, finishers and fuel can lead to a pollution claim; 
  • exposure results from hazardous materials such as fiberglass, asbestos, lead paint and mercury that is not properly disposed of;
  • due to lack of a safe drainage strategy, stormwater runoff from project sites may occur; and 
  • inadvertently puncturing an underground pipeline or storage tank may result in the release of hazardous materials.
Any contractor or subcontractor that becomes a party to a
project can be held directly or indirectly responsible for a pollution claim
and the significant costs of remediation.

A standalone environmental insurance product can
provide financial protection for defense costs, settlement agreements and
judgments awarded by the court. Typically, contractors have several coverage
options for environmental insurance coverage.
  • It can be purchased on a claims-made or occurrence basis.
  • It provides coverage for third-party claims of bodily injury or property damage and environmental damage that results in
  • remediation costs.
  • It can be site-specific for properties owned by the contractor. 
  • It provides coverage for storage and staging of equipment used at a covered jobsite. 
  • It has the ability to expand the definition of pollution conditions.
Construction is a highly regulated and litigious industry. General contractors and subcontractors should take steps to transfer the risk of polluting the environment and the costs associated with cleaning up environmental damages. 

Anthony Kammas is a partner at Skyline Risk Management, Inc., as well as secretary-elect of the Professional Insurance Association of New York and a member of the Hellenic American Chamber of Commerce and the Hellenic American Leadership Council. For more information, email akammas@skylinerm.com.

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