Just like any kind of fire, wildfires are caused by the presence of fuel and a spark. In the case of the 2017 fires in the wine country of California, along with the state's 2018 Camp Fire, the fuel was dry leaf litter, branches and downed trees. And the spark, in some cases, resulted from electric utility lines and, in other cases, due to contractor’s work.  

More recently, this summer's Maui fires have taken hundreds of lives—deceased and missing—and burned more than 2,500 acres. Lahaina’s historic sites cannot be replaced, and estimates of the rebuild costs are near $5 billion. In Hawaii, the fuel was the same as in California: dried forest debris. It is alleged that the spark was from a powerline downed by extreme winds from Hurricane Dora. While sparks were present, it is the increased volume of fuel that has been the true source of the disastrous recent wildfires. 

The increased presence of fuel is the result of recent changes in forestry-management practices, coupled with accelerated climatic shifts in recent years toward hotter, drier weather from 2011 to 2020 in California and 2022 to 2023 in Maui, increasing both frequency and severity. 

Mitigate and Manage

These events are just one example of the types of climate-related losses contractors should consider protecting against, along with their clients’ properties. Contractors face many climate-related risks—some impacting their own operations and others having direct impacts on their clients and their respective communities.

The first consideration might be protection of a contractor’s equipment and assets from climate-related exposures. Offices, equipment yards, storage facilities and supply storerooms may face an increased risk of loss, depending upon location. 

Regions of North America are impacted differently by climate hazards. The Southeast is experiencing increased weather extremes regarding wind, rainfall and flooding, while drought and heatwaves impact the West Coast. Once these specific risks are identified and understood, steps can be taken to mitigate them, including the erection of flood barriers, brush-free perimeters and possibly moving from high-risk areas. For risks that aren’t easily mitigated, adequacy of insurance limits can be performed, with higher insurance limits a viable consideration.

Litigate and Learn

The second area to consider for contractors is the avoidance of climate-related lawsuits. This litigation emanates from several modes, including suits alleging loss due to a contractor’s failure to consider adaptation to climate change regarding materials selection, or lawsuits alleging bodily injury to employees due to failure to adapt new working conditions to accommodate climatic factors. Avoidance of these claims can be accomplished by considering climate risk within daily operations including proposal development, design, construction and routine employee safety. 

To minimize claims based on building-material selection, firms can consider the use of climate-adapted materials such as fire-resistant siding and specialized roofing for construction in wooded areas possibly impacted by drought, extreme heat and climate-driven erection challenges. Similarly, mold-resistant materials can be considered in areas prone to flooding, whether due to extreme rainfall or rise in sea level. Finally, hurricane-proof glass can be used in construction and is a zoning requirement in many jurisdictions today, especially for locations with projected high wind speeds.

Specialized mitigation and preparation services are available to evaluate current and future climate-risk challenges on a site-specific basis. This proactive approach can allow contractors to evaluate the factors connected to job-site specific climate risks, along with how best to incorporate these materials into construction jobs. 

Minimization of negligence claims can be accomplished by considering the potential for impacts of climate change to a specific building site. For example, if a design-build firm is working on a bridge over a river, studies can be done to determine potential river rise in the event of extreme rain on the build area, and designs can be adjusted to accommodate said higher water level, whilst allowing the bridge to remain functional.  

Avoidance of employee injury due to climate change can be achieved through adherence to employee safety protocols, including encouraging employee breaks, providing coolers with cold towels and supplying drinking water when heat conditions are at their worst. 

It is also useful to provide training on the symptoms tied to medical conditions including heat stroke or dehydration, and simple protocols to respond to forms of heat sickness. Careful protections should be offered to workers when air quality is poor due to wildfire smoke, heavy smog or unsafe air characteristics in and around the work area. As was common on the East Coast this summer, wildfire smoke conditions traveled hundreds of miles from the fire source [Canada] to major cities across the entire eastern seaboard, leading to air quality warnings and substantial health risks.

High Winds. High Standards.

Finally, for firms performing construction work in forestry, including thinning or pruning work, and particularly for workers that clear forestry for electric utilities, a high standard of care should be established. Particularly, care should be applied in areas that have experienced drought and extreme heat. Serious consideration should also be applied in utilizing ‘limitation of liability’ provisions in a contract where this scenario is commercially viable.

These circumstances offer just a few examples of potential sources of loss that contractors may experience in today’s climate-driven conditions. It is not an exhaustive list, but one that illustrates how climate change could deliver unexpected impacts on a contractor’s business. While insurance coverage is determined based upon the facts and circumstance of each specific case and the language that resides within each policy, given current scenarios, climate-change exclusions are not being applied to the vast majority of policies, leading to the belief that there may be coverage for the climate-driven losses described earlier.  

And while there is little evidence to suggest carriers plan to apply climate exclusions to most policies, they expect clients to understand climate exposures. Insurers are beginning to underwrite risks with closer attention to risk selection and climate-risk questions, as part of the application. Any firm with significant climate-related claims experience will face hurdles at renewal. Conversely, firms with a healthy grasp of first- and third-party exposures will fare much better in the marketplace around coverage terms, exclusions and premiums.

Insurance coverage is one of the areas, along with regulation and technology, that could change a contractor’s risk profile. Regulations in the United States are minimal when compared with the EU and the U.K.; however, there are two pieces of forthcoming regulation for contractors in the U.S. that could increase directors and officers risks. Firms that are publicly traded may need to comply with a new SEC rule, expected this fall, requiring disclosure of climate risk and risk-management protocols. Contracting firms with more than $1 million in work for the U.S. government must soon comply with a proposed rule requiring disclosure of greenhouse-gas emissions and outlining reduction targets (ultimately, to achieve net-zero carbon emissions by 2050 per the Paris Agreement). New requirements for directors and officers may drive potential new suits alleging misstatement, misrepresentation or fraud.

It’s not all doom and gloom, as climate change does not present only bad news for contractors. Opportunities for innovation using green building materials is one example. The incorporation of CO2-sequestering concrete, solar-power-generating windows, green steel, timber framing and other CO2-offsetting options in design and construction drives stabilization of GHG emissions and the stabilization of the climate. The construction industry can be the engine behind the low-carbon future, building efficient, carbon-negative buildings, along with innovative direct-air-capture facilities that will be required to reduce future climate-related disasters. If not only the construction sector but society aligns and focuses on collective mitigation, these climate exposures might begin to slow down.