Regulations, Exclusions Driving Demand in Contractors Pollution Liability Market

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by Amy O'Connor

An increase in contract requirements and government regulations has led to a surge in demand for contractors pollution liability coverage, according to underwriters.

Kenneth Schneider, senior vice president of Rockhill Underwriter Managers, which is wholly owned by Rockhill Insurance Co., says the company has seen an uptick in coverage requests from all types of contractors that wouldn’t normally purchase pollution liability, such as street and road pavers.

“We don’t see the [job] contracts often, but the way I can gauge that is because we see a lot more first time buyers who are not environmental contractors,” he says. “How often do contractors wake up in the morning and say, ‘I want to buy more insurance’?”

Some of that demand is attributed to the Environmental Protection Agency’s (EPA) Renovation, Repair and Painting (RRP) Rule, which was issued in April 2008 and addresses lead safe practices on work performed on pre-1978 homes, child care facilities and schools. In April 2010, federal law began requiring that renovation firms be certified under the EPA’s RRP Rule and be trained in lead-safe work practices by EPA accredited training providers (EPA.gov).

Schneider said the Kansas City, Mo.-based Rockhill Underwriting Managers launched its lead safe contractors professional liability (CPL) program back in 2010 in response to the EPA regulations.

“It was really designed to be a less expensive version of a CPL policy that addressed only the risks associated with doing work in schools, apartments, condos or residences where there are young children,” says Schneider. “Contractors could have access to a less expensive policy if the [RRP Rule] was all they were worried about.”

Schneider says Rockhill has written quite a few policies since it launched this product just over two years ago, but it has actually written more monoline CPL policies. “Once people evaluated the lead safe policy versus a full blown CPL policy, we ended up selling more CPL policies than writing the less expensive, less broad, lead-safe policy.”

Contractual Requirements

Scott Kreuzer, vice president of American Safety Insurance’s environmental division, says the company is also receiving more requests for coverage. General contractors and governmental risk managers now require their subcontractors to carry CPL, which seems to be driving the demand.

“I think it’s a recognition on the part of the general contractor that if a claim arises and they aren’t pushing that requirement on to their subcontractor, they are liable, whether it be their fault or not,” he says.

The contractual requirement also motivates first time CPL buyers to become continuous policyholders, says Kreuzer.

“They may have purchased a project-specific policy the first time around, but after the third or fourth contract requirement they realize it is just something they will have to carry and move over to a practice policy,” he says. “The market just grows from there. If they carry it they can be more competitive.”

Kreuzer says ASI’s monoline CPL premium has grown substantially since the middle of 2011, but has especially picked up in the first half of this year with growth of about 15 percent already over last year.

ASI released new contractors pollution liability forms in December 2011 that broaden its coverage to include lead abatement and asbestos, as well as mold on an occurrence basis. The carrier wanted to make it easier for the client by including these coverages on a CPL policy rather than adding them back by endorsement, which is what it had previously done.

Policy limits can go up to $11 million and minimum premiums start at $2,500. Kreuzer says the affordability is also a selling point for new CPL buyers.

“Folks are making the decision with the understanding that we have pretty soft rates and they might as well get in while the pricing is low,” he says.

Small Contractors Not Buying

One segment that is still not buying CPL coverage, however, are the small construction firms, according to Adrien Robinson, president of Navigators Environmental Division. The carrier offered a contractors pollution product to contractors in more than 70 different categories with receipts up to $10 million through an online platform, but has recently made the decision not to continue with this offering.

Robinson says Navigators tried cross selling CPL with general liability policies to the smaller contractors segment, but not many bought it or even knew what it was.

“It is a discretionary buy and these small contractors in an economy like ours where they are just trying to keep their doors open are not worried about pollution,” he says. “It’s about what they are required to have when they show up to the job site.”

However, Robinson says their CPL book among larger contractors is up 25 percent to 30 percent year-over-year, and more than 40 percent of the accounts they look at are first time buyers. Very few that purchase policies don’t renew the coverage, says Robinson, because even though it is a low claims frequency class, it is very high severity so once an insured has decided to purchase and understands the realm of potential issues, they maintain the coverage.

Carriers acknowledge that the CPL class can be complicated for agents and insureds, with no standard form and constantly changing environmental regulations, but the bottom line is CGL policies exclude any claims arising out of pollution incidents. This leaves contractors very vulnerable, especially in the current regulatory environment.

“It is becoming very difficult for contractors to operate and feel comfortable with only a CGL policy,” says Robinson. “There are all kinds of exclusions and more and more pollutions being carved out. If you want full protection, you need a CPL policy.”


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Comments

  • June 13, 2012 at 2:08 pm
    Stephen F. O'Neill, Tarkington O'Neill Barrack and Chong says:

    We lawyers have seen cases where either no defense is provided at all, or if one is provided it is under a reservation of rights with no indemnity. Contractors would be wise to consider that pollution claims can be very costly without this coverage.

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