Construction projects inherently involve a multitude of risks that are addressed through compliance with applicable safety standards. To survive in this ultra-competitive business, contractors establish strict health and safety cultures to protect their employees and reduce the risk of injuries on the job.

However, risks associated with environmental pollution are often overlooked and not addressed until after they happen. Contractors are often left relying on insurance policies that are often vague in the coverage they provide, or in many cases, exclude pollution incidents altogether. Although project impacts due to environmental incidents are less frequent, the resulting cleanup costs associated with these incidents can be severe. Therefore, it is imperative that project owners hire qualified contractors they can trust to execute the project successfully and avoid being left with costly environmental issues.

Project Owner Liability

There are many ways a construction project could be left with an environmental incident that must be addressed. When these incidents occur, oftentimes there can be efforts to avoid responsibility. Ultimately the project owner is responsible for any incidents that occur during their project. This includes any waste generated on their property from contractors, transportation from the generation point to the disposal facility, and at the disposal facility after the waste has been disposed. Therefore, hiring a competent, qualified and trustworthy general contractor should be a top priority for a project owner.

General Contractor Liability

General contractors can be held liable for the property damage or bodily injury of others due to their contracting operations. In cases where the contractor fails to do their work properly, and the failure results in property damage or bodily injury to others, they can be found liable. In addition to potential claims for bodily injury or property damage, environmental issues also carry with them the responsibility for cleanup. Therefore, general contractors should address and mitigate environmental risks through the procurement process by vetting subcontractors that are properly trained and insured.

Subcontractor/Trade Contractor Liability

Trade contractors or other subcontractors that perform work on behalf of others, face similar liability issues that general contractors face. When an environmental issue occurs, they may be found liable for the pollution condition. Therefore, they are often required by owners or general contractors to have indemnity agreements in place that hold themselves accountable for their own work. When a party indemnifies an individual or company, it agrees to hold that individual or company harmless from damages caused by the party’s actions or the actions of those under their control. For construction projects, indemnification clauses are written such that the indemnification starts at the bottom (trade contractor) and flows back towards the top (project owner).

When a properly worded indemnification clause is agreed upon between project owners, general contractors and their subcontractors, the project owner is protected against losses incurred by contractors during the project, including those due to an environmental incident. Therefore, in addition to standard insurance (e.g. general liability, auto and workers compensation) it is critical for contractors to have adequate pollution liability insurance to respond to an environmental incident.

Pollution Liability Insurance

Insurance needs for the construction industry are evolving and more often include the need for pollution and/or professional liability to meet contractual requirements, address exposures and protect assets. Contractors Pollution Liability provides third-party coverage for bodily injury, property damage, defense expenses and cleanup costs for pollution conditions arising from covered contracting operations performed by or on behalf of the insured.

Prior to the 1970s, pollution liability was covered under the standard commercial general liability policy. As insurance companies became more concerned with the liability associated with pollution incidents, they began excluding pollution liability under the CGL policy. In some cases, carriers have made available limited pollution coverage endorsements to the standard General Liability policy. These endorsements fail to meet some key standards when it comes to providing meaningful coverage for contractors in the event of a pollution condition. This has created the need to purchase separate coverage for pollution liability.

Shortcomings of Acord Certificates

Contractors Pollution Liability is not at all uniform in what is covered, and yet it is addressed, at best, on the Acord with a single line typed into the “Other” section. It is nearly impossible to determine from an Acord certificate whether a contractor has a comprehensive pollution liability policy or merely a limited endorsement to their CGL policy. There is a very real possibility that the certificate holder, with this limited information, may be engaging a contractor with no meaningful coverage at all, and very little chance that a potential claim would be paid.

Procurement

To verify insurance, many project owners and general contractors have in-house attorneys that review insurance certificates and obtain copies of subcontractors’ insurance policies to confirm they have met the minimum requirements.

A Certified Environmentally Responsible Contractor (CERC) is a certification that provides contractors with best practices designed to assist them with identifying environmental risks and preventing pollution incidents. These practices, which have been prepared by an environmental consulting firm, provide an opportunity for contractors to train their employees on how to identify and mitigate environmental risks typically associated within their industry. As part of the certification process, the contractor is required to obtain true pollution insurance that is verified prior to the contractor receiving their certification.

Contractors who receive the CERC certification and include it with their bid proposals, reduce the time project owners and general contractors spend verifying insurance requirements and provide assurance they are trained to mitigate environmental risks on projects.