Understanding Pollution Exposure – Pollution Insurance Coverage for Contractors

For many years, contractors have been concerned about the traditional insurance coverages such as property and casualty and workers compensation. Over the last five years, the need for contractor pollution coverage has become a hot topic within the construction world as well.

Contractors are faced with a number of legal and environmental challenges that are driving the demand for this coverage. From litigation over contractor defect suits to the reclamation of brownfields, contractors' potential exposure to pollution and pollution related risk continues to increase. While some contractors face pollution challenges every day, many contractors have still not recognized the risk to their company as it pertains to pollution exposure on a job site. That is where pollution insurance comes in.

Pollution insurance policies are meant to provide the contractor with coverage for unknown pollution-related issues at a job site or potential pollution-related risk that may occur at a job site. A good example of this would be the risk that an employee spills a 55 gallon drum of oil at a job site and this oil then proceeds to enter a stream or causeway, requiring environmental cleanup. Pollution insurance coverage would cover this clean up cost and all associated expenses relating to the accident.

This coverage can also be written to protect a contractor for unknown pollution issues that may be uncovered years after a project is completed. Because of the long-term possibilities of being held responsible for construction defects, contractors should not simply look for current coverage. They should also seek policies that will cover them for up to a decade on projects.

Currently, there are a number of companies that offer pollution policies for contractors. However, the market is dominated by eight carriers – ACE, American International Group, Arch, Chubb, Liberty Mutual, Quanta, XL and Zurich . Unlike traditional property and casualty coverage and workers compensation, pollution insurance coverage is considered a very stable product with average annual price increases of approximately 5%. Pricing of pollution coverage is based upon a percentage of the total project.

As your company thinks about its business risks, do not ignore pollution insurance. Because with pollution, what you don't see may get you.

This article was written by David B. Blain, CPA, CVA, senior manager at McKonly & Asbury, and a member of M&A's Construction Industry Team. For more information regarding this article or services that McKonly and Asbury provides to the construction industry, contact Dave at dblain@macpas.com or by telephone at 717-761-7910.