Limitations of CGL Policy
While virtually all commercial contractors are familiar with Commercial General Liability (CGL) insurance, which affords protection against liability claims alleging bodily injury or property damage arising out of one’s operations, most are not aware of common limitations within a standard CGL policy relating to damage caused by “pollution conditions.”
It is important to note that nearly all standard CGL policies contain some type of exclusionary language surrounding pollution; the Insurance Services Office (ISO)’s base CGL form includes what is commonly referred to as an “absolute pollution exclusion,” while many contractors’ policies are specifically endorsed to include a “total pollution exclusion.” Sample language from the ISO “Total Pollution Exclusion Endorsement” is as follows:
“This insurance does not apply to…‘bodily injury’ or ‘property damage’ which would not have occurred in whole or in part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of ‘pollutants’ at any time.” – ISO Form CG 21 49 09 99
The definition of “pollutants,” again per ISO, is provided as “…any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.”
The bottom line is that CGL policies are generally not intended to provide coverage for bodily injury or property damage caused by pollution-related incidents. That said, the coverage gap created by exclusionary language within one’s CGL policy can typically be addressed by purchasing Contractors’ Pollution Liability (CPL) coverage, which affords protection against liability claims alleging bodily injury or property damage resulting from “pollution conditions” (defined as “the discharge, dispersal, release, seepage, migration or escape of ‘pollutants’”).
There are many key considerations when seeking to purchase Contractors’ Pollution Liability insurance; the remaining content of this article seeks to highlight some of these main concerns.
Occurrence or Claims Made Trigger
CPL coverage can be afforded on either an Occurrence or Claims Made policy form, and understanding which coverage trigger is employed is crucial to ensuring coverage responds as intended.
An “occurrence” policy form provides coverage for any claim that “occurs” during the policy term, regardless of when the claim is reported. Conversely, a “claims-made” form only responds if a claim occurs and is made (reported) within the specified policy period. For example, in the instance an accident occurs during a policy period, but a resulting claim is reported after policy expiration, an occurrence form would respond, while a claims-made form would generally not afford coverage.
Most standard Contractors’ Pollution Liability policies do not include coverage for exposures related to “mold” or “microbial substances” (e.g. bacteria or fungi) unless specifically added back via policy endorsement. A common example of a mold-related claim scenario would be bodily injury or property damage caused by a mold growth within a building’s HVAC system; if proper mold coverage is added to one’s CPL policy, coverage would likely be afforded for the cost to clean up the mold damage, renovate damaged property, and/or defend suits alleging bodily injury caused by the mold growth.
Most standard CPL policies will exclude coverage for claims arising out of the “ownership, maintenance, use or entrustment to others of any auto, aircraft, watercraft or rolling stock.” Further, similar to a standard Commercial General Liability policy, the standard Commercial Auto policy form will typically contain exclusionary language surrounding the release of pollutants. As such, bodily injury or property damage claims resulting from pollution incidents that occur during transportation or handling of pollutants are typically uncovered unless specifically addressed via specific endorsement for Transportation Pollution Liability Coverage on one’s CPL policy.
Non-Owned Disposal Sites
Contractors, depending on specific trade, may dispose of waste or materials at various non-owned disposal sites (NODS). The environmental liability exposure associated with the disposal of materials at these sites is something that is typically excluded under a CPL policy, but which may be added back with a specific coverage endorsement. For example, NODS coverage would generally be triggered if a contractor disposes of its waste at a non-owned disposal site which is then later deemed to be contaminated. In this instance, a contractor may incur significant defense and cleanup costs after being called in by a regulatory agency or other entity to remediate environmental damage.
Most subcontractors are very familiar with insurance-related contractual requirements such as the provision of Additional Insured status on a Primary & Non-Contributory basis, as well as the provision of Waivers of Subrogation in favor of one’s contract partner(s). It is very important that contractual requirements are properly communicated to one’s insurance broker prior to the underwriting process, as not all CPL insurance carriers will agree to certain terms and conditions surrounding contract requirements.
Practice Policy vs. Project-Specific Policy
Like most other areas of insurance coverage, CPL policies typically feature annual policy terms; that said, in many instances coverage can be structured to apply to a specific project (or handful of projects). This treatment may be useful if a contractor feels that its environmental liability exposure is extraordinarily high on one specific job, or if it is simply attempting to meet contractual requirements that are specific to one client/project.
Environmental/Pollution Liability is a casualty exposure that many contractors tend not to address unless either (1) they are in the business of providing environmental/remediation-related services or (2) they work for clients that regularly require CPL coverage within contractual insurance specifications. That said, it is our view that virtually all contractors, regardless of trade, have some degree of liability exposure in this area, and would be well served to investigate this area of coverage with their agents/brokers.