Overview of Contractors Pollution Liability (CPL) Insurance
In conjunction with Building Safety Week, which is recognized from May 2nd to May 6th, 2023, this article series explores how various policy exclusions can operate within a commercial general liability or CGL policy, illustrates how other types of policies may respond, and identifies multiple claims examples to better show situations where additional forms of coverage may be needed due to a particular policy’s exclusions. As explained by the International Risk Management Institute, a CGL policy is essentially “a standard insurance policy issued to business organizations to protect them against liability for bodily injury (BI) and property damage (PD arising out of premises, operations, products, and completed operations; and advertising and personal injury (PI) liability.” However, such a policy is not without its exclusions, such as a pollution exclusion, which would exclude coverage attributed to a pollutant. While that sounds simple enough, what is and what is not considered a form of pollution may not always be evident.
Building safety is an issue that crosses all types of buildings. Whether it’s a renovation project or a brand-new building project, those involved have different risk exposures. The examples demonstrate how such liability, which may not always be easily and readily identified, can have significant consequences. According to the United States Bureau of Labor Statistics, employment growth for construction managers is anticipated to increase by eight percent over the period spanning from 2021 to 2031 and equating to 36,400 jobs. In fact, this surpasses the average for all occupations. As also noted by the United States Bureau of Labor Statistics, construction manager job growth is anticipated to be set at an average of 41,500 job openings annually. There are many moving components in any construction project and finding the right insurance policy or policies that are tailored to a client’s unique situation are pivotal parts to the overall success of that very endeavor. One of the target classes for Contractors Pollution Liability (“CPL”) Insurance policies, for example, is that of construction managers. General contractors are another class for which such CPL coverage would be applicable.
Contractors Pollution Liability (CPL) Insurance
A Contractors Pollution Liability (CPL) Insurance policy is one form of Contractors Environmental Liability Insurance, and it can be made available for either claims made or occurrence-based coverage situations.
Here is just a sampling of some of the key features available under a Contractors Pollution Liability (CPL) Insurance policy:
- Liability Coverage Offerings: When a pollution event occurs that is connected to either the Insured or to an entity acting on behalf of the Insured with respect to contracting operations, CPL coverage can include property damage, defense costs, bodily injury (BI) expenses, and clean-up costs.
- Emergency Response Coverage: Sometimes, emergency situations arise. Under a CPL policy, emergency response costs allow the Insured coverage to reduce the impact of a sudden and accidental pollution event.
- Insured Owned Sites: Both sudden and gradual pollution coverage options can be available for Insured owned sites.
The target classes for CPL coverage are far-ranging, including everything from construction managers to general contractors to those involved in the construction trades just to name a few. Please contact one of our producers to explore in more detail the various policy options that are at your disposal. In our next article in this series, we will examine three different real-world claims examples to demonstrate just some of the factual situations that can arise in the context of building construction.
Claims Examples Focusing on Building Safety Issues that Can Arise
Sometimes, the most effective way to demonstrate the various factual and unique circumstances that can arise during building construction projects is to provide those real-world scenarios. This year, Building Safety Week spans from May 2nd through the 6th, and as best explained by the International Code Council (“ICC”) it “is an international campaign celebrated in May to raise awareness about building safety.” The ICC emphasizes how building safety is not only personal it’s also local and even global. The claims examples included here are varied, ranging from that of spray-foam insulation contractors to epoxy sealant general contractors and subcontractors to that of apartment complex contractors.
- Cincinnati Specialty Underwriters Ins. Co. v. Energy Wise Homes, Inc.
Energy Wise, a building and home insulation contractor, secured a commercial general liability (“CGL) policy with Cincinnati Specialty Underwriters Insurance Company (“Cincinnati Specialty”), which included a total pollution exclusion endorsement within the policy. Shrewsbury Mountain School contracted with Energy Wise to install spray-foam insulation within the school. Following this insulation work, a Shrewsbury Mountain School employee, and her husband (“the Uhlers”) initiated a lawsuit, arguing that exposure from the airborne chemicals and residues associated with the spray-foam insulation work caused resulting bodily injury. They initiated claims including but not limited to negligence and loss of consortium. Subject to a reservation of rights, Cincinnati Specialty initially agreed to defend Energy Wise; however, the Insurer later argued that coverage under its CGL policy was unavailable because of its total pollution exclusion endorsement.
At issue here was whether the total pollution exclusion was only limited to traditional environmental pollution or whether the exclusion was broader than that and worked to exclude a broader class of injuries caused by pollutants. On appeal, the Court agreed with Cincinnati Specialty, explaining that ambiguity was not at play regarding the pollution exclusion and that as such the bodily injury claims resulting from the pollutants were not covered under the CGL policy here. In closing, the Court added “That the policy does not cover the type of claims that one might reasonably expect to arise in the course of Energy Wise’s business does not render the policy unenforceable. As indicated above, an insured’s ‘reasonable expectations’ cannot trump ‘unambiguous policy language.’” The Court also noted that its decision here was limited to that of surplus lines insurers due to a Vermont financial regulation for pollution endorsements.
- Firemen’s Ins. Co. of Washington, D.C. v. Kline & Son Cement Repair, Inc., et al.
This case illustrates how pollution exclusions within a CGL policy can operate in renovation situations involving both a general contractor and sub-contractor. In this case, R.J. Smith General Contracting, Inc. (“R.J. Smith”) hired subcontractor, Kline & Son Cement Repair, Inc. (“Kline”). Under this contract, Kline was responsible for the epoxy sealant application to the warehouse’s concrete floor. Here, the Court examined whether the epoxy/eurathane fumes from the applied sealant would be considered pollutants under the CGL policy’s total pollution exclusion. Kline secured a CGL policy from Firemen’s Insurance Company of Washington, D.C. (“Firemen’s”), and R.J. Smith was listed as an additional Insured under the policy. Following the epoxy sealant application, a warehouse employee claimed that she experienced respiratory issues from the fume inhalation. Her office was located directly above the warehouse floor where the sealant was applied. At this stage, the employee had not filed a formal suit; however, she sought settlement for the personal injuries that she suffered and was seeking settlement here in the amount of $75,000.
In response, a debate began as to whether insurance coverage was available for the defense and indemnification of the alleged personal injuries experienced following the sealant application. The Court’s declaratory judgment noted that an actual controversy existed and because the policy’s pollution exclusion prevented coverage for the personal injury such coverage was unavailable under the CGL policy. In summary, the Court found that the epoxy/eurathane floor sealant fumes constituted pollutants, negating coverage for defense and indemnification under the policy where the pollution exclusion was unambiguous. Specifically, the Court explained that “The broadness of the exclusionary language, coupled with the parties’ failure to specify that the exclusion be limited to only ‘traditional’ or ‘industrial’ pollution, therefore mandates the conclusion that the Pollution Exclusion clause is sweeping, excepting both environmental and indoor pollution occurrences from coverage.”
- Quadrant Corp. v. American States Ins. Co.
This final claim example in this article series addresses whether fumes emitted from the waterproofing sealants applied by a restoration company would be excluded under a CGL policy’s absolute pollution exclusion. Pacific Restoration (“Pacific”) was hired by Roy Street Associates (“Roy Street”), the apartment building owner, to apply deck sealant, which included a variety of chemicals, such as toluene diisocyanate (“TDI”) that can negatively affect an individual’s respiratory tract and/or nervous system. Following this application, one of the apartment residents filed suit against both the apartment owner and the restoration company, alleging property damage and personal injury. Prior to the application, the tenant was not properly warned, and the area was not adequately ventilated, resulting in the tenant’s hospitalization. The CGL policies at issue both contained absolute pollution exclusions.
Following the tenant’s passing, her estate ultimately settled the suit for $30,000. In response, the Insureds sought defense and indemnification for the apartment tenant’s claim, which was denied by the Insurers when they cited the absolute pollution exclusions that barred coverage for the toxic substance fumes. The Court agreed that the absolute pollution exclusion barred coverage and rejected the idea that the CGL policy was illusory, stating that “we conclude that the pollution exclusion clause does not render the policies illusory with respect to the building owners because the insurance policy will still cover a variety of claims, including slip and fall accidents, despite the pollution exclusion.” In addition, the Court added that the “injuries fall squarely within the plain language of the pollution exclusion clause.”
Each type of building and the location of that building all present their own unique challenges. These claims examples demonstrate just a few of the factual scenarios that can arise, and that’s why it’s important to further examine various risk exposures and address those needs accordingly. Please contact one of our producers, if you are interested in receiving more information, such as the specific limits that would be available.
By: Jessica Cambridge