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Contractors: Constructing the Right Policy and Examining Current Policy Exclusions

With National Construction Appreciation Week (September 19-23) here, we’d like to take the time to highlight this essential industry and recognize the hard-working businesses that operate in a environment of risk.   Of all the financial risks inherent in the construction context, environmental and pollution risks can sometimes be overlooked, and may not be part of a construction contractor’s traditional insurance program.  A common exclusion within a commercial general liability policy (“CGL”) is the pollution exclusion, which may limit or prevent coverage for claims relating to a pollutant and the scope of which may be much broader than anticipated.  Check out the following link for more details on some cases that address this very issue and demonstrate the need for affirmative pollution coverage within the construction industry. Also, a new Current Events in the Industry section is also included so that you can stay on top of current industry trends.  

Caselaw in states across the country is replete with examples of construction-related activities and exposures that have been determined to fall within a CGL policy’s pollution exclusion.  For example, in Pennsylvania National Mutual Insurance Co. v. Triangle Paving, Inc., a general contractor performing site work for a shopping center development in Henderson, North Carolina caused sediment to dislodge during construction, damaging a waterbody located on an adjacent property. Here, the general contractor settled the property damage claims brought by adjacent property owners , and then sought reimbursement from its commercial general liability insurer. The CGL insurer disclaimed coverage, citing the policy’s pollution exclusion. The Court held that the sedimentation from runoff was a pollutant and therefore excluded. The general contractor was not covered for the claims.

Bodily injury claims are another significant exposure at construction jobsites. In Madison Construction Co. v. Harleysville Mutual Insurance Co., a contractor was engaged to pour and cure a project site’s concrete utility trenches. The contractor applied a compound (Euro Floor Coat) to cure the concrete; however, this was done in an enclosed construction area. A worker at the facility was attempting to set up an exhaust fan for the fumes, but was rendered unconscious and fell into an excavation site, sustaining severe injuries. The injured worker brought bodily injury claims against several defendants, including the contractor who applied the floor coating. The floor coating contractor maintained CGL coverage, but its policy also contained a pollution exclusion. The pollutants present here included xylene, trimethylbenzene, and styrene. As a result, the insurer refused to defend or indemnity its insured contractor. The Pennsylvania Supreme Court agreed with the insurer, holding that the Euro Floor Coat, although a viable product used in the contractor's business, was also a pollutant due to its toxic chemical ingredients and vapors. Therefore, the contractor was not covered for the injured worker's bodily injury claims.

This article identifies pollution exposures for General Contractors and some of their specialty sub-contractors.  In construction projects, it is not uncommon for contractors of multiple tiers, or both contractors and design professionals, to face shared exposure for a pollution-related claim.  In SCTW Health Care Center, Inc. v. Robert Gass, Inc.. a GC was engaged to construct a new nursing home facility in Texas.  Issues with the design and construction of the new facility’s HVAC system led to excess condensation and mold growth throughout the building.  The nursing home incurred substantial expenses in remediating mold conditions and relocating its residents, as the building became uninhabitable.  It brought property damage claims against both the construction contractors and design professional, and was ultimately awarded $1.4M in damages. 

 

 Current Events in the Industry:

            The cases above illustrate just a sample of potential pollution exposures that may arise during construction projects.General contractors and others working within the construction industry should be aware of these risks and consider an affirmative pollution insurance option to address potential gaps in coverage within a standard CGL program.   

 

 

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Environmental Consultants and Professionals: Professional Liability Coverage Issues