What to Know About Construction and Environmental Liability

How do per- and polyfluoroalkyl substances (PFAS) impact the environmental liability market in construction, or do they? Do all contractors need environmental liability coverage? And if so, how can agents and brokers encourage them to purchase the cover?

These are a few questions answered by Dennis Willette, Westfield Specialty’s senior vice president and head of environmental, in this Spotlight interview.

Describe the overall environmental liability market today. Any trends you are seeing?

Dennis Willette: Environmental means a lot of things to a lot of different people. So, when you try and quantify rates or terms or conditions, there’s much to discuss. But in terms of the marketplace in general, the marketplace has stayed somewhat stable. I would say there’s been a little bit of tightening and contraction, which I think is good. … Rates are becoming somewhat stable depending on the market and depending on the section–softening in some areas, but mostly stable. Terms are tightening for some specific areas and exposure points, but availability remains fairly abundant.

For the construction sector, have you seen any recent claims trends in environmental liability?

Willette: The prevalence of mold, the activity of mold in the marketplace in terms of a loss frequency driver, remains steady. … Also from a trend standpoint, one of the things we’re really keeping an eye on is a demand for faulty workmanship coverage. There are significant losses attributed to that sector. That’s a coverage area that we watch closely when it comes to construction; even though it’s more on the professional side, it’s an area we watch closely. … We watch it because faulty work can cause a pollution condition, in which case that would be a covered claim.

What about PFAS? Is it an issue for construction?

Willette: It’s an evolving issue. It’s dynamic, it’s evolving, it’s changing, and anything that changes that quickly from a regulatory standpoint presents challenges from a coverage standpoint. … Nobody’s immune from PFAS exposure. However, there are industries that I think are fairly well insulated, and I would say a large swath, if not the majority, of the construction industry is at the lower end of the exposure spectrum from a PFAS standpoint. And why and how that comes to life for us is, I would say, the vast majority of our programs don’t include an exclusion.

So, a program that covers a contractor for pollution and professional, the majority of those programs do not include a PFAS exclusion.

There are some classes of business and sectors that have an increased exposure with PFAS. One of them is fairly straightforward, which is any sort of fire sprinkler contractor that has their hands on chemical, non-water-based fire retardants, fire suppressants.

Many of those systems historically have contained PFAS materials. There has been a push going forward to remove PFAS-containing materials and replace them with non-PFAS-containing materials. So, while the industry and long-term exposure is improving, when you’re offering pollution on an occurrence basis as we do, and you have contractors working around any sort of PFAS-containing materials–especially those like a foam that can disperse and potentially contaminate–we take a fairly conservative approach and exclude PFAS.

How can agents educate clients on why they might need environmental liability coverage?

Willette: Contractors buy what they need to. Now we are seeing an increase in contractual obligations requiring both pollution and professional coverage, which I think is good. That means that either owners, clients, lenders, general contractors, construction managers, those larger entities that are subcontracting up business, they see the risk, they see where the exposures are, and they’re cascading those down to their subcontractors. So, I think that’s really positive. …

But contractors don’t always understand or [they] underestimate their exposure. Everybody loves to say, “I’m a street and road contractor; I don’t have a pollution exposure. I don’t have a professional liability exposure.” I can tell you that they do. And there are real examples, tangible examples of where those exposures lie.

For example, a street and road contractor could very easily inadvertently fill and block a sewer line. And all of a sudden whatever’s supposed to flow through, it’s going to go back the other direction. If that happens, and sewage backs up into a residential home, into an apartment building, into a retail or office building, that’s going to cause significant property damage. And if it’s a sewer line, that is going to be a pollution condition. The release of that material is a pollution condition, and that can be a very costly restoration.

That’s one example but there are tons of examples. Anytime you put a shovel in the ground, you’re dealing with the potential of striking, identifying, or creating some sort of pollution condition that likely won’t be covered by a general liability policy due to the total pollution exclusion.

Topics
Liability
Pollution
Construction