A Restoration Contractor's Guide To Contractors Pollution Liability Insurance

September 8, 2005
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The introduction of universal mold exclusions in 2003 created significant gaps in insurance coverage for restoration contractors and their customers. To fill this new gap in insurance coverage, restoration contractors are being asked to provide relatively expensive Contractors Pollution Liability insurance covering mold and other pollutants to their customers that require certificates of insurance.

The most efficient way of filling the insurance coverage gap for the customer and the contractor is to purchase a CPL policy with appropriate coverage for the restoration contracting business. Sophisticated customers are asking for CPL insurance because they, like their contractors, have universal mold related claims exclusions in their insurance programs as well. For this reason the requests from customers for CPL insurance are unlikely to go away.

It is important to note that buying CPL insurance puts the restoration contractor back into the same insurance coverage position as they were in before the introduction of universal mold-related claims exclusions. Prior to mold exclusions, the losses caused by mold-related damages were covered by General Liability insurance. For this reason, CPL is not, for the most part, new insurance "coverage," but a new and expensive insurance policy for most restoration firms.

Restoration contractors looking to purchase CPL insurance face a number of challenges. These include:

  • Finding qualified insurance advisors with experience in environmental insurance.
  • Finding affordable CPL and General Liability insurance.
  • Qualifying for the CPL and maybe General Liability insurance.
  • For firms with under $600,000 in revenue, affording minimum premiums is a challenge.
  • Insuring the work performed by subcontractors who do not have CPL insurance.
  • Finding insurance that meets bid specifications.
  • Making informed insurance buying decisions based on coverage and price.

    Every restoration firm and their insurance relationships are unique. Long-standing relationships with certain insurance companies and insurance agents can add considerable value to the firm's overall risk management program. A qualified environmental-insurance professional will be able to provide guidance on the available options to obtain CPL insurance without going through the laborious task of completing multiple insurance applications.

    CPL Insurance
    Contractor's Pollution Liability was developed in 1986 to fill the gap in General Liability insurance coverage created by the introduction of Absolute Pollution exclusions. CPL insurance was originally designed for hazardous waste contractors. The introduction of universal mold-related claims exclusions in 2003 basically created an uninsured loss exposure for any firm that works with water in the built environment. For this reason the customers of the restoration contracting industry are starting to demand CPL insurance to fill the liability insurance coverage gaps created by universal mold exclusions.

    Without appropriate CPL coverage covering mold, an insurance coverage gap now exists for all the work performed by restoration firms, including drying, plumbing, roofing, window and door installation, siding, and reconstruction, to name a few traditional services. Even driving a screw to hang a kitchen cabinet will result in a mold-related claim if it hits a water pipe and creates a slow leak. Of course, mold-remediation work requires CPL insurance as well.

    The universal mold-related claims coverage gap exists on self-performed work and subcontracted work. Subbing out mold remediation work does not remove the restoration firm from the mold liability chain. Nor does it completely fill the universal mold coverage gap, even if the mold remediator is covered by his own CPL policy and names the restoration contractor as an additional insured on that policy. The only way to fix the insurance coverage gap created by universal mold exclusions is for everyone on the project to purchase his or her own CPL coverage.

    A CPL policy insures liability claims for "Bodily Injury," "Property Damage," "Clean Up Costs" and "Defense" arising out of the emission escape release or dispersal of "Pollutants" as a result of the insured's described operations. It is essential that the full services of the firm be described in the insurance application to gain the maximum value out of a CPL insurance purchase.

    A restoration contractor should not purchase a CPL policy that does not have mold included as a specifically defined pollutant. This coverage may appear in the standard definition of "Pollutants" in the policy, or mold may be added to the definition of a "Pollutant" in the policy by endorsement. Also, true CPL coverage should cover claims from all of the insured's described operations as a restoration contractor. CPL policies with coverage carve-outs eliminating coverage for subcontracted work, or only covering the work performed for a specified customer, are potentially less-than-ideal alternatives. This would depend on the scope of services offered by the restoration firm and how much work they subcontract out.

    Like any insurance policy, CPL policies can strip out insurance coverage in both the exclusions and definitions sections of the policy. Exclusions for "Your Work" and "Products" are very common in CPL policies, but these exclusions are not standardized. The effect of the exclusions and definitions used in the policy vary depending on the scope of services provided by the restoration firm. For example coverage for property damage liability as a result of the contractor's work may be limited to current operations in the definitions section of the policy. Some firms prefer to purchase coverage on this basis because they perceive their highest risk loss exposure is when they are at the job site. This may be true; however, since more than 90 percent of all mold-related damage claims are for property damage, and mold rarely causes damage when the contractor is still performing operations, then some CPL policies may only provide a fraction of the insurance coverage that a policy without a similar time constraints does depending on the scope of services offered by the firm.

    Where a relatively restrictive policy may give the buyer the impression of being a good insurance value, it may be by far the most expensive way to insure the firm if the coverage differentials are taken into account.

    CPL policies with unusually restrictive coverage grants are also potential insurance agent "Professional Errors and Omissions Liability" traps. Universal Mold Related claims exclusions were also added to many insurance agent professional liability policies in 2003. Because of their potentially uninsured E&O loss exposure for their client's unintentionally uninsured loss exposures, contractors can expect professional insurance agents to become increasingly unwilling to provide restoration contractors with restrictive CPL insurance in the future without pointing out the major coverage differentials in the policy forms. If the insurance agent asks you to sign a letter confirming they have advised you of certain coverage shortfalls, it is because the agent is managing their own professional liability risk.

    Get Expert Help
    All restoration firms engage the services of an insurance agent to help them in procuring their business insurance packages. The services of the insurance agent are an important part of the firm's risk management program. The advent of CPL insurance as a generally accepted line of insurance for restoration contractors now necessitates adding a new skill set to the insurance agent team. Finding a good servicing team is the most important step when looking for CPL insurance.

    All buyers of environmental insurance should seek the advice of an expert in environmental insurance before purchasing any pollution insurance policy. Environmental policies are not standardized nor are they regulated by State Insurance Commissioners. Also insurance agents are not tested or trained in environmental insurance on state insurance licensing exams. Environmental insurance polices can vary a great deal in coverage and price and it will take a subject matter expert in environmental insurance and restoration contracting to accurately sort out the differences in the policy forms.

    Environmental insurance products are some of the most complex insurance contracts in the insurance market place. Without standards for insurance agents training in environmental insurance, it will be difficult for insurance buyer's to evaluate an agent's skill sets in this area. There are also no standards on the coverage's provided in CPL policies, which places added importance on selecting a qualified and experienced agent to help you find appropriate CPL insurance on your company. Contractors are well advised to look for an insurance agent with specific experience and education in environmental insurance and risk management.

    Selecting an insurance agent based solely on their ability to bring you the cheapest insurance quote will never be the best risk management decision in the long run in any line of insurance. With environmental insurance there is a very good chance the least expensive insurance provides the least amount of coverage, or maybe none at all.

    There are a handful of very qualified specialty environmental wholesale brokers that will assist insurance agents. Some of the best environmental insurance practitioners in the world are wholesalers. But beware; wholesale brokers also receive no training or testing for environmental insurance on any states insurance licensing exam. An insurance broker that has access to insurance companies that offer CPL insurance is no assurance that the broker is remotely qualified to be working on your environmental insurance. If you are relying on the expertise of a wholesaler to fulfill the advisor role for environmental risks, ask your insurance agent to evaluate the wholesaler's qualifications to be on your risk management team as well. Expert help costs no more than having a complete neophyte working on your insurance. Wholesale brokers work on commission that is fixed by the underwriters. Good help can cost the same as no help in the insurance business.

    Next month, we'll look at the differences in CPL coverage, how to calculate the true cost of CPL insurance, how premiums are determined and more.

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