Important Differences between Pollution Insurance Products

By Adam Puharic, Puharic and Associates, Inc.

Whether you are a contractor, an engineer or environmental consultant, if you have been in business for any reasonable amount of time, you’ve encountered contract requirements looking for pollution insurance coverage. As you fumble through your insurance paperwork, you come across a certificate evidencing “Pollution Liability,” so you move on to the next business challenge.

But stop right there.  Do you have the correct pollution insurance coverage?  Do you understand what the policy is attempting to mitigate?  Do you know the difference in coverage types?  This article will take us on a brief tour of two major coverage forms, and outline what they cover and when each would apply in a contract situation.

The two pollution coverage forms addressed here will be pollution coverage provided by Architects/Engineer and Consultant Professional Liability (Errors and Omissions) and Contractors Pollution Liability.  Other Pollution form types exist, but many contractual obligations will be met with these two types.

Hold on, what exactly is pollution from an insurance perspective?  A definition found in a popular insurance carrier form defines pollutants as: “any solid, liquid, gaseous, thermal, biological or radioactive substance, material or matter, irritant or contaminant including smoke, vapors, soot, silt, sedimentation, fumes, acids, alkalis, chemicals and waste.” And very important: This pollutant can be spread either accidentally or as the result of a plan, design or report error. I tend to explain this to clients as either the unintentional result of operations, or the unforeseen result of an intentional design or plan.

So now the coverage forms.  Contractors Pollution Liability is meant to insure against the unintentional pollution acts that results from business operations.  For example, a common insuring agreement explains: We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury”,” property damage” or “cleanup costs” caused by a “pollution condition” to which this insurance applies, provided:
a. The “pollution condition” arises out of “your work” performed during the policy period, except for a “pollution condition” arising out of the “completed operations” of “your work”; and
b. The “bodily injury” or “property damage” occurs, or the “cleanup costs” are incurred, during the policy period.

A simple example to help us visualize this coverage: A painter walks through a job site, accidentally kicks over a can of gasoline into a nearby stream.  This is accidental, a known pollutant, and results from the business operations. Contractors Pollution Liability is commonly purchased on an occurrence form basis, meaning you insure a 12-month period, and any events that occur during that period.

The second policy type is Professional Liability, also known as Errors and Omissions.  This coverage type is designed to pay claims resulting from professional services that create pollution events.  Some types of professional services contemplated include: environmental remediation designs, storm water run-off plans, landscape architect plans, land evaluations, etc.  The key to this coverage is that the pollution, though not intended, results from a plan or design that fails to account for one factor or another.  The result is that the pollutant spreads, or is not remediated and removed at an adequate pace.

This coverage type is commonly insured on a claims-made basis, which means a policy period will defend claims brought forward during the policy period, even if the event occurred in the past, as long as there was no prior knowledge of this event.  For this Professional Liability policy, a Retroactive Date is an important policy concept that defines the past date that claims can be made back to.

So how do these significant differences impact your business and the contractual requirement you are attempting to satisfy?  If your role on the job is a form of construction trade, such as electrician, plumber, framer or drywall installation – the Contractors Pollution Liability policy form is likely the relevant coverage type.  If your role is designer, environmental scientist, geotechnical, architectural or engineer in nature, then both policy forms might come into play.

The key is to work with your licensed insurance professional and make sure they are well versed in the contract requirements, and have a thorough understanding in the major policy form differences.  Not all Pollution insurance is equal!