Plugging the Holes of Your Liability Policy

By Veronica W. Benzinger

Everybody buys it; no contractor can be without it - the trusty commercial general liability policy, which provides contractors with the bodily injury and property damage coverage they need to operate their businesses. But in these days of changing policy forms, does this (sometimes very expensive) policy provide the coverage needed to assure business continuity in the event of all claims? Unfortunately, the answer is very often "No," especially with regards to claims concerning pollution and professional liability.

Typically, a contractor purchases several policies covering employees, property and equipment, automobile, and maybe even the building under construction. One of the core coverages in every contractor's insurance program is the CGL and it is this policy that is relied upon to satisfy the bulk of indemnity requirements. But does it?

Consider that contract you were just awarded, and analyze the scope of work. Now think about the contractual requirements of the owner, general contractor and construction manager. Does the indemnity or insurance wording of the contract require you to indemnify and hold the owner harmless for any and all claims? Can you? Will your insurance cover these claims even if the wording is modified, limiting the indemnity to work caused by, arising out of, resulting from or occurring in connection with your work?

Indeed, there are policy provisions that can leave contractors in a hole - a deep hole. The basic commercial general liability policy form has a pollution exclusion, Exclusion f, and other amendatory endorsements that make pollution exclusions even broader. Additional amendments limit professional liability coverage.

Pollution Exclusions

Don't let the "contractor" exceptions to this exclusion fool you. The pollution exclusion found within the CGL policy form is broad and excludes pollution conditions resulting from your work, the waste you generate and/or transport as well as material brought onto the job site.

In addition, there are a number of supplementary exclusions that have become standard, such as:

• Total pollution exclusion
  
• Fungi or bacteria exclusion
  
• Asbestos exclusion
  
• Silica or silica-related dust exclusion
  
• Lead exclusion
  
• Exterior insulation and finish system

Each of these endorsements reinforces the CGL carrier's desire to exclude any potential for a claim resulting from pollution, and further limits coverage under the completed operations hazard by possibly excluding the completed work in its entirety if it resides within a pollution condition.

On the flip side, there are several endorsements and amendments that may extend pollution coverage for bodily injury or property damage under certain circumstances. At best, these endorsements provide limited coverage - only a fraction of what a contractor needs in the event of even a minor pollution release.

Professional Exclusions

While the standard CGL policy does not include an exclusion for professional liability, carriers aggressively seek out areas to limit. In fact, even supervision has been defined as an excluded professional service. Following are examples of specific professional exclusions that CGL carriers are adding to their policies:

• Designated work exclusion - usually specifically customized by the carrier, pertaining to potential design or supervision work the insured contractor may encounter
  
• Designated exposure/hazard exclusion - usually specifically customized noting supervision, instruction, recommendations or advice
  
• Construction management errors and omissions exclusion
  
• Contractors professional liability exclusion

What's a contractor to do?

First and foremost, it is essential for contractors to work with an insurance professional that possesses an intimate understanding of the industry and its inherent environmental and professional risks. There are several insurance solutions available to address both professional and pollution liability. These policies can be purchased on a project basis or for all operations, and can be combined in one policy or obtained individually.

Since policy limits are aggregated within the policy term, it may be wise to consider purchasing pollution liability coverage separately from professional liability, thus creating separate limit towers for pollution and professional liability. CGL policies are often supplemented by excess or umbrella policies that provide additional limits in the event the primary policy limits are exhausted, allowing insureds to build a taller limit tower.

When relying upon umbrella/excess policies for additional limits, it is important to note that pollution and professional exclusions on those policies are non-standard and vary from insurer to insurer, so even if the primary CGL provides coverage for a specific liability, the umbrella/excess may not - and vice versa. And, since umbrella/excess policies usually do not sit over pollution or professional liability policies, adequate limit towers are needed within those policies themselves.

It is unlikely that insurers will ever endorse the CGL policy to provide anything beyond incidental pollution and professional coverage. For many contractors, this will be enough to adequately insure their work. For others, it will not even scratch the surface. Clearly, CGL carriers are forcing their insureds to purchase specialized pollution and professional liability policies to meet the needs of the contracts they sign and protect their balance sheets. Risk managers and insurance brokers must be cognizant of coverage subtleties and design insurance programs with limit towers that will protect the construction firm and guarantee business continuity.

Veronica W. Benzinger is a senior vice president and environmental business specialist with Aon Environmental. She can be reached at veronica_benzinger@aon.com.