Risky Business: Risk Management to the Rescue

By Mitch Cohen

The author reminds construction professionals of the potential of environmental hazards, including mold.

The call that came in was from a project manager who was overseeing a utility excavation for new road construction. His contractor discovered over a dozen leaking five-gallon buckets of roofing tar and solvents and 15 one-gallon cans of paint solvent in five different locations. There were even dozens of partially used cans of metallic paint buried in several other locations.

Worse, the solvent had leaked and migrated through the sandy soils and porous limestone into the groundwater and had been detected in monitor wells. Not only were the contractor and risk management team upset, the state environmental agency was soon banging on the facility's door.

To make matters even worse, the roofing and painting subcontractors were long gone and could not be found.

Could this happen to you? The South is the fastest growing sector in the U.S., and with that growth comes the explosion of construction projects to build the homes, offices, hospitals, schools and infrastructure necessary to support such rapid development.

While contractors scramble to bid on projects, worrying about available subcontractors, skilled labor and material costs, environmental risk and exposure are often not even on the radar screen. When a construction project is conceived, it is paramount to first determine if any environmental concerns exist.

Sure, a contractor transfers risk by stipulating that all subcontractors must account for hazardous materials brought onsite, and taken offsite. What if a subcontractor is no longer in business and cannot be held accountable to that contract language?

What contractors may be surprised to learn is that construction rubble, including hazardous materials disposed within that rubble, sometimes end up buried on a farmland. Aside from the legality issues this practice implies, a problem clearly arises when these hazardous metals and chemicals find their way to nearby drinking water wells and, the products are tied back to a subcontractor and the site where they originated.

The contractor then gets to remediate the scene, pay for drinking water substitutes and fines, and possibly go to jail. If it is assumed that the average building contractor's profit margin is about two percent, the average general contractor's profit margin is approximately 10 percent and an unexpected contaminated soil cleanup on a project site is $500,000, it is clear how much revenue is needed to cover the cost incurred by such irresponsible behavior.

While man-made environmental risks can be devastating, Mother Nature has a way of testing contractors as well. Enter the issue of mold.

The Southeast, particularly Florida, is one of the most vulnerable areas for water intrusion and resultant mold due to the fact that it is rich in the four ingredients that mold loves:

• Warm temperatures (40 F to 100 F)
• Relative humidity above 55 percent
• Organic food source
• Poor air circulation

The warm and humid months are great for lush fields, flowers and forests, but bad for mold (unless you are a mold spore). When it comes to mold risk, it is important to consider the type of construction project. Risk is always a function of the number of people present in a given environment, as third-party bodily injury claims are far more significant losses than clean up of contaminated building materials. The highest likelihood for mold claims occurs in: hospitals and health care facilities, nursing homes, multifamily residential buildings, universities and schools. The lowest mold claim risks occur in: commercial buildings, industrial and manufacturing facilities, and warehouses.

While the weather shows no signs of changing in the Southeast, here are some preventive steps that contractors should take:

• Develop and implement water intrusion prevention and response protocols.
  o The key is to respond to water intrusion within 48 hours to prevent mold.
• Implement protocol training for those responsible, such as foremen, superintendents, project engineers, project managers and safety managers.
  o There are sufficient online programs available to save cost and to address field schedules.
• Use contracts and subcontracts to contractually transfer the risk.
  o Work closely with a broker experienced with pollution liability to ensure proper contract language.
• Make sure all bases are covered.
  o Confirm that defense coverage is included in the contractor's pollution liability policy, along with supplemental mold coverage.

By ignoring environmental risk, contractors can face project delays and millions of dollars in lawsuits, clean-up costs, bodily injury claims and regulatory fines. The contracting team is best served to utilize environmental risk management and transfer from the beginning, and budget for these tools in the project bid.

Who knows? Someday, they just might get that phone call about buried hazardous materials.

Mitch Cohen, a pollution insurance broker with Aon Environmental Services Group, Atlanta, can be reached at mitch_cohen@ars.aon.com.