As you can tell by previous blog entries on commercial general liability (CGL) and builder’s risk insurance, when it comes to all types of construction projects, there are many different types of coverages to consider when deciding how to mitigate the risks that accompany every project. Here, we will cover yet another insurance vehicle for mitigating risk—contractor’s pollution liability policies (CPLs). These types of policies are an extremely important form of coverage and one that is often overlooked.
First, we go back a few decades. When someone purchased a commercial general liability policy (CGL), they would get coverage for property damage caused by a broad range of losses. For example, property damage caused by pollution was oftentimes covered under CGL policies as recently as the 1970’s.
As another example, property damage caused by mold was covered under standard CGL policies until the 2000’s. However, as claims for pollution-related property damage (and later mold-related property damage) soared, the insurance industry, as it so often does, began attaching exclusions to their policies, eliminating coverage for such types of property damage under most CGL policies. This left insureds whose operations were exposed to such types of property damage without insurance coverage. Seeing an opportunity to collect more premium dollars, the insurance industry moved to fill this gap through pollution policies.
Pollution policies are a bit like your homeowner’s policies in that they afford both first party coverage (for damages to the insured’s own property) and third-party coverages (for damages caused by the insured to the property of others). However, unlike CGL policies, which are so frequently written on relatively standardized (ISO) policy forms, CPL policies are much more commonly manuscripted policies, meaning that the policy terms and language can vary significantly from carrier to carrier and even within programs underwritten by the same carrier. Accordingly, it is critical to carefully review proposed policies before binding CPL coverage.
CPL policies are a form of pollution coverage. Like pollution policies, CPL policies also afford first- and third-party coverages. Like pollution policies, they are manuscripted policies. Like pollution policies, CPL policies are typically written on a claims-made basis, meaning that they typically apply only to third-party claims first made and reported during the policy period.
But, CPL policies often come with some significant coverage enhancements that distinguish it from more common pollution policies. CPL policies, for example, are commonly written to include mold damage as a separate coverage grant. As an aside, some CPL policies simply expand the definition of pollution to include mold. These two different approaches have, perhaps unexpectedly, potentially different coverage consequences—a point to consider when placing CPL policies.
As another example, CPL policies are also sometimes written to include professional liability coverage. This oftentimes represents a significant coverage enhancement for many different types of participants in construction. As a final example, CPL policies can sometimes include rectification coverage, another important coverage enhancement, which usually applies to expenses incurred by the insured to rectify its negligent acts or to prevent further damage resulting from such acts.
At the end of the day, CPL policies are an important way to fill gaps in insurance coverage for every construction project—gaps that would exist if the project participants just relied on CGL policies (including wrap-ups) and builder’s risk policies. All these coverages are essential in most projects and provide the most cost-effective way of mitigating risks associated with every project. We can walk you through your options and help you determine what things you can do to protect your company. And, if a loss has occurred, a claim has been made or a suit has been filed, we can help protect your business’s interests.