Market Trends: Contractors
Although construction spending rose more than 10% in 2015 over 2014, prices for CPL policies have remained flat at rates that have been decreasing for the last 10 years.
Contractor Pollution Liability (CPL) policies were initially developed for contractors involved in environmental cleanup activities or hazardous waste disposal operations. These environmental contractors used to be the primary focus of the environmental insurance markets. Today, environmental coverage is not only for the environmental contractor – but for any type of contractor, including trade or artisan contractors. Some of the reasons this coverage is more available in the insurance marketplace include more environmental regulations governing contractor activities, more clients requiring this coverage, and more contractors being aware of pollution risks such as spills from chemicals they bring to sites, unintentional utility strikes, and uncontrolled air emissions or storm water runoff. In fact, in 2013 the Engineers Joint Contract Documents Committee (EJCDC) added a requirement for CPL insurance to be added to their contract documents for construction activities. The EJCDC works to develop “the latest and best thinking in contractual relations between all parties involved in engineering design and construction projects.”
There has been a progressively growing number of insurance carriers offering CPL coverage. The most recent count of carriers is more than 40, with that number fluctuating as a result of mergers or acquisitions within the insurance industry.
Although construction spending rose more than 10% in 2015 over 2014, prices for CPL policies have remained flat at rates that have been decreasing for the last 10 years. This is not expected to change in the near future, unless it is discovered that a particular class of contractor conducts activities that result in a higher incidence of claims activity. For example, in the past, it was believed that plumbing or heating, ventilation, and cooling (HVAC) contractors were a relatively innocuous group of clients to insure―until it was discovered that their activities could lead to mold claims. When this happened, coverage for those contractors was more difficult to procure and became more expensive. At that time, underwriters required that those contractors develop Standard Operating Procedures to address mold prevention and provide mold awareness training to their employees. Once these requirements were met, underwriters were once again willing to offer environmental coverage at rates similar to what they had offered prior to mold claims resulting from plumber or HVAC contractor activities. It is very possible that this type of premium disruption could happen to another type of contractor in the future.
Terms for CPL policies typically run from one to five years and in many cases project policies are still available for up to 10 years. Most CPL policies are purchased on an occurrence basis versus a claims-made basis. In order to be competitive, some carriers are eliminating the requirement for Self-Insured Retentions (SIRs) or deductibles. In addition, some of them are offering defense outside of the limits, although in most cases they cap defense costs.
The trend for many contractors is to purchase General Liability (GL) coverage and Pollution coverage via the same form. This reduces the chances for paying for the same coverage twice and for gaps between the GL and Pollution coverages. In some cases contractors are purchasing not only GL and Pollution coverage via the same form, but also Professional liability coverage via the same form.
The majority of environmental claims that result from contractor activities still involve spills/releases of hazardous materials such as asbestos, mold, and contaminated fill. As a result of an increase in regulations designed to prevent storm water pollution, hazardous air emissions and protection of the public from harmful exposure to lead, more and more claims are being presented to environmental insurance carriers that involve fines and penalties from environmental regulators.