The Summit

Beacon Hill Associates A publication of Beacon Hill Associates

Coverage Challenges for Industrial Contractors

There are many skilled contractors in the industrial and energy space, where contracts are bigger, but potential risk exposure is also bigger

We are currently experiencing a situation in parts of the country where there is a shortage of skilled contractors and laborers available to handle all of the work that is available. Because of this, the existing contractors are able to pick and choose the type of industries they work with. A top choice for most skilled contractors is in the industrial and energy space, where contracts are bigger, but potential risk exposure is also bigger. What does that mean from an insurance coverage standpoint and what challenges do we face when looking for that coverage?

One of the biggest issues these contractors face is the need or requirement for proper Pollution coverage and other endorsements that they might not have or be able to get with most General Liability carriers. Often times these contractors are able to get a fairly typical Commercial General Liability policy from a standard carrier—while this wouldn’t give them all of the coverage needed to truly address potential exposures, it would still allow them to do work at a typical job site. However, that same policy won’t even get them through the door at an industrial or energy facility due to common coverage requirements outlined in a facility’s contract or master service agreement.  

If a standard carrier is even willing to write the General Liability for a contractor who is doing work in the industrial and energy sector, more often than not, the kind of Pollution coverage offered (if at all) tends to be limited to either ‘Sudden and Accidental’ coverage, or it may have a coverage limit that is far below what is required for industrial or energy related facilities. We have discussed the shortcomings of ‘Sudden and Accidental’ pollution coverage a number of times, and the bottom line is that if a pollution condition isn’t discovered immediately after it is caused and if it isn’t reported almost as quickly, then no coverage is afforded. We should all know that in an industrial/energy facility or work site the chances of quickly catching a leak or release is extremely slim, especially if it occurs after the work is completed. So, offering this kind of coverage is not only doing a disservice to the insured (not to mention the agent’s E&O) but it also won’t satisfy most industrial or energy facility contract requirements.

So with the above in mind, here are two scenarios that an agent may face when working with an industrial or energy contractor:

  • An agent has a standard market willing to write the commercial General Liability, but falls short of giving the Pollution coverage needed to satisfy contract requirements. In this instance an environmental surplus lines market would need to help supplement the coverage by writing a standalone Contractors Pollution Liability policy that meets the remaining requirements. Sometimes it’s because the requirement is asking for Gradual Pollution instead of Sudden and Accidental Pollution, other times it might be that the contract is requiring higher limits than what is being offered by the standard carrier. More often than not industrial and energy facilities require $5 million in Pollution limits. 
  • An agent might find themselves in a situation where their standard markets simply will not write any liability coverage due to the nature of the insured’s operations in the industrial/energy facility or will not give the endorsements necessary to comply with contractual requirements. This situation also requires the assistance of an environmental or energy surplus lines market to write the entire primary and excess package.

Most environmental or energy surplus lines markets are well versed on the ins and outs of industrial and energy risks and are able to offer the coverage necessary to satisfy all of these insureds’ coverage needs and requirements. Working with a specialty broker to access these markets will go a long way in helping to remove the hurdles and road blocks that an agent might face when trying to write an industrial or energy contractor.

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