Take Control of Your Environmental Liability

Source: XL Group Insurance, Construction Insider
By: Laura Wagner, Vice President Construction Practice

Construction activities pose a variety of environmental risks. Construction equipment and materials brought to the jobsite, including fuels, solvents, adhesives, concrete, paint, pesticides, sealers, thinners, and waterproofing agents, all have the potential for environmental impact if mishandled or stored improperly. Water intrusion and the resulting potential for mold, leaks and spill during routine equipment maintenance and fuel storage also carry potential environmental liabilities.

In addition to the risks posed by equipment and materials, contractors also have to keep up with a variety of changing codes, rules and regulations. Clean Air and Clean Water Act violations with fines in the millions of dollars are making news. Asbestos litigation, legionella outbreaks, public perceptions on hydro-fracturing, lead rules and stormwater runoff are other hot topics that are on the list of contractors’ environmental concerns. Add to that the changing exposures surrounding green buildings and the state DOTs pollution coverage requirements and contractors have a lot to manage.

Given the nature of construction and its interaction with people and the environment, it is no wonder why environmental risk management is high up on a contractor’s list of business concerns. Contractors looking to protect public health, their employees and their profitability, have to be attentive to managing their environmental risks as well as the environmental risks around them that can become their problem if not properly handled.

Managing Your Known and Unknown Risks

Environmental exposures exist at jobsites in soils and building materials, even before contractors begin working. Contractors may be held responsible for pollution conditions that they did not create, specially if they don’t know how to react and worsen the pollution condition as a result of their activity. For instance, if the soil at a jobsite is contaminated with petroleum hydrocarbons, and the contractor moves, spreads, or exacerbates the contamination (thanks to Superfund liability), it does become an environmental situation for the contractor. In some cases, contractors have signed contracts assuming responsibility for the contamination even before they put their first shovel in the ground.

Sometimes environmental conditions are quite hidden. Consider a site that appears to be a natural undeveloped area and turns out to be a past disposal site for dredge materials containing high levels of heavy metals or a former wood treatment facility contaminated with creosote. Without this knowledge, the contractor could spread, dispose, or potentially reuse soil on another project in a very inappropriate manner. That’s why a contractor’s due diligence before starting a job is so important in managing his environmental liabilities. Jobsites often have a buried environmental past. Dry cleaners and gas stations past practices, for instance, may have left hidden contamination that can magnify a contractor’s environmental exposures.

Even if a contractor is not digging into the ground, environmental risks can be prevalent. Demolition and renovation projects put a contractor in contact with potentially harmful building materials — of which contractors are responsible for managing and disposing of properly. Lead-based paint, asbestos-containing materials, PCBS, mercury, and even Chinese drywall have made headlines and caused significant liability headaches for contractors. In one instance, a home had to be demolished due to mercury contamination that resulted from a contractor’s improper removal of an old gas meter. Contractors have unknowingly contaminated playgrounds with lead after spreading fill material from a previous job and have nicked underground fuel lines causing a slow leak that migrated under existing buildings. Another environmental liability claim filed against a contractor involved an infant with elevated blood lead levels attributed to a first floor showroom renovation that took place right below the family’s apartment. The contractor did not put the mercury in the gas meter, did not add lead to the soil of their project and was not the original painter of the old first floor showroom. Yet the contractor was tagged financially for each of these incidences because they “exacerbated” or in the case of the fuel line, caused the environmental problem through their contracting activities.

Preventing Other’s Exposures from Becoming Your Own

Due diligence is the first step in preventing a contractor from assuming someone else’s liability. Like a property purchaser, a contractor should research a project site or at a minimum ask for existing environmental reports from the project owner. What were the past uses of the site? What are the  building ages? What is the potential for soil contamination or hazardous building material to exist? Without knowing the past uses of the property, it is very difficult to pre-plan for potential environmental exposures. Due diligence into the site history, pre-planning, field employee training, stop work procedures and strong contractual language around pre-existing contamination can keep a contractor from inadvertently assuming liability for past practices by aggravating the situation.

The potential for hazardous building materials like asbestos, lead, PCBs, and mercury are determined by understanding the age of the building or structure and the potential for building materials to contain hazardous materials.

 

Constituent Past Use
Asbestos Thermal pipe insulation, floor and ceiling tiles, roof shingles, siding, plaster, caulk, gaskets, brake linings, fireproofing, interior fire doors, etc.
Lead Paint, solder, pipes, tank linings, roof flashing, electrical conduits, lead contaminated soil beneath painted steel structures such as water towers, bridges, railways and ships, etc.
PCBs Transformers, capacitors, hydraulic fluids, electrical and lighting equipment, lubricants, soils beneath old transformers,
old unpaved roads where oil was used for dust suppression, etc.
Mercury Switches, meters, thermostats, light ballasts, chemical resistant paints, etc.

These materials are relatively easy to detect based on age and past usage patterns; however, substances such as solvents and pesticides may be more difficult to uncover. The potential for pre-existing contamination in soil and groundwater is determined by evaluating past site uses and waste disposal practices. Contamination potential is obviously higher at former gas stations, dry cleaners, wood treating facilities or printers then at a former office buildings, retail stores or homes. It is striking how many times this past site history is unknown to a contractor before they start work. All it takes to investigate a jobsite’s history is asking a few questions to get the right information. And, in the end, it can save a firm millions.

Waste disposal practices at old drycleaner sites, leaking underground storage tanks at gas stations and the quality of the fill material used in many urban settings should be suspect. It’s important to determine if there is elevated potential for contamination from past historical sources, and whether contamination will remain in place during construction. With this information, contractors can adjust work practices to minimize potential for exacerbation and worker exposure and ensure proper disposal based on the nature of the material. Many environmental incidents can be prevented with careful project planning and management, a routine function for successful construction companies. Minor changes to existing programs, an environmental chapter in the safety manual or an environmentally focused toolbox talk for example, can reap major rewards, saving firms money, time and reputation.

An additional risk management tool that many contractors rely on is the purchase of Contractor’s Pollution Liability (CPL) insurance. CPL policies cover pollution losses caused by pollution conditions that result from contracting operations. These policies have expanded tremendously over the years offering cradle to grave protection for a contractor’s activities. From owned locations, to jobsites, to disposal facilities and in between, these policies are a part of a strong environmental risk management strategy to help contractors protect their bottom lines.

An environmental incident has the potential to substantially increase cost and delay completion of projects due to required remediation and disruption of construction activities. This effect is devastating to both the project owner and to the contractor. The owner and contractor should work together at the beginning of the project to recognize potential environmental issues and plan necessary actions. True project partnerships are the glue that will keep projects on track and minimize the potential for environmental problems to surface during construction causing unanticipated costs and delays for project participants.

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