As the construction industry begins to ramp back up post-COVID closures, it’s time to check in on where the casualty market stands and remind ourselves of the risks our construction clients face.
The State of the Construction Casualty Insurance Market
Shrinking capacity, higher attachment levels, and increased premiums characterize today’s Excess casualty market. Like many other sectors, the construction industry has been impacted by the firm market, with some classes of business more affected than others, such as utility contractors with wildfire exposures, street-road contractors and residential contractors. Classes with any type of commercial auto liability risk are being particularly hard hit. Certain geographic areas, especially those in construction-defect states, are also seeing significant rate increases, as well.
Poor loss history and social inflation are behind the firm Excess market. An aggressive plaintiff’s bar with stepped-up advertising and marketing programs and juries seeking to hold corporations accountable are rendering nuclear verdicts in the multi-million-dollar range.
As a result, agents and brokers are finding it difficult to replace capacity, build Excess towers and obtain the same coverage, limits, and terms for clients they were once able to secure. In the past, if it took three carriers to build an Excess tower, it may now take four, five, or six insurers to do so, depending on the attachment levels and limits of each carrier. The lead carriers in some instances may also request that the rates on the additional layers in the tower do not exceed theirs; if so, they will have the right to revert their pricing.
With rising rates, some insureds are opting for higher deductibles while others aren’t purchasing the same high limits as they did in the past. As a result of COVID-19 closures, we are seeing requests from insureds to reduce their estimated exposures for the upcoming year.
In addition, we’re seeing some standard markets requiring insureds to carry limits of $2M/$4M on the underlying General Liability policy and $2M CSL on the Commercial Auto policy in order to secure an Umbrella policy. Carriers are also asking for additional years of loss history.
Send New Submissions, Renewals Months Ahead
The underwriting process is taking longer with more management approval required, resulting in an influx of submissions waiting to be assessed. It’s therefore essential to provide insurers with a complete submission and a clear narrative of the account so underwriters can assess a risk properly and the opportunity it offers.
Getting ahead of renewals and new business submissions months in advance is critical to allow for the additional time needed to secure the appropriate coverage. As the market is fluid, it’s also important that agents communicate with their insureds to let them know what to expect in terms of price increases, market appetite and any potential coverage changes.
Construction Season Increases Environmental Risks for Contractors
Construction projects typically ramp up during springtime, as the weather is more favorable for new builds and renovations. But given the state of the economy with regard to COVID-19, we are unsure of what to expect in the coming months.
Prior to the start of the pandemic, we anticipated strong economic growth and a double-digit increase in housing projects (which were expected to jump 10% for 2020). While construction was considered essential in some states, in other states, projects were forced to stop in light of the shelter-in-place ordinances.
Contractors who needed to halt work needed to ensure that their sites were closed appropriately to prevent potential mold, seepage or run off issues. We are hopeful that infrastructure projects should keep street and road contractors busy as they build, repair, pave, and maintain our roads.
An uptick in construction projects comes with greater environmental liability risks for contractors – from operational to transportation and disposable exposures. The Environmental Protection Agency (EPA) ranks the construction industry as one of the sectors with the highest pollution potential.
Pollution incidents can stop projects in their tracks and bankrupt organizations if they haven’t taken the required measures to mitigate and transfer their risks. Losses may include bodily injury and property damage claims, cleanup costs and legal expenses as well as fines and penalties.
Contractors, as a result of their day-to-day operations, face a number of exposures – from hazardous materials such as asbestos and fiberglass; liability for water infiltration, dampness issues and mold contamination of buildings; inadvertent damage to tanks and pipelines that lead to leaks and spills of oil or chemicals; and storm water and silt run-off from project sites; among many other types of risks.
For example, if an HVAC contractor improperly seals the ducts during the installation of an air conditioning unit it causes condensation to build up. As a result several employees become ill from legionella and sue both the contractor and the property owner. If an electrician, in drilling a hole for a wire, unknowingly disturbs asbestos on the property and pollutes the job site and other areas around the site, the electrician could be liable for a pollution claim.
Contractors also often have professional liability exposures as a result of operations they perform or those performed by entities working on their behalf. Contractors may be brought into claims arising from subcontracted design, construction management, and project delivery methods.
Addressing a Contractor’s Pollution Risk
The standard Commercial General Liability often excludes coverage for pollution incidents and associated cleanup costs. Contractors have several options available to fill this coverage gap and address their specific environmental liability risk profile
Not only should contractors ensure they are protected in the event of pollution-related loss with these available programs, project owners and general contractors will typically require that contractors show proof of coverage during the bidding process. Being able to demonstrate they’re insured for pollution-related exposures can help contractors land the job.
Coverage solutions for contractors include a Monoline Contractors Pollution Liability policy as well as a package policy that combines Pollution and Professional Liability insurance. Some classes may be eligible to package the General Liability coverage along with the Environmental coverage.
Contractor’s Pollution Liability insurance protects against environmental threats or pollution that might occur as a result of a contractor’s work. It provides coverage for third-party claims of bodily injury, property damage, defense, and cleanup.
A policy can be designed to include coverage for mold, legionella, silica, pollution conditions related to transportation of materials or wastes to or from a job site, and non-owned disposal locations. It can be written on a project-specific or practice basis. Project-specific policies provide coverage for all operations performed by the insured during the construction period whereas a practice-based policy provides coverage on an annual basis for all defined covered operations taking place during the policy term.
If coverage is purchased as a package, a contractor can secure both Contractors Pollution and Professional Liability coverage. Contractors Professional Liability provides protection for claims against contractors arising from errors or omissions resulting from the rendering of or failure to render professional services by or on behalf of the contractor at a job site.
As a result of the COVID-19 crisis, many restoration contractors are being asked to perform clean up at various locations prior to allowing employees/patrons/students to return. RPS has markets who are able to consider this exposure. Most markets do require the restoration contractor to have prior experience in order to consider along with specific certifications to verify that they are properly trained.
Depending on the scope of the project, in lieu of purchasing individual policies, it may be more practical and economical for the project sponsor or general contractor to secure wrap-up coverage on behalf of all the contractors on the job within an Owner Controlled Insurance Program (OCIP) or a Contractor Controlled Insurance Program (CCIP). Determining the best and most economical approach to obtaining coverage is what we do at RPS.
The policies and programs available on the market differ from one insurance carrier to the next with potential coverage gaps that could cause problems down the road in the event of a loss. It’s important that agents looking to secure Pollution insurance for a contractor work with an industry expert to ensure the policy coverage terms and provisions address a client’s specific risks.
Working with RPS
RPS will help you with market access, presenting your insured’s risk profile, obtaining the best possible coverage structure and pricing, and providing our knowledge and experience to help ensure coverage gaps do not occur as a result of carrier changes.
Our online portal for Contractors Pollution Liability insurance allows agents to quote and bind coverage in minutes. Monoline coverage is available and can also be provided as part of a package policy.