Addressing Environmental Risks

Environmental contractors face many exposures from physical risks such as toxic substances released by building materials or the unexpected disturbance and release of contamination at the job site. Risk managers are, understandably, eager to ensure that such liabilities are accounted for and the proper approach is in place to help prevent exposures or lessen their impact if they do occur.

Environmental risks are not new concerns for contractors, and they continue to evolve. Since the days of the asbestos liability crisis, new contaminants have appeared to cause problems for the contractors and their insurance providers, namely per- and polyfluoroalkyl substances, commonly known as PFAS.

Dubbed “forever chemicals” because they do not degrade, PFAS chemicals have seen rising recognition as a construction-related risk and have grabbed headlines as a result of thousands of lawsuits and billion-dollar settlements in the United States.

In a report, “PFAS-The Emerging Risks of ‘Forever’ Chemicals,” Zurich points out that while the chemicals have been used since the 1940s, the extent of the issues posed by PFAS has yet to be quantified. And litigation has tracked the rise of the risk, with more than 6,500 PFAS-related lawsuits filed since 2005, the report notes.

Settlements that have resulted from PFAS claims are on par with those of the asbestos crisis. Last year, three chemical companies agreed to pay more than $10 billion to settle claims in litigation that claimed the chemicals polluted drinking water in the U.S.1

The biggest impact of PFAS has been on facilities where the chemicals were used in construction materials, production processes and fire protection systems.

“In addressing PFAS, many insurance providers are adding exclusionary language to their general liability policies,” says Tucker McNulty, Construction’s National Environmental Casualty Consultant. “It’s important that contractors understand their insurance protection as it relates to pollution exclusionary language and work with their broker and insurance provider to structure appropriate coverage.”

Property owners are equally concerned with Aqueous Film-Forming Foam, or AFFF, a groundwater contaminant that has been found in areas near oil refineries, airports, firefighting training centers and other locations where foam was used in the firefighting process. AFFF, which contains PFAS, has increasingly caused concern for the public because of its health effects, and amongst contractors that face challenges related to its disposal.

Mergers and acquisitions are frequent in the environmental consulting and contracting space. In some cases, resources get stretched and staffing concerns develop as leadership and employees struggle to adopt a strong corporate culture. All of which can result in significant challenges for the company. “In an industry that has suffered from systemic skilled labor concerns for many years, these are companies that rely on the intellectual capital of their employees and when these kinds of changes take place, quality can get diluted if the company isn’t careful,” McNulty says. “A significant and accelerated revenue stream may result in worker overload which could negatively impact the work product.”

Contractors and environmental consulting firms can expect professional liability insurance providers to carefully assess both their statements of qualifications and the extent of services they provide. In many cases, it takes some time to evaluate firms that have a large footprint of services.

Firms that perform limited environmental reports - Phase I reports, for instance - require a particularly close look. Litigation can arise if an environmental concern is missed during an environmental assessment – for example, the discovery of an underground tank on a site previously deemed to be clean. This can present a significant professional liability exposure.

“Insurance coverage should account for these exposures,” notes McNulty. “Zurich’s professional environmental consultant’s liability product, for example, provides contractors and consultants with coverage for third-party claims caused by errors and omissions, strict liability from environmental law, and pollution events arising out of covered operations performed by or on behalf of the insured.”

Having the proper coverage in place is important because allegations of environmental damage can take place with virtually any construction activity. For example, allegations could be leveled against consultants for negligent design of landfills, water or wastewater plants or other systems. Customers may also contest a Phase I or Phase II environmental site assessment or a wetland delineation study.

“At the end of the day, nearly any jobsite operation by a contractor can result in bodily injury or property damage stemming from the release of pollutants,” McNulty says. “From the exacerbation of existing hazardous conditions during cleanup operations, the release of hazardous material from contractor-installed storage tanks, to mishandling of waste materials in transport, there are many potential pollutant-related incidents to consider and plan for.”

Risk managers and others at their organizations are challenged to track the blizzard of regulatory actions addressing construction-related environmental issues. PFAS rules are at the top of the list of evolving regulations coming out of Washington, making it a topic worth paying attention to.

Earlier this year, the Environmental Protection Agency designated two widely used PFAS chemicals – perfluorooctanoic acid and perfluorooctanesulfonic acid - as hazardous under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). The action addresses investigation and cleanup of the chemicals and demands the timely reporting of leaks, spills and other releases.

In a separate rule, the agency made clear that it will focus enforcement actions on parties that “significantly contributed” to the release of PFAS chemicals into the environment, including PFAS manufacturers or operations that used the substances in manufacturing processes.2

Under the Toxic Substances Control Act (TSCA), companies that manufactured or imported certain PFAS chemicals or products must report the use and disposal of such. Reporting will start July 2025.3

In 2021, the EPA released the PFAS Strategic Roadmap, its approach to addressing issues arising from the use of these substances. It sets out timelines by which the agency plans to take actions and outlines policies to safeguard public health, protect the environment and hold accountable those responsible for PFAS pollution.

Despite several environmental challenges, companies can effectively structure pollution liability programs with adequate protection, even amidst an evolving regulatory landscape.

For the construction risk manager, it’s all about putting together the best fit program for their companies’ needs. “We do a lot of customization in construction environmental underwriting because our clients are doing a lot of different and specialized operations, which calls for flexible programs designed for a customer’s specific needs,” McNulty concludes. “While emerging contaminates such as PFAs present challenges to certain sectors of the insurance industry and insureds, they also represent opportunity for firms in the environmental space who are actively seeking new ways to address the cleanup and remediation of sites that have been impacted by these chemicals.”