Contractors’ Pollution Liability Insurance

pollution

Contractors, no matter what industry they work in, face environmental risks stemming from operations on a daily basis. For most contractors, a single pollution incident or loss can seriously damage their reputation, operations, and even their balance sheet. Making matters worse, pollution incidents can be sudden or occur gradually over time.

While many contractors assume that environmental claims will be covered under their commercial general liability (CGL) policy, the unfortunate reality is that most CGLs contain pollution exclusions that leave contractors uninsured in the event of a pollution incident.

Thankfully, contractors are increasingly turning to contractors pollution liability (CPL) insurance to ensure they have the right coverage in place to remain secure and profitable.

CPL Coverage Basics

CPL policies provide contractor-based insurance for third-party coverage for bodily injury, property damage, defense, and cleanup as a result of sudden and gradual pollution incidents arising from contracting operations performed by or on behalf of the contractor. CPL insurance is intended to provide coverage to all types of contracting operations, including contractors who are involved in building construction and environmental firms that remediate polluted sites.

CPL policies are offered on either a claims-made or occurrence basis. What’s more, CPL policies are nonstandard, meaning each policy is different and can be modified to cover the various needs of the contractor purchasing the policy. Policies can be offered on a project or blanket program basis.

In some instances, CPL policies can also be used to cover losses from civil fines, penalties and punitive damages.

Covered Pollution Incidents 

Contractors should keep in mind that CPL insurance policies differ in regard to the types of pollution incidents that are covered. Two important considerations when evaluating CPL insurance policies are:

  • Whether or not the policy will respond to gradual releases of pollutants, as opposed to sudden and accidental releases
  • The types of substances that are considered “pollutants” under the terms of the policy

Generally, policies that cover both gradual and sudden releases of pollutants provide contractors with a broader scope of coverage. In addition, policies that provide a broad definition of pollutants are considered superior to those that contain a narrow definition. Accordingly, it is important that contractors work with their broker to find a CPL policy that is tailored to their needs.

CGL Pollution Exclusions

A primary reason why contractors obtain a CPL policy is due to the various pollution exclusions contained in most CGL policies. The pollution exclusions found in most CGL policies take one of two forms, either “absolute” or “total.”

CGL policies with an absolute pollution exclusion remove coverage for most pollution events that would occur in the course of an insured’s business operations. However, despite its name, an absolute pollution exclusion may preserve coverage for certain incidental pollution damages, products and completed operations liability, and certain off-premises work.

However, more commonly, CGL policies include a more restrictive “total pollution exclusion.” This type of exclusion effectively removes coverage for any event the insurer characterizes as a pollution incident.

Contractual Requirements

 Contractual requirements serve as another motivating factor that lead many contractors to obtain a CPL policy. In many instances, project owners and general contractors will require contractors to obtain pollution insurance that meets certain, predetermined standards.

From this perspective, having a CPL insurance policy in place can serve as an upfront sales tool during the bidding process that enables contractors to qualify for opportunities when such coverage is required.

Finding the Right Policy

Regardless of specialty, all contractors should be mindful of the pollution risks associated with their work. A CPL insurance policy can provide much-needed security in the event of a pollution incident, even in the most unlikely of circumstances.

Midwest Insurance Group partners with Erie insurance, one of the nation’s leading auto and home insurers, with an A.M. Best rating of A+ (Superior). Let Midwest Insurance Group, LLC work with your organization to find the Contractors Pollution Liability insurance coverage that is right for you. Call 262-646-5777

Insurance Needs for Plumbing Contractors

plumbing contractor

The work of a plumbing contractor involves installing, maintaining, and repairing water systems in residential and commercial structures. Appliances, water heaters, toilets, and sprinkler systems must be included and taken care of in new and existing structures, making plumbers a necessity for these buildings’ functionality and longevity. However, the plumbing industry involves inherent risks that must be accounted for. This article discusses plumbing contractors’ potential exposures and common types of insurance available to mitigate liability.

Potential Exposures

Plumbing can be demanding and physical work. Several incidents could create legal issues for plumbing contractors, including:

  • Injuries—Plumbing contractors could sustain injuries from moving heavy appliances, working in tight spaces, and performing repetitive tasks. Third parties can also be injured from slips and other incidents from completed work.
  • Property damage—Property damage is often the result of water damage, which can occur either during work or after a project has been completed.
  • Auto accidents—Any company that utilizes vehicles for travel is susceptible to auto accidents. This can result in injuries to contractors or third-parties as well as property damage to the company’s vehicles and others’ vehicles.

Common Types of Insurance

Plumbing contractors should have adequate insurance to manage their risks. The following are policies plumbers should consider:

  • General liability—The most common type of insurance within the construction industry is commercial general liability. A typical general liability insurance policy covers bodily injury to third parties and property damage resulting from work. Additionally, general liability insurance can provide coverage for reputational harm or advertising injury.
  • Workers’ compensation—Employers are responsible for providing medical care, lost wages, and other benefits to workers injured on the job. Injuries can occur from slips and fall from water, stairs, or working in an unfamiliar construction site. Chemical exposure can also happen when plumbing contractors work with chemicals on the job. While these injuries may be infrequent, they could result in a loss of ability to work. Workers’ compensation takes care of injured employees by paying medical bills associated with work-related injuries and providing compensation for lost wages. This type of policy may also provide coverage in the event of a lawsuit brought forth by an employee.
  • Completed operations—Even after a project is complete, property damage or even injuries can occur if the work was not done correctly. These types of problems can be covered with completed operations insurance. Issues include leaking pipes, which can lead to water damage or mold, and fire hazards and explosions when working with gas.
  • Commercial auto—A commercial auto policy helps policyholders avoid high vehicle repair costs, medical expenses, or lawsuits resulting from auto accidents. Since plumbing contractors utilize vehicles to transport themselves and equipment to job sites, commercial auto insurance can cover damage to company vehicles, damage to others’ vehicles, and medical payments.
  • Property—Property insurance can provide coverage to the company’s property and any personal property used in the business. Even if plumbing contractors do not own their own building, business assets such as equipment, tools, and computers are still at risk of property damage.
  • Inland marine—Plumbers must travel with tools and equipment to various job sites. Inland marine coverage can protect property in transit, mobile equipment, property in the custody of a repairman or storage facility, property commonly used in different locations, and computer equipment and digital information.
  • Cyber—Plumbing contractors are increasingly dependent on technology to carry out their operations. But technology can fail, or data can be stolen, including client credit card information. Cyber liability insurance can provide coverage for first- and third-party cyber claims.
  • Commercial umbrella—An umbrella policy can fill in any gaps in coverage. This can provide additional coverage if the business causes damages that exceed the general liability policy limit.

Proper insurance coverage can protect plumbing contractors and their businesses from liability. For more information, contact us today at 262-646-5777.

The Impact of Inflation on the Commercial Insurance Market

inflation

Over the past year, inflation has become a growing concern. Inflation issues have largely resulted from a culmination of labor and supply trends brought on by the COVID-19 pandemic, and they are clearly reflected within the country’s rising Consumer Price Index (CPI). According to the latest data from the Bureau of Labor Statistics (BLS), the CPI for all urban consumers surged by 7% in 2021—representing the largest increase over a 12-month period since 1982.

Inflation issues could create a number of challenges in the commercial insurance market, affecting both insurers and their policyholders. With this in mind, it’s crucial for insureds to have a clear understanding of inflation and take steps to ensure adequate coverage during these difficult market conditions.

Review the following article to learn more about the primary reasons for current inflation issues, how these issues affect the commercial insurance market and what policyholders can do to mitigate related coverage concerns.

Key Causes of Inflation

Several factors have contributed to rising inflation concerns—namely, widespread labor shortages and supply chain disruptions amid the ongoing COVID-19 pandemic. Here’s a breakdown of these factors:

Labor Shortages

The past year has seen labor shortages in nearly all sectors. In fact, a recent study from the Society for Human Resource Management found that almost 90% of businesses are having a hard time filling open positions. There are various reasons for these widespread labor shortages. Primarily, the impact of the pandemic has caused many workers to reevaluate their employment priorities and made unemployed individuals apprehensive of returning to the workforce.

The proportion of people who have been out of work for six months or longer is at its highest point in 60 years. These labor shortages have led to substantial struggles for businesses, often causing production or project delays and forcing some employers to increase their salary offerings to retain or attract workers. Such trends have ultimately ramped up overall labor costs and created subsequent inflation concerns.

Supply Chain Disruptions

Since the initial onset of the pandemic, a range of supply chain disruptions have taken place. The majority of these issues stemmed from increased demand for various items and materials amid a slowdown in production and lack of availability during pandemic-related closures. Even as businesses have resumed their normal operations and increased production levels, consumer demand for certain items and materials has continued to outpace inventory.

This is likely attributed to a greater number of consumers making large purchases from accumulated savings throughout the pandemic. In response to these supply chain concerns, the cost of many items and materials across industry lines has soared to help offset demand, thus contributing to inflation issues.

Looking ahead, both economists and the federal government anticipate supply chain conditions to improve in the latter half of 2022, lowering the risk of The Impact of Inflation on the Commercial Insurance Market disruptions and helping ease inflation concerns. Yet, a combination of continued labor struggles and other lasting impacts from COVID-19 are expected to keep the inflation rate above pre-pandemic levels through at least 2023. As such, inflation issues may persist for the foreseeable future.

Impact on the Commercial Insurance Market

Rising inflation concerns can pose several difficulties in the commercial insurance market. Looking back, when prolonged inflation issues took place between the 1970s and 1980s, the insurance industry faced numerous consequences. Specifically, the commercial insurance market encountered reduced reserve levels, unpredictable claims trends, and weaker underwriting performance—causing major losses for insurers and greater coverage challenges for policyholders.

It’s important to note that the insurance industry as a whole is currently better positioned to incur losses to its reserves when compared to previous periods of extended inflation due to outsized investment gains. Furthermore, advances in financial reporting processes have given insurers additional capabilities to identify and respond to loss trends. However, uncertainty surrounding how long existing inflation issues will last could eventually threaten the long-term stability of the insurance industry’s reserve levels and underwriting profitability.

Taking a closer look at specific lines of coverage, the following markets are at risk of being impacted by rising inflation:

Commercial Property Insurance

Within the property insurance space, the cost to repair or rebuild structures following a loss has soared, as worker shortages within the construction industry have led to increased labor costs. At the same time, supply chain issues related to various essential building materials caused the price of these items to skyrocket. In particular, the National Association of Home Builders reported that the costs of lumber and steel have more than doubled during the pandemic.

Such inflation is further evidenced by the latest BLS data, which shows a substantial CPI increase over the past year for a number of structural elements— including floor coverings, window coverings, major appliances, and overall construction materials. Amid elevated property loss costs, insurers may experience poor underwriting results, motivating them to increase policyholders’ premium expenses and introduce additional coverage restrictions. With heightened repair and rebuilding costs increasing overall claim severity, policyholders may also encounter potential underinsurance concerns following larger property losses.

Commercial Auto Insurance

In the auto insurance market, vehicle repair expenses and subsequent claim costs have surged. This trend is predominately caused by worker shortages in the auto industry generating elevated labor costs and supply chain disruptions for several critical vehicle parts (and vehicles overall), leading to higher prices for such items. These concerns are reflected in an increased CPI throughout the last year for auto parts, motor vehicle repairs, and used cars and trucks, according to the BLS.

Compounding claim costs, accident frequency, and severity have jumped in recent years, emphasized by rising crash rates and increased medical treatment expenses. Similar to the property insurance market, elevated loss costs could lead to a decrease in underwriting profits for auto insurers. Especially in a market that has been largely unprofitable for the last decade, higher loss costs may cause auto insurers to heighten premium expenses and restrict coverage offerings for policyholders.

Although it’s currently making the most significant impact on the property and auto insurance markets, such prolonged inflation will likely begin to affect additional segments—such as the workers’ compensation and liability insurance spaces—over time. This means that insurers could face difficulties in maintaining insurance pricing to keep up with more volatile loss trends.

To prevent unanticipated loss costs and increased loss ratios due to rising inflation concerns, insurers may need to continue increasing overall premium expenses and making other coverage adjustments.

Steps Insureds Can Take

Because ongoing inflation issues have the potential to result in heightened premium costs, coverage restrictions, and underinsurance concerns, it’s important for policyholders to do what they can to minimize such complications. Some steps that insureds can take include the following:

  • Have policy renewal conversations early. Especially amid these challenging market conditions, policyholders should work with their trusted insurance professionals to discuss the coverage renewal process well in advance. Doing so will allow insureds to stay properly informed on the latest inflation trends and give them ample time to prepare for potential policy changes—particularly as it pertains to pricing—prior to renewal. Going forward, policyholders may want to have quarterly meetings with their insurance professionals to ensure they are able to adjust their coverage as needed in this evolving inflation landscape.

 

  • Review coverage terms and conditions. When meeting with their trusted insurance professionals, policyholders should also make sure to obtain assistance in reviewing their coverage terms and conditions, paying attention to any exclusions. Further, it’s crucial that insureds assess their policy limits (and sub-limits, if applicable) to determine whether they will be adequately covered following a loss. If policyholders or insurance professionals identify underinsurance issues, they may want to update their coverage and consider purchasing policy endorsements to maintain proper protection.

 

  • Reassess property valuations. Regarding commercial property insurance, policyholders should be sure that their coverage reflects correct property valuations. With property repair and rebuilding costs on the rise, insureds must confirm the valuations utilized in their policies would be able to cover current recovery expenses after a loss. Otherwise, outdated valuations could leave policyholders underinsured if the cost of repairing or rebuilding their properties exceeds their existing coverage limits.

 

  • Ensure adequate risk management practices. Lastly, policyholders should make sure they have effective risk management measures in place to prevent potential claims. By documenting these measures and sharing them with their insurers, policyholders may even qualify for premium discounts.

 

For more coverage guidance, contact Midwest Insurance Group today at 262-646-5777

Liability Insurance To Protect Your Company

liability insurance

In today’s business climate of corporate transparency and accountability, an organization’s officers and directors face a myriad of employment-related exposures. Sarbanes-Oxley regulatory mandates and shareholder activism mean directors are more frequently at risk, translating to rising claims and escalating settlement costs.

In the wake of unprecedented corporate scandals in recent years, clearly, the trend of corporate accountability applies to large corporations. But privately held companies, including nonprofits, are not exempt from litigation arising out of the management decisions of their boards. They, too, are at risk.

Regardless of your company’s size, the legal cost to defend a director is substantial, as are the potential personal penalties. Due to the personal liability risk—which is not covered under a personal insurance policy—protecting boardroom talent can be a challenge. To help ensure both your officers’ and company’s well-being, a directors’ and officers’ liability insurance (D&O) policy is part of a comprehensive risk financing strategy.

D&O Fills the Coverage Gap

Unlike a commercial general liability policy that provides coverage for claims arising from property damage and bodily injury, a D&O policy specifically provides coverage for a “wrongful act,” such as an actual or alleged error, omission, misleading statement, neglect, or breach of duty.

For example, a manufacturer told one of its suppliers to increase inventory because they were expecting a large increase in production. As predicted, demand for the manufacturer’s product grew, but the manufacturer increased its inventory with another vendor. The original supplier successfully sued the manufacturer, alleging they suffered damages as a result of having relied on the manufacturer’s promise.

A D&O policy provides defense costs and indemnity coverage to the entity listed on the policy declarations, which may include the following:

  • Coverage for individual directors and officers
  • Reimbursement to the organization for a contractual obligation to indemnify directors and officers that serve on the board
  • Protection for the organization or entity itself

Indemnification provisions are typically included in the charter or bylaws of a corporation. While an important risk component, small to midsize privately held companies or nonprofit organizations often do not have the financial resources to fund the indemnity provisions, making the bylaws hollow. A D&O policy can provide an extra blanket of security in the event of a covered loss.

Coverage

A “fraud” exclusion is typically included in a D&O policy, which eliminates coverage for losses due to dishonest or fraudulent acts or omission, or willful violations of any statute, rule or law.

D&O coverage can be tailored to your needs, but be aware that D&O carriers are not consistent with their policy forms. This fact, plus the complexity of D&O claims, requires the carrier to have market commitment and deep expertise, as well as the financial resources to handle potential claims.

There are also additional forms of coverage to protect directors and officers, including the following:

  • Entity coverage
  • Payment priority for insured persons
  • Severability of the insured as well as severability of the application
  • Coverage over time, meaning coverage responds to past, present, and future directors and officers
  • Pay on behalf clause
  • Duty to defend clause

In addition, some D&O policies can be endorsed to provide employment practices liability (EPL) coverage and/or fiduciary liability.

  • While EPL endorsements under a D&O policy broaden coverage, they often do not provide a duty to defend clause and are subject to a substantial deductible. Many EPL endorsements do not provide for a separate limit of liability in addition to the limit available under the D&O policy. If the D&O limit is reduced or exhausted by payment of an employment practices claim involving the wrongful conduct of an employee, a director’s or officer’s personal assets may be at risk.
  • Fiduciary liability provides coverage for liabilities arising out of ERISA, where fiduciaries are personally liable for losses to a benefit plan incurred because of alleged errors, omissions, or breach of their fiduciary duties.

Who can bring a D&O lawsuit? According to St. Paul Travelers, statistics show that shareholders and employees are the most likely groups to sue private companies. Other parties may include corporations against themselves, and a variety of third parties, such as competitors, creditors, and regulatory bodies.

Considerations for Nonprofits

According to the Nonprofit Risk Management Center, nonprofit organizations often report some difficulty in affording the cost of D&O insurance. To minimize the annual premium, they recommend choosing only those policy provisions considered most critical. For example, a volunteer-run nonprofit without paid staff may skip employment practices coverage until it hires staff. If affording a lump-sum premium is a concern, inquire about the availability of premium financing. To defray the cost of premiums, some nonprofit organizations consider charging board members a portion of the policy cost.

We’re Here to Help

Whether you’re a nonprofit, privately held, or a public company, it is likely that your business can benefit from a D&O policy. Since there is no such thing as a “standard” policy, a professional agent is invaluable when purchasing D&O coverage. Midwest Insurance Group understands your organization and can knowledgeably help design policy language to meet your needs. Call us today at 262-646-5777 to learn more about the appropriate protection for your company against potential directors’ and officers’ liability.