Engineers working in the commercial construction industry face a myriad of challenges that can keep them up at night. Unforeseen site conditions can take a project off schedule or over budget, miscommunication with the client can cause a disconnect between the client’s expectations and reality, and the list keeps going.
Among an engineer’s many concerns, consulting on pollution issues can be one of the trickiest. For example, an engineer may be asked to consult on connecting an existing HVAC system to an extension building. If the ventilation system develops a leak that allows water to infiltrate and produce mold, the engineer could face liability for the mold contamination that resulted from their design. Lawsuits involving pollution can be expensive to defend and have the potential for significantly large judgements. This can be a big problem because commercial general liability (CGL) policies universally contain total pollution exclusions that free insurers from providing coverage for such lawsuits.
It is crucial for engineers to maintain a professional liability policy that contains pollution coverage. Without the appropriate professional liability coverage, one mistake on the job site could have lasting consequences to an engineer’s finances and livelihood. Unfortunately, not all professional liability policies are alike, and selecting the right one can be a project in itself.
For background, here are the basics of a professional liability policy:
- Professional liability policies provide engineers with coverage for liability resulting from errors, omissions, or mistakes made while providing professional services. Because of the protection provided, these policies are often referred to as “errors and omissions” or “E&O” policies.
- E&O policies typically are “claims made and reported” policies. This means that the policy only provides coverage for claims that are first made against the insured during the policy period and then reported to the insurer during the policy period. In other words, these policies provide time-limited coverage. This is a significant difference from CGL policies, which cover claims made at any time so long as the event or loss “occurred” during the policy period (and all other conditions are met).
- With E&O policies, defense costs are part of, not separate from, the policy limits. This is often referred to as “wasting limits,” and it means that any costs that the insurer pays to defend its insured in a lawsuit will reduce the amount available to indemnify its insured for a judgment. Again, this makes E&O policies different from many CGL policies in which defense costs are separate from indemnity costs and do not count towards the policy limits.
Although many insurance carriers are now including pollution coverage in their standard E&O policies for engineers, it is not safe to assume that all policies contain such coverage. In fact, many do not and only offer the coverage as an endorsement to the policy—for an additional premium. Given the potential consequences of not having pollution coverage, engineers should always examine their policies closely to ensure that pollution liability is covered.
Unhelpfully, most E&O policies only state in the coverage grant that the insurer will pay for the “wrongful acts” of the insured. To find out what “wrongful acts” means (and whether the policy provides pollution coverage), it is important to find the definitions section, which is often tucked away in the back of a policy, pages apart from the coverage grant. Look there for reference to “pollution incidents” or similar wording as part of the definition of “wrongful acts.” If the coverage is excluded in the body of the policy, the engineer should ask about adding a pollution endorsement or rider to supplement the standard coverage.
Engineers have plenty to consider without worrying about insurance coverage in the event something goes wrong. That is why engineers should read their professional liability policies closely to ensure pollution coverage is included and should consult with an attorney if they are unsure about whether that coverage provides the protection they need.
Originally published as “OP-ED: Check whether insurance policies have pollution coverage” on August 16, 2018, by the Daily Journal of Commerce.