Although environmental consulting has been around since theearly 1970s, it's still an expanding field with unique risks andexposures.

Governmental regulations, along with public interest inconservation and sustainability, have driven the growth of this $16billion industry providing environmental services to virtuallyevery sector of the U.S. economy, from surveyors conducting siteassessments to engineers developing remediation plans tocontractors performing cleanup and pollution abatement.

At the same time, these tasks lead environmental consultants toencounter risks that are excluded under standard commercial packagepolicies. Pollution liability can occur when faulty work is thedirect cause of environmental contamination, and professionalliability arises when technical errors contribute to an incidentand subsequent economic losses for a client.

Even individuals who never set foot on a job site must considertheir potential exposure: lab technicians analyzing soil samplesfor pollutants or engineers advising on regulatory compliance plansmay find themselves subject to a claim. Simply put, if youroperations can contribute to an environmental incident, you areexposed.

Fortunately, there are steps that risk managers andenvironmental consultants can take to identify exposures, mitigaterisks, and improve operations.

Related: Effective risk management: Finding simple solutionsto complex problems

Start with documentation

Complete, consistent documentation is the basis for an effectiveenvironmental risk management strategy. This begins with preparingdetailed proposals for each project, clearly defining the work tobe completed, terms of successful performance, and a realisticestimate of associated costs. 

Consultants should take the time to ensure that clientsunderstand the proposed work and agree that it addresses theirconcerns, so as to avoid future disputes.

Recording the obligations of consultants and clients in a formalcontract reduces the potential for conflict over a difference inunstated expectations. The goal of the contract should be anequitable distribution of risk for both parties.

• Identify the standard of care to be appliedand the limits of liability for the consultant; ideally, this willbe an amount equal to the fees charged for the project. Riskprofessionals should be cautious about commitments exceedingindustry standards and especially wary of broad indemnificationlanguage that would expose consultants to risks unrelated to thework that they have agreed to perform.
• Specify the process for addressing unforeseencircumstances, such as the discovery of unanticipated hazardousmaterials or subsurface structures, and employ alternative disputeresolution methods in the event of an intractable disagreement. Asthe project gets underway, procurement should be conductedaccording to established procedures and criteria.

Subcontractors present additional risk

Any project relying on subcontractors opens itself to additionalrisk, as the same concerns that apply to the environmentalconsultant extend to this group as well.

Regardless of past success with a particular subcontractor,consultants must make sure that their partners possess the relevantskills and resources to conduct and supervise the work at hand.Best practices involve prequalifying subcontractors according toexpertise, resources and financial stability, including adequacy ofinsurance.

Subcontractor questionnaires or other evaluations can be kept onfile and updated for future projects as needed.

Related: Jury awards $40M to offshore oil well owner in'message' to insurer

Quality control

Project work should follow the specified scope as closely aspossible, with quality control checks to monitor adherence toguidelines. Team members performing the work should be qualified toconduct initial quality assessments, with senior consultantsreviewing calculations and results for sensitive tasks.

If work involves the risk of physical exposure to hazardousmaterials, site-specific plans are necessary to guaranteeconformance to OSHA standards, at a minimum. Firms should haveplans in place for handling and storing waste materials and otherpotential contaminants, as well as for spill response in the eventof a breach.

All formal reviews of plans, documentation, and work performedshould be recoded for later reference.

Finally, any project is likely to call for changes to at leastsome of the initial terms. Change requests should be documented forissues large and small, with a record of client acceptance whererequired. In fact, it's wise to catalog all project-relatedcorrespondence, especially with key stakeholders such as clients orregulators. Evidence of communications and approvals can be themost effective defense against potential claims.

Related: When is a policy's pollution exclusion applicableto contractor damage?

Mining the data in documentation

One secondary benefit to a successful documentation strategy isthe wealth of information that it offers to insurance carriers andunderwriters assessing the quality of a potential insured. Riskmanagers should review consultants' procedures against thosedescribed and address any gaps before contacting insurers.

In addition to routine application requests for financialinformation and loss history, risk managers can provide copies ofstandard operating procedures, site reports, incident response andspill containment plans, hazardous material storage protocols,subcontractor qualifications and resumes of specialists responsiblefor core operational and oversight functions.

For environmental consultants, incorporating theserecommendations increases the likelihood of successful projects andproductive client relationships — outcomes that translate intoimproved availability and affordability of insurance. For insuranceprofessionals, evaluating risks in light of these standards canreduce claim frequency and severity, improving loss experience andunderwriting results.

The combined effect is enhanced profitability for carriers,producers, and consultants themselves and greater availability ofessential environmental services for the economy as a whole.

Reneé Miller is senior vice president and chief underwritingofficer, Freberg Environmental Insurance, in Denver, Colo. She canbe reached at [email protected].

Related: Challenges with vapor intrusionclaims