The insurance industry has traditionally been ahead of the curvewhen it comes to anticipating important trends, getting out infront of large-scale behavioral shifts and rapidly adapting toevolving societal realities.

Insurance is a dynamic instrument that is both a reflection ofour collective conscience and a uniquely adaptable tool to beapplied to our always changing and very human set of challenges. Onsome level, it might be argued that a new paradigm is onlyofficially established and accepted once the insurance industry hasrecognized it as such–conferring status by developing productsdesigned to account for new standards and directly address newrisks.

If we accept that definition ofinsurance policy as bellwether, it seems safe to say thatenvironmental awareness and conservation-minded construction anddevelopment practices are here to stay.

Environmental insurance has become an important consideration indesign and development and an increasingly prominent factor in therisk management equation. The insurance industry understands thatenvironmental issues and accompanying exposures are here to stayand that green thinking is not going anywhere.

Evaluating just how entrenched environmental insurance hasbecome and where it goes from here requires a closer look at a fewimportant questions:

o How prevalent are environmental insurance products in today'smarketplace?

o What are the general trends regarding these products andpolicies?

o Who stands to benefit from enhanced environmentalcoverage?

o What exactly are the current risks for those who remainexposed?

No Longer a Niche

For quite some time, environmental insurance was viewed as ahighly specialized niche opportunity. Today, however, the field iscontinuing to expand and there are quite a few carriers with a fullspectrum of environmental coverages.

For insurers, the expansion of rudimentary pollution insuranceinto a comprehensive range of environmental products has beendriven by a more sophisticated understanding of the risks andexposures and a better handle on the evolution of themarketplace.

One of the lingering misperceptions about environmentalinsurance is the idea that for general contractors, environmentalinsurance is in many cases prohibitively expensive. While this mayhave had a ring of truth to it years ago, it is certainly not thecase today. The price structure for many of today's products hascome down significantly, with lower minimum premiums and morefavorable rates, largely as the result of better understanding fromthe underwriting side of the equation.

While products have become more efficient and effective, thescope of coverage still varies. Some insurers provide coverage onlyfor general contractors and consultants, while others provide amore robust suite of products encompassing more complex issues,such as surrounding brownfields or pollution liability.

In general, policies available in today's environmentalinsurance marketplace are designed to be responsive to a wide rangeof exposures across a variety of industries.

The most active and rapidly expanding areas of growth in thismarket segment are the general contractors and consultants who facea host of everyday exposures in the course of doing business. Witheveryone looking to take full advantage of the commitment ofPresident Obama's administration to infrastructure funding anddevelopment initiatives, there will be a growing number ofcontractors who fit this profile, engaging in projects that requireappropriate coverage.

Today, most municipal, and virtually all state and federaldevelopment regulations now require some level ofenvironmental/pollution liability coverage to be in place before acontractor is allowed to bid on a project. The need to secure thenecessary coverage inspires two very basic and commonly askedquestions to providers and consultants:

(1) Does the insurer have appropriate coverage to handle theseprojects and satisfy bidding requirements?

(2) What needs to happen to get this coverage in place?

The first step to answering these questions involves educatingcontractors and other development professionals as to what theirtrue exposures are. Most have a rough sense but need some helpconnecting the dots.

A trusted agent will be able to craft a package of coverageoptions that addresses potential exposures and protects the insuredparty from troublesome liabilities. The nature and variety of thoseliabilities may come as quite a surprise to many contractors.

What Is an Environmental Exposure? Nearly Everything!

Essentially, virtually anything a contractor brings to a jobsite to help perform the job is a potential pollutant. Evensomething as seemingly innocuous as water can be classified as apollutant under certain circumstances.

Materials and substances that may escape their intended confinesor expand beyond a defined area or an intended use are particularpoints of vulnerability.

Some of the most common pollutants include things like paint,abrasives and chemicals, although any contaminants that are broughtinto a job site are a potential issue. Something as mundane as avehicle oil leak can be a problem, and even things like dust, noiseand vibration may all be considered pollutants.

In addition to the concerns surrounding potential on-sitepollutants, another large source of exposure is the completedoperation; what has been done that can cause long-term harm? Almostanything that can cause or lead to damage or expense can be apollutant, and things like erosion and runoff from poor grading andmoisture buildup possibly leading to mold infestation are allserious issues.

It is perhaps ironic that, for all the potential issues withmaterials and work product, fines for not having coverage are thereal worry for most firms. What some contractors may not be awareof is the extent to which they are vulnerable even in cases wherethey have done no wrong.

All too often, contractors–who may have only been peripherallyinvolved in a project–can get dragged into a suit simply because aclaimant has sued en masse. In fact, the majority of claims (withestimates climbing into the 90 percent range) are filed to fund alegal defense, not to compensate injured parties or to clean uppollutants.

The growing popularity of green design, a heightened awarenessof materials and health risks, and a dynamic regulatory environmentwith continually evolving standards all make for a complex networkof issues that insurers and the insureds alike will have toconsider.

It's Not Easy Being Green

A recent example of health and safety concerns arose from theuse of a Chinese drywall product. It appears that a minor flaw inthe installation of this stucco-like wall cladding can causemoisture damage and mold. Because the manufacturer is based in aforeign country, the contractors who installed the drywall may havelittle or no recourse against the manufacturer. Furthermore, it isunknown whether the manufacturer even has products liabilityinsurance–placing the contractors in a vulnerable position.

This is but one example demonstrating the complications of aglobal marketplace.

Looking to the future, the insurance industry has reason foroptimism about environmental insurance coverage. Environmentalinsurers are moving in measured steps to provide comprehensive andproactive solutions instead of reactionary products. As a result,the industry has made great strides in a very short period oftime.

By employing a strategic response to exposures like mold,maintaining responsible exclusions and designing limited specialtycoverage, insurers are able to underwrite around short-termproblems and make slow and steady progress toward a betterunderstanding of new exposures and potential responsemechanisms.

Forward-thinking agents and consultants position themselves astrue partners with their customers. They work to help theircustomers understand the options and engineer new solutions tolimit their environmental exposure, which is good foreveryone–going green and saving a little "green" in theprocess.

Joshua Bowen serves as vice president of theenvironmental insurance division of Century Surety Company, asubsidiary of Meadowbrook Insurance Group Inc., headquartered inSouthfield, Mich. He may be reached at [email protected]