The insurance industry has traditionally been ahead of the curve when it comes to anticipating important trends, getting out in front of large-scale behavioral shifts and rapidly adapting to evolving societal realities.

Insurance is a dynamic instrument that is both a reflection of our collective conscience and a uniquely adaptable tool to be applied to our always changing and very human set of challenges. On some level, it might be argued that a new paradigm is only officially established and accepted once the insurance industry has recognized it as such–conferring status by developing products designed to account for new standards and directly address new risks.

If we accept that definition of insurance policy as bellwether, it seems safe to say that environmental awareness and conservation-minded construction and development practices are here to stay.

Environmental insurance has become an important consideration in design and development and an increasingly prominent factor in the risk management equation. The insurance industry understands that environmental issues and accompanying exposures are here to stay and that green thinking is not going anywhere.

Evaluating just how entrenched environmental insurance has become and where it goes from here requires a closer look at a few important questions:

o How prevalent are environmental insurance products in today's marketplace?

o What are the general trends regarding these products and policies?

o Who stands to benefit from enhanced environmental coverage?

o What exactly are the current risks for those who remain exposed?

No Longer a Niche

For quite some time, environmental insurance was viewed as a highly specialized niche opportunity. Today, however, the field is continuing to expand and there are quite a few carriers with a full spectrum of environmental coverages.

For insurers, the expansion of rudimentary pollution insurance into a comprehensive range of environmental products has been driven by a more sophisticated understanding of the risks and exposures and a better handle on the evolution of the marketplace.

One of the lingering misperceptions about environmental insurance is the idea that for general contractors, environmental insurance is in many cases prohibitively expensive. While this may have had a ring of truth to it years ago, it is certainly not the case today. The price structure for many of today's products has come down significantly, with lower minimum premiums and more favorable rates, largely as the result of better understanding from the underwriting side of the equation.

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

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

The most active and rapidly expanding areas of growth in this market segment are the general contractors and consultants who face a host of everyday exposures in the course of doing business. With everyone looking to take full advantage of the commitment of President Obama's administration to infrastructure funding and development initiatives, there will be a growing number of contractors who fit this profile, engaging in projects that require appropriate coverage.

Today, most municipal, and virtually all state and federal development regulations now require some level of environmental/pollution liability coverage to be in place before a contractor is allowed to bid on a project. The need to secure the necessary coverage inspires two very basic and commonly asked questions to providers and consultants:

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

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

The first step to answering these questions involves educating contractors and other development professionals as to what their true exposures are. Most have a rough sense but need some help connecting the dots.

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

What Is an Environmental Exposure? Nearly Everything!

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

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

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

In addition to the concerns surrounding potential on-site pollutants, another large source of exposure is the completed operation; what has been done that can cause long-term harm? Almost anything that can cause or lead to damage or expense can be a pollutant, and things like erosion and runoff from poor grading and moisture buildup possibly leading to mold infestation are all serious issues.

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

All too often, contractors–who may have only been peripherally involved in a project–can get dragged into a suit simply because a claimant has sued en masse. In fact, the majority of claims (with estimates climbing into the 90 percent range) are filed to fund a legal defense, not to compensate injured parties or to clean up pollutants.

The growing popularity of green design, a heightened awareness of materials and health risks, and a dynamic regulatory environment with continually evolving standards all make for a complex network of issues that insurers and the insureds alike will have to consider.

It's Not Easy Being Green

A recent example of health and safety concerns arose from the use of a Chinese drywall product. It appears that a minor flaw in the installation of this stucco-like wall cladding can cause moisture damage and mold. Because the manufacturer is based in a foreign country, the contractors who installed the drywall may have little or no recourse against the manufacturer. Furthermore, it is unknown whether the manufacturer even has products liability insurance–placing the contractors in a vulnerable position.

This is but one example demonstrating the complications of a global marketplace.

Looking to the future, the insurance industry has reason for optimism about environmental insurance coverage. Environmental insurers are moving in measured steps to provide comprehensive and proactive solutions instead of reactionary products. As a result, the industry has made great strides in a very short period of time.

By employing a strategic response to exposures like mold, maintaining responsible exclusions and designing limited specialty coverage, insurers are able to underwrite around short-term problems and make slow and steady progress toward a better understanding of new exposures and potential response mechanisms.

Forward-thinking agents and consultants position themselves as true partners with their customers. They work to help their customers understand the options and engineer new solutions to limit their environmental exposure, which is good for everyone–going green and saving a little "green" in the process.

Joshua Bowen serves as vice president of the environmental insurance division of Century Surety Company, a subsidiary of Meadowbrook Insurance Group Inc., headquartered in Southfield, Mich. He may be reached at jbowen@centurysurety.com

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