Asbestos Abatement Exposures
May 30, 2016
An Insured Could Face Legal Liability
Currently 132,000 primary and secondary schools contain some type of asbestos, exposing 55 million children and 7 million teachers and staff. The number of additional private residential, commercial, and industrial properties containing asbestos is unknown. It is likely that any person who owns or leases an older building faces liability exposures related to asbestos and will seek to have the asbestos removed. Asbestos is not completely banned in the United States—products such as roof tiles, vinyl floor tiles, textured paint and patching compounds, heat resistant fabrics, and attic and wall insulation containing vermiculite all may contain asbestos, as well as many other products. Federal regulations require schools and other building owners to inspect the buildings for asbestos materials and take action to prevent or reduce asbestos exposure. Estimates of death from asbestos exposure from 1999 to 2013 range from 127,579 to 159,480. An estimated 12,000 to 15,000 Americans die each year from asbestos-related diseases, and asbestos is the number one cause of occupational cancer in the United States. More teachers died of mesothelioma in 1999 than workers in industries with frequent asbestos exposure such as chemical, railroad, and electric light and power workers.
The asbestos abatement contractor, consequently, faces his own liability exposures. The contractor's agent must advise the contractor of the risks involved and the insurance solutions available, if any. For example, the contractor can expect that anyone suffering from an asbestos-related injury will find a way to bring legal action against the contractor based on his work of removing the asbestos. Commercials abound from lawyers eager to sue the party responsible for exposing someone to asbestos that caused mesothelioma. While litigation claims stalled for a while as asbestos producers filed bankruptcy, existing claims were settled, and those affected died, claims have since rebounded. Suits are now being filed against companies indirectly linked with asbestos. They did not manufacture it, but used the materials that contain asbestos which exposed people who came in contact with the products. Can the contractor rely on the commercial general liability (CGL) coverage form for defense and coverage costs?
Asbestos Abatement Problems
Any asbestos abatement process carries with it some hazards to health. The process of asbestos removal often involves heavy demolition as well as complex area isolation and air engineering procedures. If not planned, monitored, and performed correctly, asbestos abatement can spread significant amounts of airborne asbestos contamination throughout a building. The owner of the building or persons who visit or reoccupy such a contaminated building may later seek legal redress against the contractor (among other entities) who is allegedly responsible for injuries ultimately related to the asbestos abatement work. When the asbestos abatement contractor is sued for causing bodily injury and property damage, he should not look to the CGL form and expect to find automatic coverage; this is mainly because of the pollution exclusion.
The pollution exclusion applies to bodily injury or property damage arising out of the release or discharge or escape of pollutants at or from any premises or location on which any insured is performing operations. This exclusion is applicable if the operations of the insured are to test for or clean up or remove or in any way respond to or assess the effects of pollutants. Obviously, the contractor is performing the operations for just such a purpose so an insurer could justify a denial of coverage based on the pollution exclusion. Note that this scenario would be followed if the injury or damage occurred while the insured is performing the asbestos abatement. What would happen if the damages occurred after the insured has completed his work, that is, a completed operations claim?
If the claim is a completed operations claim, the pollution exclusion on the CGL form does not totally exclude coverage. For example, the insured provides an asbestos abatement operation, and, after completion of the work, someone claims injuries or damages as a result of some asbestos particles that the insured's operations caused to eventually float around the building. In such a case, it can be argued that the pollution exclusion does not apply.
On the other hand, part of the pollution exclusion applies to the escape of pollutants that are or were at any time handled, treated, or disposed of as waste by the insured. One can argue: that asbestos is waste, the insured did handle it, and that this handling of the asbestos caused the injuries and damages. Therefore, the pollution exclusion does apply and the insured is left with no coverage.
As claims were filed against carriers under products/completed operations coverages and those limits were exhausted, claims started being filed under premises and operations coverages, where unlimited liability could be found. For example, if a subcontractor of the insured seeks damages for injuries during the course of working on property under the insured's control, there could be coverage.
In order to avoid such conflicts, it would be better for the insured contractor to assure some liability coverage through the use of asbestos abatement liability policies.
Asbestos Abatement Coverage
While insurance is always an important consideration in the building-related trades, it is particularly important when asbestos is involved because of the uncertainty of coverage under a CGL form. Asbestos abatement coverage is available as a specialty lines coverage written for those engaged in that type of work, whether it be consultants, engineers, contractors, or even building owners.
As a specialty lines item, an asbestos abatement liability policy varies in its wording depending on the particular insurer that writes the policy. However, the bottom line is that asbestos abatement liability policies apply to bodily injury or property damage arising out of the removal of asbestos by the insured from scheduled locations during the policy period.
Starr Companies has a pollution liability policy that covers this type of risk. Limits up to $25 million are available with worldwide coverage. Coverage can be on an occurrence or claims made basis, a pollution incident resulting from work by the insured or on his behalf is the trigger, coverages include cleanup, third party injury and property damage, completed operations, and transportation coverage by an endorsement.
Legends Environmental Insurance Services provides coverage up to $11 million on a blanket basis with more available for individual projects. A minimum premium is $2,500 which is also the starting deductible amount. It is based off of the ISO CGL and includes contractual liability coverage, temporary storage of asbestos materials on-site or at owned locations, transportation coverage of remediated asbestos, and coverages related to lead and mold as well.
Other Asbestos Abatement Considerations
Besides finding some liability coverage for the insured's asbestos abatement operations, other considerations must be addressed.
Asbestos has peculiar, delayed-reaction liability problems associated with it. Exposure to airborne asbestos has no immediate apparent effect, yet it can begin a slow biological process resulting in health problems decades later. In fact, many of the asbestos-related lawsuits that began making headlines in the 1970s involved exposures that had occurred as far back as the 1940s. In these cases it took more than thirty years for the health problems, and the attendant legal liabilities, to manifest themselves. It is this delayed reaction that makes it important to try to insure that the contractor and others are covered by an occurrence, and not a claims made, asbestos abatement policy.
Another important consideration for an asbestos abatement policy is the kind of aggregate the policy carries. The least desirable type of aggregate is the association aggregate. This aggregate is sometimes found when the insurance policy is sold through an association or trade group. With it, the annual policy aggregate is used up by the claims of all the members of the association or trade group. Thus, if there were a $1 million annual association aggregate on the policy, a company could run out of coverage after having experienced only $100,000 in losses during the policy year if nine other members of the association had also experienced $100,000 in losses that same year. With this type of aggregate, the insured would have no control over the losses that use up the aggregate.
A better path is the annual aggregate limit of liability. With this type of aggregate, all of the insured's losses that occur during the policy year would combine to use up the aggregate. The insured, in this case, does have some control over the exposures that might contribute to the utilization of the aggregate. The most desirable annual aggregate for contractors, and those who are additional insureds on the contractor's policy, is one that applies separately to each project undertaken by the insured. With this type of policy, only the losses emanating from a particular job or project will serve to use up the aggregate. Say, for example, that the policy carried a $1 million annual aggregate per project. The insured could suffer $900,000 in losses at each of three separate jobs and still have $1 million available for losses that occur during the year on the fourth or any other job.
Other points of consideration are for the owner of the building that has asbestos. Once the owner of a building decides to undertake an asbestos abatement program, he must select a contractor with adequate and proper liability insurance coverage because, in all likelihood, it will be the contractor who will provide insurance coverage for the building owner. The latter will be either named as an additional insured on the contractor's policy, or the contractor can obtain some type of an asbestos abatement related owner's protective policy for the building owner. The second of the alternatives is preferable because it provides the owner with his own policy with limits that cannot be drawn down by the contractor's losses. An additional advantage of the owners protective policy is that no action that the contractor takes or fails to take, with the exception of nonpayment of premium, will affect the owner's coverage. In the case of nonpayment of premium, the owner would be notified by the insurance company as first named insured with abundant opportunity to pay the premium and collect it from the contractor at his leisure.
The University of Florida has specific requirements for any asbestos contractor performing work onsite. An asbestos general liability policy from a carrier with an A. M. Best rating of A- or better that is lawfully authorized to write business in Florida is required. The University must be named as additional insured, and the University is not responsible for any sums associated with the policy including the deductible. Coverage should be occurrence, not claims made, and the contractor must be protected from all claims arising out of the contractor's asbestos abatement work for the University. Minimum limits of one million dollars apply to the each occurrence, personal injury and advertising injury, products and completed operations aggregate and aggregate other than products and completed operations limit. Fire damage limit is $50,000 for any one fire and medical expense limit is $5000 for any one person.
Of course, if the building owner does not wish to rely on the contractor for liability protection, he can always purchase a liability policy for building owners. This choice allows the owner to control the insurance, including coverages, limits, deductibles, and rates; the policy can be tailored to fit the building owner's needs.