Insurance and the infrastructure bill: New demands for contractors pollution liability coverage

A new wave of construction work under the recently passed infrastructure bill has begun, and will continue through the next four years. In a rare show of bipartisan support, the historic $1 trillion investment in US infrastructure became law in November 2021. This bill, which aims to rebuild the nation's deteriorating roads and bridges and fund other new projects ranging from climate resilience to broadband initiatives, brings new opportunities for contractors.

At the same time, for many contractors, the terms under which opportunities will be put out for bid will likely mean that for the first time, they will need to take on contractors pollution liability (CPL) coverage. Fortunately, the environmental insurance industry is known for improving existing insurance products, and brokers are seeking new, efficient processes for obtaining this increasingly required coverage. In addition, over the longer term, the acquisition of CPL coverage can be an important part of contractors being able to demonstrate a responsible approach in the evolving sphere of environmental, social, and governance (ESG) accountability.

Overview of opportunities

The immediate opportunity is significant. The infrastructure bill, as noted, is massive. Billions of additional dollars will be allocated to a multitude of projects benefiting general trade and specialty contractors across the construction industry; and the additional investment in these projects will provide a stimulus to the economy.

Many contractors will be awarded opportunities to participate on a wide spectrum of projects, working on behalf of a number of federal agencies. The opportunities stemming from the bill may include:

• Remediation projects, which will roll out primarily within both the Environmental Protection Agency and the Department of Energy. These projects will address cleanup for legacy Superfund sites, as well as brownfield redevelopments, to fuel urban growth initiatives in a number of cities.
• Clean energy and power is another large spending category within the bill, including projects to maintain or upgrade existing carbon-free energy sources and to explore additional future carbon-free energy sources such as offshore wind.
• Energy resilience will be enhanced through spending for improving transmission lines to survive a cat event like a wildfire or a named storm.
• Transportation will be the single largest category of funding handled by any one federal agency, as the Department of Transportation will be funding projects for airports, roads, bridges and major projects, and public transportation, among other categories of spending.

The insurance implications for contractors

Contractors will benefit significantly from the size and scope of the funding for these infrastructure improvements. To participate, however, they will need to address significant insurance requirements.

Mandatory pollution insurance coverages will likely be incorporated into most government project contracts arising from the infrastructure bill. For contractors who currently purchase practice pollution programs, there will be a need to have dedicated limits for project work, typically through a stand-alone project policy. Smaller contractors working on large projects must confirm that they have coverage through an owner-controlled insurance program or potentially a contractor-controlled purchase for the project.

Individual smaller contractors may have less experience with pollution coverage, and should seek the advice of their insurance broker to understand the risk factors and types of coverages available to protect their specific interest on that project. The risk identified by their broker partners will facilitate the purchase of appropriate coverage, based on the scope of work and potential contractual requirements on a specific project.

Technology can ease the process

Technology plays an increasingly critical role throughout the insurance industry, and these new insurance requirements are no exception. The needs of smaller contractors for pollution policies and other casualty products may often be well suited for distribution through online platforms. Agents can use these platforms to quote, bind, and issue a policy within a matter of minutes.

Pollution coverage secured through such platforms can align well with the kind of standard general liability policy with which most brokers or agents are familiar. In addition, policies secured through these online portals can both be affordable and address the exposures of smaller contractors, with coverage that is just as robust as a policy purchased by an international contractor who potentially has more complex exposures.

Contractors interested in such coverage should look for carriers to provide a holistic approach that combines comprehensive service along with protection. Contractors solution forms should align with general liability language, and most importantly, with the handling of defense expense costs outside of the policy limit. Carriers should be expected to integrate this coverage with experienced and responsive claims capabilities, as well as dedicated environmental engineers who can assist in the underwriting process.

This holistic approach can be especially beneficial, given the context of larger and more complex projects. Markel was recently successful at providing insurance solutions for a large airport project, where we were able to work across product teams to provide casualty, contractors pollution, and site pollution solutions for the owners and contractors of this project. Though this project did not stem from the new infrastructure bill, it illustrates the kind of coordinated approach that can be expected in the wake of the bill and moving forward.

Additional benefits from CPL coverage are likely in the future

The benefits of this CPL coverage will also likely extend beyond the immediate, mandated protection needed for participation in projects supported by the new infrastructure bill. Although contractors pollution liability policies have historically been discretionary purchases when not contractually required, the climate for such coverage may be changing. The shifting focus towards ESG factors for corporate decision making may influence risk management decision making and ultimately, the insurance-purchasing patterns of insureds.

When assessing risk management practices, underwriters have historically reviewed a company’s environmental, social, and governance practices to determine whether it is a “good corporate citizen.” There are an increasing number of studies that utilize data analytics to measure a company’s ESG performance. Interesting research on ESG parameters suggests they are correlated to overall risk management performance and may be good predictors for protection from corporate loss.

Investors are also applying non-financial ESG factors to evaluate and identify corporate risks and growth opportunities. Here too, a strong, well-defined ESG position may help to drive corporate value.

In summary, as ESG increasingly takes a front seat in corporate decision making, it may no longer be enough for contractors to have proactive written procedures in place to address general operations and environmental protocols. Instead, it will become more imperative that a company purchase a pollution insurance policy that provides the financial means to restore the environment back to a pristine state following an unforeseen pollution event. The current infrastructure bill and its mandate for CPL coverage may thus be a watershed moment in the evolution of risk management practices moving forward.