Development of Environmental Risk Profiles for Construction Firms
July 2004
To succeed today, contractors need to incorporate
environmental risk management into every facet of their business operations.
Developing an environmental risk profile that covers mold and other exposures
can help contractors understand and outline what risks will be contractually
transferred, managed with education, financed through insurance, and so forth.
by Jeff
Slivka
New Day
Underwriting Managers LLC
By now, many construction firms have acknowledged the fact that environmental
exposures exist on virtually every construction project in the world. In fact,
many have taken the opportunity to assess Contractor's Pollution Liability or
CPL insurance and I would even say most have purchased it.
There is one thing that tends to confuse me, however. (Honestly, there are
many things that confuse me, but let's stick to this one.) Many construction
firms I speak with that have purchased CPL coverage have not even created a
risk profile of their operations. My simple question is how can you make such
a purchase if you never assessed or developed an environmental risk profile?
Do you know what risks will be contractually transferred, managed with education,
financed through insurance and so forth? Is the CPL policy supposed to dictate
how you manage environmental risk? It shouldn't. Remember, insurance is only
a way to finance a loss that occurs, not proactively protect the one thing you
probably try to preserve the most—your organization's reputation.
Developing an Environmental Risk Profile
To succeed in today's world, the first step taken by contractors is to incorporate
environmental risk management into every facet of their business operations.
To do otherwise invites disaster. The second step (assuming that the contractor
admits that exposures exist!), is identifying specific risks—creating an environmental
risk profile or ERP. Contractors face environmental exposures in the following
four major areas of their operation.
- Job site operations
- Owned or leased properties
- Transportation
- Disposal liability
Mold and Other Exposures
One of the most highly publicized environmental issues facing the industry
today is the existence or growth of mold and related fungi. While the legal
community has taken to the fact that mold-related injuries and damages can actually
support or establish an entire law practice, the scientific community has yet
to confirm and document actual adverse health effects from mold exposure. Therein
lies the reason for an exponential increase in mold lawsuits throughout the
country.
While mold is one type of risk exposure, there are many other environmental
exposures (see prior articles for information). The focus here is to provide
a little insight into developing your own risk profile. This can be completed
simply by a thorough review of your administrative controls. Looking at such
documents and protocol to identify strategies/procedures to reduce, minimize,
or eliminate exposures to environmental liability or ones that expose the organization
to risk. Such documents would include the following.
- Environmental management programs/systems (if any)
- Mold/moisture prevention/awareness/response program: Is there a consistent
message to all employees? Is there a consistent and role-defined response
to water/mold so as to prevent future liability? Are subcontractors required
to adopt such protocol? Is this in the prequalification list for subcontractors?
- Hazard communication programs: Are environmental data searches performed
as part of the preconstruction process? Note: You can find much information
on the project site or around the site you may be working on or bidding
on in just 10 minutes on the various EPA Web sites (see prior articles).
- Standard subcontract agreement with environmental subs and nonenvironmental
subs: Do we require them to?
- Standard client agreement (if possible) or standard industry agreements
like the AIA 201 general conditions: If CPL insurance is required by the
owner and they are willing to pay, why do we still negotiate the requirement
out of the contract? Are we really putting the company at more risk by doing
this?
- History of environmental losses or incidents—trends, communication to
employees, "lessons learned," what corrective measures were taken to prevent
the same problem in the future? Are you accessing and sharing industry information?
- Corporate brochure or statement or qualifications: Are your services
over stated for "marketing" purposes?
- Annual report (if available): Contingencies that we may be sitting on
that is costing us dollars? Potential lawsuits involving environmental conditions?
- Corporate health and safety program: Training and adequate response
protocols defined for contaminant exposures?
- Quality assurance programs: Third-party inspections?
- CPL Insurance: What can't we insure? Do employees understand?
- Environmental assessments on properties: Is the question asked of the
owner? Are employees aware? What is the protocol in the event environmental
issues are identified? Is it consistent or will we take it on if the margins
are high enough?
Conclusion
These are some things to think about. By no means is this an all-inclusive
list to create a comprehensive ERP but it helps you begin. Those who have taken
this path—good for you! Those who have not, for peace of mind and protection
against potentially disastrous financial losses, consider getting it on the
"to do" list—very soon. Keep in mind, if you decide that this is where you may
want to begin, you can easily engage an environmental consultant to assist in
developing this document for you. Working with someone on the "outside" with
the expertise and experience to hone in on environmental risk may provide you
with a unique approach with different perspectives. Either way, start it today!
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