The construction industry works hard to avoid pollution. But there’s an element of risk involved in any project – an accidental leak may release toxic materials, say, or buried pollutants may be disturbed.
The consequences could include danger to human health, damaging environmental impacts or loss of biodiversity – as well as significant costs and reputational harm for the construction business itself. In one recent high-profile case, a housebuilder in the UK was fined £480,000 for failing to prevent the pollution of a Welsh river.
Given these risks, it’s vital that construction companies understand how and why pollution incidents might occur, and that they take steps to manage this risk. These steps may include taking out specialist environmental insurance.
In fact, there are more types of pollution than is often realised, and not all of them are visible. The main examples include:
In all these cases, three elements come together to create an environmental risk. There needs to be both a source of contamination – a leaky oil drum, for example – and a pathway for that contaminant to move through, such as soil and groundwater.
Then there also needs to be a receptor that will be harmed by the contamination – the fish in a river, say, or a local population.
Construction companies therefore need to think about how to reduce risk. The most straightforward measures typically target sources of contamination, aiming to avoid the release of pollutants in the first place.
But it may also be possible to target the pathway – to engineer solutions that stop pollutants doing any harm.
Sensible construction companies recognise their responsibilities to take reasonable steps to prevent pollution – and legislation in jurisdictions all around the world is steadily becoming tougher.
The level of planning and mitigation required will vary from one site to another, but environmental risk management should now be included in every construction project.
“Many companies work using CEMPs, which set out how they will manage and mitigate risk. These plans can be especially useful on brownfield sites or locations with known contamination issues.”
Brian McBride | Head of Environmental Broking, WTW
Many companies work using construction environmental management plans (CEMPs), which set out how they will manage and mitigate risk. These plans can be especially useful on brownfield sites or locations with known contamination issues.
The CEMP will set out how the constructor and contracts will manage contaminated waste, including how it will be disposed of or recycled.
The plan will also cover how soil is managed on the site and include precautions to ensure soil sold is safe. It will set out plans for preventing the spread of dust during dry weather, and for stopping run-off in the event of a weather event such as flooding.
The CEMP should include vehicle management controls. And it will include an emergency management plan, detailing the response to a pollution incident.
In addition to the CEMP, regulation in many countries requires construction companies to conduct an environmental impact assessment before work begins.
Site investigations are also likely to be needed. There may also need to be a biodiversity management plan in place.
However, even where construction companies have taken all possible precautions, things can go wrong, potentially with huge costs. In one case in the US, for example, a solar farm failed to control erosion from the site, leading to sediments washing into a neighbouring fishing lake; the owner of the lake was paid for $135m of damages.
In another case, a housing contractor inadvertently spread soil with historic contamination including asbestos across their entire site, and on to neighbouring properties; the incident cost the contractor almost $3m.
Given such risks, it is becoming much more common for construction companies to take out environmental insurance. It is important to understand that insurance doesn’t absolve contractors of their responsibilities for risk management and mitigation. But it does provide valuable reassurance.
While construction companies will usually have standard public liability and property policies, these typically only cover damage from pollution caused by a single, sudden and accidental incident. By contrast, contractors’ pollution liability (CPL) goes much further, providing cover for a wide range of costs and damages, and in a broad set of circumstances.
CPL supports both prevention and recovery. It will cover most of the clean-up and recovery costs of an environmental incident, but it can also help construction companies reduce the possibility of an incident occurring in the first place – through site investigation, for example, and loss mitigation measures that limit the risk of environmental damage from pollution.
“CPL also provides support with crisis management, a critical concern given the reputational costs of many pollution incidents.”
Brian McBride | Head of Environmental Broking, WTW
CPL also provides support with crisis management, a critical concern given the reputational costs of many pollution incidents.
This insurance is also useful following an incident. CPL typically covers the cost of soil and groundwater remediation works, beyond the site if necessary, biodiversity restoration, and ongoing monitoring of groundwater.
CPL insures against damage from projects specifically as listed on the policy schedule. These might include demolition, construction, remediation of a contaminated site, and ongoing management of a pollution-sensitive site such as a water treatment plant. It’s important to set out which operations are covered at the start of the policy.
In practice, insurers offer CPL on a wide range of projects, including both residential and commercial construction work. In some cases, a construction contract may even require the contractor to take out insurance.
But even where insurance is not mandatory, CPL is valuable to protect contractors’ balance sheets, limit exposure to legal costs and minimise reputational damage.
The reality of modern construction is that environmental risk has the potential to seriously undermine the viability of any project – and even to put the constructor’s finances and reputation in jeopardy.
It is therefore crucial that construction companies think hard about the best way to protect themselves from such risk, taking professional advice if necessary. Sensible precautions provide the foundations on which to build successfully.
For smarter ways to managing your environmental risks, please get in touch with our specialists.
WTW offers insurance-related services through its appropriately licensed and authorised companies in each country in WTW operates. For further authorisation and regulatory details about our WTW legal entities, operating in your country, please refer to our WTW website. It is a regulatory requirement for us to consider our local licensing requirements.
