THE MARKETPLACE RESPONDS
Cathy Griffin, vice president and casualty environmental broker for Partners Specialty Group, LLC, sets the stage for our topic this month by explaining: “Since it was discovered to be a carcinogen, the use of asbestos in building materials has either been banned or strictly regulated by federal and state agencies. Any building that was constructed after 1980 most likely contains no materials with asbestos in them.
“Asbestos abatement contractors are in demand because so many pre-1980 buildings contain asbestos that must be removed before the building can be demolished or renovated,” Ms. Griffin continues. “Asbestos was commonly used in roofing shingles, ceiling and floor tiles, and as a wraparound for piping. The law requires that asbestos testing and removal be done before demolition to prevent the fibers from becoming airborne.”
Asbestos abatement contractors also may remove other environmental contaminants. Gavin McMorrow, senior brokerage underwriter at Insurance Innovators, Inc., says, “I see environmental remediation as being in two main categories – what I call wet and dry. Most dry environmental remediation services include asbestos, lead paint, and some mold. Most wet remediation companies deal in chemical cleanup, soil tainted from storage tanks, and so on.
“The equipment used for wet remediation is different from that used in dry remediation,” Mr. McMorrow explains. “Contractors in both groups must understand the properties of the pollutants they are dealing with. How will the pollutant affect the area and the workers; what equipment, materials, and procedures are required for cleanup; and what risks and hazards may the work involve?”
Adds Ms. Griffin: The protective clothing and equipment used in asbestos abatement are expensive, and they also can be used in lead and mold abatement, so many contractors perform all three kinds of abatement. About 95% of the contractors we insure do asbestos, lead, and mold abatement.”
The market for asbestos abatement contractors is strong. ACE Westchester, American Safety, Berkley Specialty, Chartis, Colony, Crum & Forster, Endurance, Everest, Freberg Environmental Insurance, Liberty, Markel, Navigators and Zurich are active markets for general liability, professional liability, and contractors pollution liability.
According to Ms. Griffin: “The asbestos abatement class has become the basis for environmental insurance brokers. For many years this coverage was written only on a claims-made basis; today everything is occurrence coverage except professional liability, which is still claims made. This year the E&S market overall has been trying to hold the line on rates, but the market is very competitive with a lot of markets that are willing to write this class.”
Mr. McMorrow comments: “At this date, the insurance marketplace is in transition from soft to hard. Main Street carriers are looking for increases on their renewal book, exiting some lines of business, and reducing capacity. These conditions also will affect asbestos abatement contractors – especially firms that are new to this segment. Capacity may go down. Pricing will undoubtedly go up.”
General liability, professional liability, and pollution liability for asbestos abatement contractors are often written in a package. An important consideration is how a particular policy covers defense costs. In general liability coverage, defense costs typically are outside limits, but in professional and pollution liability coverage these costs are inside limits. This means that brokers should try to obtain higher limits for the pollution and professional liability coverages because defense costs will reduce the amounts available to pay for a loss.
A vital concern is how the contractor controls the environment in which it must work. According to Mr. McMorrow: “Asbestos becomes dangerous when the fibers are airborne and are inhaled. For that reason, the preferred method of asbestos abatement is encapsulation. By using properly trained and equipped personnel, taking control of the site, and using fans to limit negative air flow in a sealed-off area, the contractor can provide a safe environment for asbestos removal.”
In addition to the methods a contractor uses to control a site, Ms. Griffin says, “Key underwriting factors are the qualifications and experience of the contractor and crew. They all have to be licensed, which requires them to go through training and testing in the use of equipment and protective clothing. They also have to know the guidelines for abatement procedures, and we always request a copy of the contractor’s health and safety manual. Another key factor is loss history. The red flags, in turn, are unfavorable loss history, inexperienced or unlicensed personnel, and failure to adhere to safety and health guidelines and regulations.”
With respect to frequency and severity, Mr. McMorrow explains, “Severity is the issue. If an asbestos abatement contractor has a history of frequency, it will be out of business quickly.”
“The key exposure is bodily injury to a third party,” says Ms. Griffin, “meaning someone who inhales or ingests asbestos fibers that became airborne during abatement operations. These are multi-million dollar losses, and they come under contractors pollution liability. Severity comes from the release of asbestos fibers that cause or have the potential to cause bodily injury, particularly mesothelioma. Years ago, the volume of claims and lawsuits and the amounts paid out put a huge strain on insurers, including Lloyd’s, and caused some to go out of business.”
Available limits vary by carrier; $5 million is common, and up to $100 million can be provided via layering.
Limits are not the only distinction among carriers. Mr McMorrow says, “Each carrier has its own criteria for coverage. Some coverages are available at a sub-limit. When we talk about asbestos, we’re limiting the discussion. Environmental liability has a broader application. Buybacks or increased limits are available for mold, radon, and other kinds of environmental remediation.”
Ms. Griffin adds: “Most carriers exclude installation of asbestos or products that contain asbestos, and that coverage cannot be bought back. I don’t know of any asbestos removal contractor who is installing asbestos, but carriers use the exclusion to protect themselves from class action suits. Some coverages that can be added or bought back are transportation pollution liability and on-site pollution liability (legal liability for the insured’s own premises). I always check the exclusion for bodily injury to employees to make sure it contains action-over wording that gives back coverage for liability assumed in a written contract.”
Mr. McMorrow offers the following advice to agents who want to pursue this class: “Come early in the renewal process, armed with as much information as possible about your client’s professional experience and credentials. You need to tell your client’s story well to underwriters, by demonstrating that the contractor has:
- multiple years of experience;
- a favorable loss history;
- been recognized by their peers;
- obtained the appropriate licenses and bonds;
- addressed shortcomings and corrected conditions that caused previous losses.”
The markets are open and the asbestos abatement industry continues to have growth potential, which means that this industry could be a profitable new niche for an agency that is already involved in the contracting industry.
Are you ready?
WHO WRITES ASBESTOS ABATEMENT CONTRACTORS?
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