COVERAGE CONCERNS
Minimize excavation risks by paying attention to underground installations
By Roy C. McCormick
Several recent television news reports made a deep impression: an explosion and fire at a refinery generated by rupture of an underground transmission line and numerous gas explosions in homes. Road trips reveal that utility poles
are being removed in favor of underground power and telephone cable. All serve as reminders that insurance providers can do much to alleviate the risks encountered by contractors who are involved in excavation work. Tested advice on how to minimize risk and careful attention to liability insurance provisions are the right prescription.
The reasons for removing utility lines from poles and installing them underground, as has long been done with gas lines, are compelling and there is a lot of local pressure to do so. Storm damage to overhead poles, lines and equipment can have serious consequences. Interruption of service to users for whom it is essential and in emergency situations is notable. The danger posed by fallen power lines is all too familiar, and the widening of roads in some instances has transformed poles into driving hazards.
The utility companies themselves have strong incentives to take their remaining overhead lines underground, though not without considerable expense. The costs associated with maintenance of the older facilities and, especially, with the manpower required for restoration of service and cleanup following severe storms are great. The physical danger with which linemen and others must deal when repairing broken power lines and during ongoing storms is obvious.
Most of the concerns are removed or substantially minimized when power and telephone cables join gas transmission equipment underground. Maintenance expense is comparatively minimal. Damage caused by the installations is virtually nil, except for occurrences that are the subject of our review: ruptures of underground cables and pipes during excavation work.
Agents can perform an outstanding loss prevention service by making certain that client contractors who perform excavation work are familiar with the utility communications system. The "one call" system, available in every state, informs the contractor about the presence of hidden utility lines, pipes and equipment.
The intent and function of the system is similar in all states. It helps contractors comply with a requirement, mandated by law in most states and urged in others, to obtain information on underground gas, electric, cable, telephone and other utility lines in the precise working area.
The calling procedure in Florida, for example, is established by law and is similar to laws in other states. Two days before beginning an excavation for a new structure, digging a hole or ditch, or demolishing a building, a contractor must call "Sunshine State One Call," a toll-free number. The central office will immediately contact the underground facility owners in the area to mark the location of their underground equipment. The service is free to the contractor and required by the state's Underground Facility Damage and Safety Act.
Careful attention to proper insurance coverage is the other half of the important service agents can provide for contractors involved in excavation. Commercial general liability policies currently written by most insurers basically include coverage for both premises and products-completed operations. Provision is made to remove the latter by endorsement, an option that should not be utilized regarding contractors who excavate unless the risk is covered separately or in a wrap-up.
Commercial general liability insurance written by major insurers also basically includes coverage for the explosion, collapse and underground (XCU) property hazards. Not long ago, the general practice was to cover the risks by endorsement, and that procedure is still followed by some companies. So it behooves an agent to know the provisions of the pertinent policy in this respect.
When XCU protection is provided in the CGL policy, it may be removed by endorsement in whole or in part at the discretion of the insured or for underwriting reasons. It is essential that the contractor who does excavation fully understands the exposure and the potential problems if the protection is removed--a modification that should be discouraged. Keep in mind that the CGL revision to basically include XCU coverage rather than optionally add it was done to avoid the very problems with which we are concerned.
If an insurer deems it necessary in a particular situation to remove coverage for one or all of the pertinent hazards, the problem should be discussed with the insured and, likely, the specialty market checked for needed protection. (See The Insurance Marketplace, published by The Rough Notes Company.) If an insured opts for no coverage, written acknowledgment of its omission will minimize the likelihood of disputes and E&O claims.
The potential for serious consequences of underground damage occurrences became clear in 1957 with litigation that followed an explosion and fire that destroyed a building owned by the Fuller Brush Company. A subcontractor, while excavating and backfilling for a water line, disturbed an existing gas line, which broke 30 days later. The $360 contract for the work resulted in a settlement in excess of $360,000, one thousand times the contract price. Translate that in today's dollars to the present litigation scenario!
Many disruptions of utility service, fires and explosions between 1957 and the present brought about the "one call" utility communications system and the attention of the insurance industry to necessary insurance protection for the exposure. In addition to providing the insurance protection needed by contractors who perform excavation work, insurance agents can help alleviate the problem by discussing the utility notification system with them. *
The author
Roy C. McCormick is consulting editor of the Policy, Form & Manual Analysis Service (PF&M) published by Rough Notes.