Coverage Concerns
Underground pipeline damage
Prevention is the byword
By Roy C. McCormick
News of home gas explosions or the rupture of electrical transmission lines are a reminder to agents concerning the need to communicate with commercial lines and personal lines clients about these dangers and how to prevent them. Agents are likely to stress risk management concerns to general contractors and subcontractors on a regular basis. However, they may fail to mention to do-it-yourself home owners the dangers of digging deep in a yard to install items such as sprinkler systems. Serious damage to immediate property as well as other property, both private and public, can occur when underground lines suffer a rupture.
Builders and contractors engaging in construc-tion or other work that requires excavation can call a central office for information on hidden gas, electric, cable, telephone or other utility lines in a specific working area. The intent and function of the one-call system is to help contractors comply with a requirement, where established by law, or meet an obligation to notify utilities before they excavate, tunnel or discharge explosives. Particulars vary among states—for example, the number of days before excavation that a contractor must give notice.
Participating utilities with underground cables or pipes in the area send representatives to locate and stake out their location. There can be transmission for electric power, gas, oil and dangerous materials, telephone, police and fire communications, cable television, water, sewer, storm drains, land survey facilities. Records of staking requests are kept for a prescribed number of years. The utility communication in each state has proved to be an effective loss prevention measure.
For many years, contractors general liability insurance generally excluded coverage for explosion, collapse and underground property hazards. Today, policies drafted by the Insurance Services Office and those used by numerous other insurers include coverage for these hazards. However, they may be eliminated by endorsement at the discretion of the insured or for underwriting reasons.
Whatever the procedure used by an insurer, it is essential that an agent make coverage or non-coverage provisions clear to an insured contractor. Company claim files and courtroom experience attest to the need for understanding and careful underwriting.
When occurrences such as natural gas explosions result in severe damage to homes, homeowners policy insurers pay their limits of coverage and, when warranted, exercise their subrogation rights to recover their payments. They sue the contractor engaged in the home construction project as well as the utility providing the service. A professional agent will make clear to a contractor who performs excavation work, or who is responsible for a subcontractor who does, the importance of carrying liability insurance as a backup to cover the exposure.
The “Fuller Brush Case” was the first major case to point up the need to confront the underground pipeline exposure. The fire subrogation case resulted in the largest negligence verdict ever return in Minnesota at the time (1958). A jury in a federal court trial rendered the verdict. A $360 contract resulted in a $360,000 property damage liability judgment—approximately 1,000 times the contract amount. The figures are striking when converted into today’s dollars.
An explosion and fire destroyed a building owned by the Fuller Brush Company. While excavating and backfilling for a water line, a plumbing firm disturbed and broke an existing gas line. A federal court jury concluded that the damage resulted from the joint negligence of the general contractor and a subcontractor.
Most home owners are not involved in deep drilling. Normal gardening does not present a problem, and the frequency of deep digging is rare, an example being the modifying or installing of an underground sprinkler system.
The basic inclusion in general liability insurance for contractors avoids omission of protection needed for underground work with backhoes and other shovels that can rupture gas, water, electricity and other underground transmission lines. Most insurers provide for elimination of the coverage by endorsement for credit. This should be discouraged because of the potential for severe loss.
Explosion, collapse and under-ground property risks have long been identified in insurance circles as the “XCU” hazards. Unfortunately rupture of underground transmission lines continues to occur despite efforts to caution excavators to use the one-call system when doing underground work. A recent sewer line break along the side of a major city street caused its closing. Although repairs were made within a day, the incident served as a reminder to contractors to check for underground exposures along city property such as streets and roads as well as those on lots.
The most serious ruptures of transmission lines are those that involve gas. Calling attention to them is an effective way to make sure that contractors always utilize the one-call system before beginning underground work. Gas explosions not only cause major property damage but also can result in serious bodily injury.
Agents perform an important service by discussing liability coverage with contractors and also the need to consistently use the one-call system.
The author
Roy C. McCormick is a contributing editor with the Rough Notes Company.