YES, even a community association has the (very real) potential of becoming liable for third party bodily injury or property damage resulting from the release of pollutants.
This article will identify two of the more common sources of pollution liability for community associations and offer some guidance on limiting these liabilities. But first let’s be clear about the need for concern. That is; coverage for pollution related injury is excluded in the industry standard General Liability form (ISO CG 00 01).
The first exposure I’ll touch upon is the more regulated and therefore less uncertain liability associated with communities that have heating fuel underground (and above ground) storage tanks. Many older communities, especially those that were in suburban and rural areas when they were constructed, utilized large underground storage tanks for heating fuel. The EPA began regulating and administering strict inspection and usage requirements for these tanks beginning in 1984. Many of those tanks are no longer in use today, but unless/until these tanks are excavated or permanently ‘capped’, the liabilities and corresponding insurance requirements for the ‘owner’ still apply. But again, with so much oversight and regulation, those communities in which this exposure applies generally carry the appropriate coverage to address this concern. If however, a community that was developed before 1984 IS aware of an unreported underground storage tank, I strongly recommend contacting the EPA or state authority immediately because as the legal ‘owner’ of said tank at the time of this legislation, your community could would be uninsured and expressly liable for any escape or dispersal of contaminants from this tank.
The second exposure is very much applicable to any community that applies (or contracts to apply) any EPA regulated herbicide, pesticide, or hazardous material. This exposure exists whether the community employs its own landscaping staff or (more likely) hires a landscaping company to perform this work on their behalf. A pollution liability policy for the former is obviously strongly encouraged. Whether it’s necessary for those communities that contract out their landscaping services depends on the risk management safeguards the community has in place to ensure that ALL of their contractors carry appropriate types and amounts of insurance coverage, and ensure the appropriate risk transfer agreements are securely in place.
What does this mean as far as landscaping contracts specifically? The community association and/or its agent should require a ‘certificate of insurance’ evidencing (among other things) that the landscaping contractor has a pollution liability policy. More importantly, the certificate should list the community association as ‘additional insured’. While this practice significantly reduces an uninsured liability, it does not eliminate the exposure entirely. Every community should at least consider their options for this coverage. Costs are commensurate with exposure and so if the work is subcontracted to a properly insured and licensed landscaping company, this ‘if any’ coverage can be purchased for penny’s on the dollar. Many carriers are now offering (low limit) pollution coverage ‘extensions’ on their package policies with minimal underwriting requirements.
It’s also important to point out that the application of chemicals, although one of the more significant exposures, is not the only exposure to pollution liability. It’s not a bad idea to require that any contractors hired to perform work that would involve the use (not just the application) of chemicals or hazardous materials be required to carry pollution liability and list the community as an additional insured. A few that come to mind are large scale painting or resurfacing contracts, any excavation work or work involving land grading, obviously any stormwater, water treatment or environmental work should be done by properly licensed and insured contractors listing the community as additional insured.
There is a growing trend in the real estate development industry whereby owners and general contractors are putting a pollution liability insurance requirement on all of their subcontract agreements, whether they are an excavator or an electrician. While I think this might be an unnecessary burden on many types of contractors, the thought behind this growing trend is two-fold and summarizes this article very well. 1. The cost of limiting this risk is commensurate with the actual exposure; and 2. It is better to be safe than sorry.
By Allen Hudson
Allen is the director of real estate at Sahouri Insurance & Financial. He and his team have been exclusively focused on delivering tailored insurance solutions for the community association industry for over 10 years. Allen and his wife Jessica live in Tysons and have two beautiful sons (Liam, age 5 and Ari, age 3).