A Jardine Lloyd Thompson Information Article

CASE STUDIES OF ENVIRONMENTAL and CONTRACTOR CLAIMS

Environmental concerns are daily becoming headline news all over North America, and the writer felt it timely to research some of the claims that have been settled in recent years. We have briefly set out the details of some of these claims and their settlement amounts. We have only outlined some of the typical environmental exposures common to this class of business and it is not an all- encompassing list.

Phase 1 and Phase 2 Assessment Claim Samples:
  1. A Bank considering foreclosure on a property, hired a consultant to perform a modified Phase 1 Assessment. The Consultant did not find any evidence of visual contamination or an Underground Storage Tank (UTS). Eventually the bank foreclosed on the property. The Claimant entered into a contract to sell the property. The prospective purchaser informed the Claimant that an UTS was located on the property and requested that it be removed. At the time of the survey, the consultant did not observe any vent pipe on stained soils because the area was covered with debris. The Claimant is seeking a total of $135,000 in damages, of which $20,000 is associated with the removal of the UTS and soil. 
  2. A Consultant performed a modified Phase 1 Assessment and determined the property the property being considered for purchase contained minor groundwater contamination. During construction of the newly purchased property, the site contractor discovered extensive contamination, which resulted in significant remediation costs. The Consultant is now being sued for sums in excess of $1,000,000.
  3. A Consultants was retained to investigate conditions at a facility. The Claimant alleged that the Consultant's investigation was inadequate and failed to raise or investigate the possibility of an off-site source being the cause or potential cause of contamination on the property. The facility further alleged that an extensive and expensive groundwater treatment system, which the consultant recommended, was indeed unnecessary. The resulting settlement was $250,000.
Utility Contractor Environmental Claims and Summary of Exposures 
  1. Contaminated Soil: A Utility Contractor unknowingly spread petroleum contaminated soil across a project site. The Contractor was named in the lawsuit for exacerbating the extent of contamination. After lengthy deliberations, the Contractor was found responsible for $250,000 in cleanup and legal and defense costs.
  2. Trench Troubles: A Utility Contractor stockpiled soil on an adjacent property. The scope of the project included excavation of 357 feet of trench for one week at a cost of roughly $30,000. Prior to completion of the work, Dioxin was discovered in the soil. The Environmental Protection Agency investigated the situation and issued an administrative order finding the Contractor and their Client responsible for contamination of the adjacent property. The Government mandated cleanup costs exceeded $250,000.
  3. Backhoe Hits Gas Line: A Utility Contractor was working on a $500,000 rehabilitation project. During excavation of a trench, the bucket of the backhoe hit a natural gas line. This forced evacuation of the immediate area, including a small strip mall. Store Owners filed for loss of business claims against the Contractor, which exceeded $75,000. The Contractor's general liability Insurer denied the claims based on their policy's Total Pollution Exclusion.
  4. Contractual Liability: Whilst a Utility Contractor was installing new overhead electrical lines, his subcontractor was sinking the new utility poles. The subcontractor hit an underground sewer line with an auger. Through contractual liability, the Utility Contractor was responsible for the actions of the subcontractor. The cleanup of spilled sewage and repair of the sewer line amounted to $190,000. 
  5. An Example of a Denied Claim: A Utility Contractor was contracted to control the vegetation on a right of way for a power line. The Contractor applied a herbicide to reduce the vegetation. After a rain storm, the herbicide was washed into the adjoining farm land. The farmer's crops and land were severely damaged. The farmer filed a suit alleging $350,000 in damages. The Contractor claimed against his general Liability policy. The claim however, was denied, due to the Absolute Pollution Exclusion under his policy and as the herbicide was brought on-site by the Contractor.
Summarizing Common Environmental Exposures for Utility Contractors 
Operational Exposures: 
Owned Premises Exposures (maintenance garages, fabrication shops, etc.):
Transportation Exposures:
Mechanical Contractor Environmental Claims and Summary of Exposures
  1. Mold Growth in HVAC System: A Mechanical Contractor installed a heating, ventilation, and air conditioning system in a new commercial office building. After three years, mold and mildew growth caused the release of airborne bacteria throughout the entire building resulting in poor indoor air quality. Claims for bodily injury and loss of property use exceeded $500,000. The Contractor was also responsible for decontaminating the HVAC system.
  2. Fungus Infects Patients: A Mechanical Contractor removed ductwork from a hospital's HVAC system. It was later determined that the ductwork was home to a dangerous fungus. The dismantling activities and the on-site storage of dismantled ductwork caused the fungus to spread into the hospital. Patients became infected with the fungus; some were even critically infected. The Contractor was found liable for the spread of the fungus and faced bodily injury and property damage claims that exceeded $1,000,000.
  3. Dust from Lead Removal Clogs HVAC: A Mechanical Contractor removed lead based paint from a commercial building. The Contractor isolated the work areas with containment, but the HVAC system was not disconnected. Dust generated from the lead removal operations clogged the heating coils in the building's HVAC system. The Contractor was found liable for replacing the HVAC system, as well as business interruption claims that amounted to $150,000.
  4. Fuel Release: Whilst a Mechanical Contractor was repairing leaks on a fuel line at a shipyard, an unknown party opened the valve that separated the inactive lines under repair from the active lines. Fuel began to flow through the lines under repair, releasing 3.500 gallons of gasoline. The cost to clean up soils and groundwater contaminated by petroleum hydrocarbons was $500,000.
  5. Mercury Spill: A Mechanical Contractor was dismantling laboratory piping at a university when he inadvertently spilled mercury. The result was building wide mercury contamination. The Contractor spent over $350,000 to clean up the spill.
Summarizing Environmental Exposures for Mechanical Contractors 
Operational Exposures
Owned Premises Exposures (fabrication shops, etc.)
Transportation Exposures

Jardine Lloyd Thompson Canada Inc. is part of the worldwide Jardine Lloyd Thompson Insurance Brokerage Group. Jardine Lloyd Thompson and its subsidiaries specialise in professional liability insurance, handling of professional liability insurance claims and arranging captive insurance companies.


The information contained herein is believed to be accurate, but individual circumstances, local business and insurance practice and the Law can vary extensively and Jardine Lloyd Thompson and its associated and subsidiary companies are not responsible for any errors and omissions or any loss or damage arising from the use of this information. In the event of situations such as are described in this bulletin, the reader should seek legal counsel and specific advice from Jardine Lloyd Thompson or your Insurance Broker.

© 2001 Jardine Lloyd Thompson Canada