Trends & Challenges in the Environmental and Construction Professional Liability Space

The specialty lines insurance landscape is ever-changing. This is especially true for the environmental and construction-related professional liability marketplace, which is constantly bombarded by new regulations, policy changes and ongoing carrier reforms.

The 2023 Market Update, which is issued annually by RT Specialtys Environmental and Construction Professional (RT ECP) Practice recently highlighted the organizations insights into the state of the marketplace. Highlighted are the latest trends and challenges influencing the terms and conditions of leading insurance products like:

• Contractors Pollution Liability (CPL)
• Pollution Legal Liability (PLL)
• General Liability / Pollution Legal Liability (GL/PLL)
• General Liability / Contractors Pollution Liability / Professional Liability (GL/CPL/PL)
• Architects & Engineers Professional Liability (A&E PL)
• Contractors Professional Liability (CPrL)
• Owners Protective Professional Indemnity (OPPI)
• Real Estate Developers (RED) Professional Liability

For example, our research identified a continued rise in claims across RT ECPs coverage platforms. We believe this was primarily caused by the sustained increase of social inflation issues and the uptick of restrictions and environmental terms and conditions inserted into standard policy forms. Other considerations included the expected erosion of limit capacities related to project specific professional liability.

In fact, here are just some of the industry and policy trends outlined in the 2023 Market Update:

• Contractors Pollution Liability (CPL). This policy form was designed to cover the pollution conditions resulting from the covered contracting operations performed by or on behalf of the named insured. While the rates for this coverage stabilized in 2022, a greater proliferation of insurance specifications are likely to include broader pollution requirements; increased per occurrence / aggregate project limits; and the heightened scrutiny of claims. Other considerations also surround the tightening of federal and state regulations related to the growing soil and groundwater contamination issues associated with per- and polyfluoroalkyl substances, which are commonly known as PFAS or forever chemicals.

• Pollution Legal Liability (PLL).  PLL is designed to facilitate contaminated property transactions and buoy the balance sheets of large real estate assets. Typical PLL coverage benefits apply to virtually every industry that owns, leases, acquires or divests real estate. The 2023 Market Update predicts that the demand for transactional PLL policies is expected to remain soft during the first part of 2023 and then grow steadily throughout the remainder of the year and beyond due to the environmental insurance requirements associated with the $1T Infrastructure Bill passed by Congress last year. This is in conjunction with the continued increase in underwriting scrutiny for industrial, hospitality, habitational, healthcare, energy, and development / redevelopment risks due to continued State and Federal scrutiny of emerging contaminants including PFAS, as well as markets with certain exposures / classes of business.

• General Liability / Pollution Legal Liability (GL / PLL). GL / PLL combines PLL (claims-made) and General Liability (occurrence) policy forms to enhance the coverage of facility-based risks and environmental exposures related to insureds products, sites and / or processes. Originally intended to provide focused coverage to chemical manufacturers, distributors and waste management facilities, the marketplace has expanded toward a broader range of General Liability classes. However, the tightening of this coverage has been exacerbated by the growing emergence of contaminants like PFAS. This is in addition to the increased carrier concerns for rising litigation claims, the costly effects of natural disasters, COVID, and social inflation.

• Environmental Casualty Program (GL / CPL / PL). This combined policy form typically provides GL, CPL, and PL to specific market segments consisting of environmental contractors, waste transporters, environmental consultants, oil / gas / renewable energy contractors, and / or some combination thereof. For 2023, RT ECP foresees the increased flexibility of carriers regarding professional exposures associated with large environmental contractors (i.e., excess of $100M), who have broadened their services. However, this flexibility is expected to be tempered by the carriers looking to protect their loss ratios by limiting their limits; lowering the tolerance for frequency of claims; and focusing on the insureds potential for large losses. In contrast, small increases of around 5% or less can be expected for better performing contractors, while the push for higher rates will continue for poor performers. 

• Architects and Engineers Professional Liability (A&E PL). This coverage was designed to insure design professionals against the damages resulting from the acts, errors and omissions committed while rendering professional services. Going forward, we expect the A&E PL market to remain stable, while the rates for selected classes will continue to rise. Key market segments include architectural design firms, engineers, construction management agencies, interior designers, space planners and surveyors. PSPL, insuring the full design team, however, is a large challenge in todays marketplace, particularly on large, public civil and habitational projects.

• Contractors Professional Liability (CPrL).  CPrL is designed to cover the damages arising from the professional service acts, errors, and omissions performed by or on behalf of any construction firm. RT ECP expects the uncertainty of the economy to lead to higher premiums and the ever-increasing scrutiny of the insureds services, project delivery methods and project types.

• Owners Protective Professional Indemnity (OPPI). OPPI is designed to offer project owners and developers a broad layer of excess professional liability coverage that sits above the annual practice policies of contracted design and construction professionals. It also provides a primary defense against third party claims made directly against the projects owners. As the product continues to gain traction and its benefits are better understood, lender agreements will likely increase the demand for OPPI policies. In addition, we believe that architects & engineers will increasingly consider the benefits of OPPI policies to complement their existing professional liability programs. As a result, OPPI will remain a key component for owners and developers considering risk transfer alternatives.

• Real Estate Developers (RED) Professional Liability. This policy form is designed to protect against the covered losses arising from the negligent acts, errors and omissions committed during the performance of real estate development professional services. In addition, RED policies generally combine the features of professional liability insurance for design professionals, contractors, real estate professionals and owners into broader solutions customized for the real estate industry. This includes those with ownership, firms providing services to third-party investors, or sophisticated real estate developers and owners looking for comprehensive risk management programs. Going forward, we expect developers to increasingly adopt a more conservative pay as you go approach that utilizes project-specific RED and OPPI placements for new projects. This is in comparison to the policies that favor a more consistent practice-wide placement for development, property management and leasing. As such, we anticipate long-term risk managers to continue to view expansive, practice-wide RED programs as reasonable alternatives to the project-specific enhancements included within OPPI policies or specific property management E&O coverage forms.

On the one hand, we expect new construction spending and the ongoing redevelopment of existing facilities to rise in the coming year. Then again, numerous prognosticators have warned of an upcoming recession and related economic issues.

So, the only certainty is that there are few certainties in an uncertain market. However, one is the constant threat of liability. All construction and redevelopment projects accompany their own potential risks. Some can be relatively minor and resolved with just a few adjustments, while others can be catastrophic.

Thats why forethought and a deep-seated knowledge of the industry and its demands are the greatest allies against challenges, claims and litigation. So, when in doubt, never fail to seek the advice of professionals, who truly understand the marketplace and have spent most of their careers identifying competitive risk management solutions for their clients and the industry at-large.

If you are interested in learning more you can view RT ECPs complete Market Update here.

Meet the Author

RT Specialty’s Environmental & Construction Professional Practice (RT ECP) – rtecp@rtspecialty.com

This article is provided for general information purposes only and represents RT Specialty’s opinion and observations on the current and future outlook of the Environmental and Construction Insurance market and does not constitute professional advice. No warranties, promises, and/or representations of any kind, express or implied, are given as to the accuracy, completeness, or timeliness of the information provided. Any forward-looking statements contained herein are based upon what RT Specialty believes are reasonable assumptions. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. RT Specialty undertakes no obligation to update forward-looking statements if circumstances or RT Specialty’s estimates or opinions should change. The reader is cautioned not to place undue reliance on forward-looking statements. No user should act on the basis of any material contained herein without obtaining professional advice specific to their situation.

RT Specialty is a division of RSG Specialty, LLC, a Delaware limited liability company based in Illinois. RSG Specialty, LLC, is a subsidiary of Ryan Specialty, LLC. RT Specialty provides wholesale insurance brokerage and other services to agents and brokers. As a wholesale broker, RT Specialty does not solicit insurance from the public. Some products may only be available in certain states, and some products may only be available from surplus lines insurers. In California: RSG Specialty Insurance Services, LLC (License # 0G97516). 2023 Ryan Specialty, LLC