Hurricane contractors: Working without a safety net

For the clean up of New Orleans in the wake of Hurricane Katrina to progress, contractors engaged in this important work must be adequately protected from long-term and uncertain liabilities.

As insurance brokers, we at Willis work with our clients across all industries helping them assess, quantify, mitigate and transfer their risks. As part of this client advocacy, we have developed strong relationships with insurance carriers around the world such that we know their risk appetite; how they consider certain risks and the various factors they weigh in their underwriting decisions.

Lessons from Sept. 11
In the aftermath of September 11, 2001, Willis secured the insurance for the contractors who cleaned up the World Trade Center site. Quite thankfully for obvious reasons the characteristics of this site were unlike any we or anyone else in either construction or insurance had previously seen. Normally, before the clean-up of a disaster site starts, environmental and engineering firms conduct studies, run assessments and issue reports as to the nature of the site and the specifics involved. Due to the outstanding circumstances of the events of 9/11, there was not time for such exercises and contractors got to work without a full understanding of what was ahead. How stable was the ground? What were the asbestos levels? What other hazardous materials could have a long-term impact on health of the workers and general public?

Today, more than four years after 9/11, the number of lawsuits being filed continues to grow. Only in time will we determine the balance between the insurance purchased vs. claims now being filed in New York. But one thing is certain, litigation, upon litigation, upon litigation has created a great deal of uncertainty and serious concern among the contractors involved.

New Orleans concerns
While the scope of the New Orleans effort is multiples larger than the World Trade Center site, these same concerns are at hand today in the Gulf Coast as they were in September 2001. In conversations with carriers around the world on this matter, these are among the concerns they are expressing: Uncertain site conditions; unusual and unknown health hazards; what chemicals are being released into the air during the clean-up; the limited nature of the tools available to assess the number and types of environmental factors in play; varying standards between local, state and federal authorities; the fast track nature of the work to be done; and the lack of certainty on contracting provisions and legal environments.

All of these factors substantiate that the traditional methods of risk identification, control and underwriting have been significantly altered, making it difficult to estimate or even guess what the full extent of the long-term liabilities arising from the clean-up will be.

If the risks are unknown such that there could be significant unforeseen liabilities, how can contracting firms adopt preventative measures to avoid problems that will give rise to future claims? How can carriers determine the right price for the coverage?

Inadequate protection
All of this leads us to question whether the insurance industry has the ability to fully underwrite the risks inherent in this work. If this bears out, contractors will be left fending for themselves without adequate insurance protection. That is not to say that contractors will not be able to purchase insurance in some form for their activities in the Gulf; rather, without addressing the unique factors in this situation, the coverage they will be able to obtain will in most cases not adequately protect them over time from the exposures they will be facing. This is not a question of if but when and, based on our experience, these matters will manifest themselves over a 5 to 10 year timeframe, though there is already talk of the “Katrina Cough.”

Without adequate protection, contractors cannot properly account for their risks and endanger the long-term viability of their companies. Accordingly these issues could prevent quality contractors from participating in the clean up and recovery efforts.

Hesitant contractors
The legislation, Gulf Coast Recovery Act (S.1761), seeks to limit the liability of contractors working on the clean-up is important. While many first-rate contractors are already on the ground participating in this effort, many others are hesitant to get involved in projects of this magnitude unless they have insurance against what are normally quantifiable risks. Carriers as well tend not to write policies if they are not able to make the necessary judgments. In the case of New Orleans, as it was with the World Trade Center, it will be almost impossible to establish the proper control procedures to protect their interests. Limiting the liability of construction companies engaged in the clean-up of New Orleans so that they can gain the coverage they need is critical.

Paul Becker is North American Construction Practice Group Leader for Willis. This article is excerpted from his November testimony before a subcommittee of the U.S. Senate Committee on Environment and Public Works considering proposals to clarify government contractors’ risk of liability for responding to disasters. He can be reached at becker_pr@ex.willis.com.

Topics Catastrophe Natural Disasters Hurricane Contractors