Lead Insurance Requires Separate Coverage Most Contractors Don't Have

Imagine that your company is suddenly hit with a civil suit. The suit is filed under the Consumer Protection Act for violating Environmental Protection Agency (EPA) safe lead-paint-removal regulations. It alleges that unsafe work practices by those in your employ left a child severely learning-impaired. The client seeks punitive damages and medical costs totaling $1 million.

Unlikely? Don't bet on it. Up to this point, lawsuits filed on behalf of those injured by lead poisoning have had two targets: paint and pigment manufacturers, and landlords. Since 1987, scores of suits have been filed against manufacturers or former manufacturers of lead-based paint or pigment. More recently, many suits accuse landlords of being responsible for the effects of lead paint in the older properties they own.

In November, for instance, a Baltimore jury awarded plaintiffs Dontae Wallace, 20, and his sister Searra Wallace, 17, $2.5 million in a suit against City Homes, a Baltimore-area nonprofit. The jury found that the house rented for four years in the '90s by the Wallaces from City Homes had lead paint, that the Wallace children were exposed to it and poisoned by it, and that City Homes did nothing to warn them. Dontae and Searra Wallace have permanent cognitive and behavioral disabilities associated with lead exposure. Their mother testified that she was told by City Homes that the house was safe.

Contractor Suits

Suits against contractors have received no publicity for two reasons: there are far fewer of them and none has reached a jury. In cases where homeowners sued a contractor for lead poisoning, the suit was settled out of court for. But with lead safe work rules changing on April 22, such suits are now likely to be based on the charge that the work done in the course of a renovation project disturbed lead-based paint, releasing toxic dust into the air, which was then not contained or cleaned and resulted in lead poisoning.

Poisoning would be proved by a blood test. Though comparatively few such suits have been filed, it's likely, say attorneys familiar with the lead issue, that there will be more as homeowners become aware of the issue and as law firms that specialize in class action suits take note.

"There will be much more litigation," says D.S. Berenson, of Johanson Berenson LLP, which represents many home improvement companies. "It will take a few years to start growing. I expect lawsuits will focus less on medical damages, more on failure to comply with lead safe work practices, failure to be certified, failure to give out pamphlets. That will all be brought up as part of the typical contract dispute where the contractor gets into a fight over payment with the consumer and the consumer's lawyer."

If your company typically works in houses built before 1978, is not certified by the EPA to perform lead-safe renovation, or doesn't test for lead or contain and clean dust in pre-1978 housing, you could be setting yourself up for just such a suit. A renovation project can lead to lead poisoning when painted surfaces are disturbed, dust is generated, and the dust is released into the air and ingested.

And even if your company is EPA-certified to remove lead paint safely and practices lead-safe renovation, there is nothing to prevent a homeowner from filing a suit. Lead-safe certification and practices only make it less likely that such a suit would prevail. In the event of a negotiated settlement or a verdict for punitive and other damages, you probably wouldn't be covered by your general-liability insurance.

Insurance companies, which once covered for damages caused by hazardous wastes such as mold and asbestos, had all but excluded such coverage from commercial general liability policies by the mid-1980s. Companies engaged in oil drilling or transportation, for instance, then began to have to purchase separate pollution insurance to protect them should an accident involving hazardous waste occur. "As it is right now," says Mark Kinsey, owner of PKG Insurance Associates, in Bucks County, Pa., and an insurance broker who numbers many remodeling contractors among his clients, "there is absolutely, positively no coverage whatsoever" under general commercial liability policies for damages caused by lead toxification to homeowners. Lindsey says that lead poisoning alleged by employees would be covered under workers' compensation.

Lead Is New

That leaves residential contractors who wish to be covered obliged, like oil companies, to purchase pollution insurance as a separate policy. Pollution insurance covers damage done by mold, asbestos, and other toxic substances, including lead. Two or three years ago, it wasn't on the radar screen of either remodeling companies or those who insure them. Today an increasing number of insurers offer pollution policies.

But if you're shopping for pollution insurance, be sure that the policy covers lead. "A lot of agents may think that the standard pollution insurance policy includes coverage for lead," John Yurconic Jr., of John Yurconic Agency, in Allentown, Pa., says. In fact they may not. Yurconic and his client, Jim Lett, owner of A.B.E. Doors & Windows, also in Allentown, found that out by experience. In December Lett attended Certified Renovator training in safe lead removal, which prompted an inspection of insurance documents. He found that the pollution policy he had bought nearly two years ago for $3,659 to cover for mold did not, in fact, cover lead. Lett contacted Yurconic about adding lead coverage. Yurconic, Lett says, "got right on it, got me quotes on a policy, and I said, 'Let's go.'"

"Lead is new," Yurconic says. "Mold has been the big thing, and the pollution policies have revolved around mold."

Yurconic was able to find a pollution insurance policy that not only covered for lead, but cost his client $3,300 for coverage of damages of up to $1 million. His pollution insurance carries a $5,000 deductible.

Costs for pollution insurance typically range between about $1,800 up to $5,000. Kinsey cites the figure of $2,500 as approximately what a remodeling contractor can expect to pay as an annual premium for pollution insurance covering lead. "Should they buy it? Most definitely," he says. "Should they shop? Most definitely."

Matt Wallace, vice president of BC Environmental Insurance Brokers, in El Dorado Hills, Calif., says that a policy his company is currently formulating would start at $1,800 per year. Typically, costs are based on the number of people who work for the construction company, and the degree of exposure.

Dennis Gehman, owner of Gehman Custom Remodeling, in Harleysville, Pa., sent all of his company's project managers to CR training in December. He is himself a CR and a Primary Instructor in lead-safe training. Lead insurance coverage, Gehman says, is for the first time a concern. "Our business insurance renews April 1st, so we're beginning to get calls from insurance agents wanting to quote insurance to us. We'll meet with three or four agents, and some of the questions we have are about the new lead law and coverage for that along with general pollution insurance."

Gehman is far from alone. "If contactors are working in older homes in some regions, they're going to have to realize that this is as important as general and property insurance, auto insurance, or workers' comp," Wallace says.