By, Michael Baker, ARM, American Global of Pennsylvania LLC
By now, most construction employers should be aware of the recent rule change to the Occupational Safety and Health Administration (OSHA)’s Crystalline Silica Rule. Effective September 23, 2017, OSHA amended a number of key provisions of the existing rule, most notably:
- Reducing the Permissible Exposure Level
- Putting a heavier emphasis on the use of engineering controls to limit exposure
- Requiring medical exams for employees known to have high exposure to Silica
The rule is well intentioned to be sure. Estimates on OSHA’s website predict “…that the rule will save over 600 lives and prevent more than 900 new cases of silicosis each year, once its effects are fully realized.” What’s debatable is the full impact it will have on various different segments of the construction industry. Many industry commentators have speculated that OSHA will be more stringently enforcing this new rule not only with contractors in trades traditionally associated with Silica exposure (concrete, stone, brick, etc.), but also with those less often associated with Silica exposure. While a General Contractor’s operations typically don’t involve direct exposure to Silica, a jobsite that has unsafe levels of Silica due to a Subcontractor’s operations could impart liability on the General Contractor. That begs the question: What’s a General Contractor to do?
Focus on Risk Management
To be clear, this exposure to loss has always existed for a General Contractor; however, now more than ever, prevention is essential to ensuring a safe workplace and limiting an employer’s liability under the new rule. A General Contractor should be well versed in the specifics of the new rule and establish risk management guidelines for each worksite. These guidelines should be clearly communicated to all employers and employees that are or will be working at the site. In situations when the minimum Permissible Exposure Level is currently (or expected to be) breached, the General Contractor should work with other contractors on site to develop and implement a plan to reduce the Silica levels. If the Permissible Exposure Level cannot be reduced to an acceptable level due to the nature of the work, appropriate engineering and equipment measures should be taken to safeguard exposed employees.
As with any exposure to loss, a General Contractor should also ensure that there is good risk transfer in their construction contracts with Subcontractors. First and foremost, a strong indemnification provision should ensure that the Subcontractor is holding the General Contractor harmless for any losses or claims related to the Subcontractor’s operations. The indemnification provision should not be limited by the availability (or lack of availability) of insurance coverage; likewise, the indemnification provision should specify that the amounts paid by an insurance program do not serve as a cap on a Subcontractor’s liability. In some cases, an insurance program may exclude or limit a claim payout, but a broad indemnification provision would still obligate a Subcontractor to pay for the full value of the claim. While a strong contract doesn’t eliminate the risk to the General Contractor, it can insulate the General Contractor’s own balance sheet and insurance program.
Insurance: Backstopping a Subcontractor Agreement
Let’s assume that an employee of a Subcontractor is able to demonstrate that he or she has contracted Silicosis in the course of his or her employment. For argument’s sake, we’ll also assume that his or her exposure is of an acute nature (develops over weeks or months versus the more common onset over many years) and can be linked to a particular project or group of projects all involving the same General Contractor. Due to the work-related nature of the exposure, the injured employee should be entitled to collect medical and indemnity benefits under the Subcontractor’s Worker’s Compensation policy. While Worker’s Compensation is often recognized as a “sole remedy”, an injured employee could still potentially bring a lawsuit against the Owner or General Contractor alleging that they were negligent in providing a safe working environment.
As noted above, the Subcontract Agreement should be crafted to shield the General Contractor from a Subcontractor employee’s suit. The General Contractor should consider the following both when procuring its own insurance, and when drafting the insurance requirements for its Subcontractor Agreements:
- Most General Liability policies for insureds involved in construction have a Silica exclusion. This would both eliminate coverage for the General Contractor under its own policy for a suit from a third-party, and eliminate coverage under a Subcontractor’s policy for any contractual obligations that the Subcontractor may have to the General Contractor.
- The Subcontractor’s Employer’s Liability policy may cover the claim on behalf of the Subcontractor depending on whether the Subcontractor is named in the suit. However, Employer’s Liability policies typically exclude coverage for Contractual Liability, which would leave the General Contractor uncovered.
- In all cases, the General Contractor should be cognizant that their (and their Subcontractors’) Umbrella Liability policy will likely exclude losses for Silica. If either the primary General Liability or Employer’s Liability policy does respond to cover the claim, the Umbrella Liability policy may still exclude coverage if the loss is large enough to pierce that layer.
- A Contractor’s Pollution Liability policy is the best avenue to provide coverage for Silica-related losses. In addition to requiring of the Subcontractor, the General Contractor should also purchase this coverage in case the Subcontractor’s limits are exhausted, or the coverage cancels without notice to the General Contractor. These policies are often written on “non-standard” forms, so attention to detail is important when placing this coverage or requiring it of a Subcontractor. These policies can be written to cover the Contractual Liability obligation of the Subcontractor to the General Contractor. Specifically, the General Contractor should ensure that the “insured contract” carve back to the Contractual Liability exclusion closely resembles the standard General Liability carve back. Additionally, the Workers’ Compensation or Employer’s Liability exclusion should be examined to ensure that coverage would not be excluded if a suit is brought by a Subcontractor’s employee.
Vigilance is Key
OSHA is suggesting in its new rule that all parties have a vested interest in maintaining a safe work environment. General Contractors should take an active role in monitoring silica levels at their jobsites while also ensuring that Subcontractors comply with protective measures. Any violations of OSHA’s rule should be addressed immediately upon recognition. To the extent possible, General Contractors should also explore opportunities to transfer risk, either contractually or via an insurance policy. American Global stands ready to assist our customers with insurance and risk management insights necessary to navigate this new normal.
Information for this article relative to the specifics of the new Crystalline Silica Rule was gathered from the Occupational Safety and Health Administration website (www.osha.gov). The information and opinions expressed in this article are of a general nature and should not be interpreted as a coverage position. Each insurance program stands on its own merits and no coverage inferences should be made based on the contents of this article.
About the Author:
Michael Baker is the Vice President for insurance operations at American Global of Pennsylvania where he is responsible for growing the firm’s standing as a construction insurance market leader in the Mid-Atlantic region and beyond. In his fifteen years in the Property & Casualty insurance industry, Michael has developed a reputation for finding creative solutions to the most challenging insurance and risk management problems. Michael has extensive experience managing large, complex insurance programs for customers in the construction, real estate development, and engineering fields. Contact Michael at 610-915-2017 to discuss your construction insurance and risk management needs.