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WILLIAM GALLAGHER ASSOCIATES
NEWMOA
Workshop on Environmental
Insurance & Brownfields
Michael P. Long
Senior Vice President
March 21 and 22, 2007
The Duties of an Insurance Broker
Provide independent, objective insurance advice
Perform risk analysis/program design/placement
servicing/claims management
Leverage relationships with insurance carriers on
behalf of clients
ENVIRONMENTAL LIABILITIES
Potential Liability Comprehensive Environmental
Response, Compensation, and Liability Act (CERCLA)
issues of previously owned or newly acquired plants
that generated Hazardous Waste
Potential Liability Under State Environmental Law
Potential Liability under the Resource Conservation
and Recovery Act (RCRA) or similar state law .
CERCLA LIABILITIES and TOXIC TORTS
Cleanup Costs
Natural Resource Damage Claims
Potential Liability for Non-Owned Disposal Sites
Third Party Claims for Bodily Injury and Property
Damage
CURRENT OPERATIONS AND RCRA
Gradual Pollution Releases
Catastrophic events
Improper waste disposal
ENVIRONMENTAL LIABILITIES
Does the property have environmental liabilities ?
How do we deal with them ?
MEASURES TO ADDRESS LIABILITY
IN CONTAMINATED PROPERTY TRANSACTIONS
Estimate Cleanup Costs And Adjust Price
Also Estimate Tort Liability Costs
Escrow Necessary Funds And Hold Until Cleanup Is Completed
Seller Agrees To Indemnify Buyer For Any Costs Incurred (May
Be Limited With Respect To Time And Amount)
Insurance May Be Used To Supplement Or Replace Other Risk
Management Measures
Environmental Insurance Defined
Pollution Legal liability insurance offers protection against
potential liability for site cleanup and third party claims
related to pollution conditions.
Cost Cap insurance is used to insure against cost overruns
related to site cleanup projects .
On Brownfields projects, both Pollution Liability and Cost
Cap policies are often used on a combined basis. These
coverages can sometimes involve finite risk components.
POLLUTION INSURANCE CARRIERS
Carriers ACE , AIG , Chubb , Zurich, XL
$50 million capacity per site
10 year terms
Only ACE , AIG , ZURICH and XL offer Cost Cap
INSURANCE SOLUTIONS
POLICIES
Pollution Legal Liability
Cost Cap
Blended Finite Risk
POLLUTION LIABILITY COVERAGE
Cleanup – On-site, Off-site
Bodily Injury – On-site, Off-site
Property Damage – On-site, Off-site
Legal Defense Expense
Covers Current and Past Operations
POLLUTION LIABILITY COVERAGE
Non-owned disposal sites
Re-openers Under Regulatory Order
Changes In Regulations That Require Additional Remediation
Discovery of New Contaminants (Onsite/offsite)
Third Party Claims for Bodily Injury, Property Damage or Cleanup
Costs (Onsite/offsite)
Natural Resource Damage Claims
Loss of Use or Loss Of Rents
Business Interruption Due To Contamination
POLLUTION LIABILITY COVERAGE
Terrorism Coverage – CGL/Property programs - no coverage for
nuclear, biological, radiological or chemical attacks.
Buy back option on pollution policies
Full Limit
Additional premium
TRIA and Non TRIA
Terrorism Endorsement
Change Definition of Pollution Conditions
Pollution Conditions means the discharge, dispersal, release or escape of any solid, liquid,
gaseous or thermal irritant or contaminant, including, but not limited to, smoke, vapors, soot,
fumes, acids, alkalis, toxic chemicals, medical waste, waste materials, and bacterial matter which
is released as a result of an act of terrorism, viruses or other bioterrorist agents of any
kind….
Pollution Liability Common Exclusions
Asbestos, or asbestos containing materials, applied to any
building or other structure.
Contractual Liability
Employers Liability
Criminal Fines and Penalties
Insured’s Internal Expenses
Intentional Non-Compliance
Known Conditions not reported
Underground Storage Tanks that are known but not reported.
Insured vs. Insured
Transportation
COST CAP
Cost Cap covers cost overruns for:
New found contamination during execution of RAP
Change orders required by government that are incurred during
the policy term
COST CAP
Cost Cap Basic Structure:
Insured may participate in Cost Overrun
Insurance
Buffer Layer
Expected Costs
LIABILITY BUY–OUT USING FINITE RISK
CONTRACT
Contractor may assume Contractual and Legal
Liability at Fixed Price
Risk Finance and Risk Transfer Insurance
Custom Designed Structure and Endorsements
FINITE RISK
Finite insurance contracts fund known or anticipated
claims/expenses over a period of time.
Typical insureds are companies who have
environmental liabilities from past operations
Offset environmental liabilities from the balance sheet
by contract transfer to an insurance program
BLENDED FINITE PROGRAM
Cost Cap and
Pollution
Liability
Insurance
Unexpected
Claims/Costs
D
O
L
L
A
R
S
Remediation
Project
Costs/Funded
O&M
Monitoring
Costs/Funded
TIME
Finite Risk
BENEFITS OF ENVIRONMENTAL INSURANCE
Due Diligence exercise and protection against
Catastrophic events
Quantifies Cost of Cleanup and potential Tort Liability
Removes uncertainty associated with Environmental
Liability
Worldwide Coverage
Mike Long BIO
Mike Long has over 25 years experience in the hazardous waste and
wastewater treatment sectors of the environmental industry. He has
extensive experience in the areas of site cleanup, hazardous waste
storage and disposal, environmental regulation and insurance. He works
exclusively on analyzing environmental risks of company operations,
mergers and acquisitions and real estate transactions. Mr. Long received
his B.A. from the University of California, Berkeley, and has a Masters
Degree from the John F. Kennedy School of Government, at Harvard
University. Mike Long can be reached at (617) 204-6710 or email him at
[email protected].