Transcript Commonwealth of Massachusetts

Environmental Professionals
of Connecticut
Environmental Insurance:
What LEPs Need To Know
Pamela Elkow, Robinson & Cole LLP
Michael P. Long, William Gallagher Associates
May 3, 2007
Insurance Can be a Piece of the Risk Management Puzzle
in Contaminated Property Transactions
• Estimate Cleanup Costs And Adjust Price
• Also Estimate Tort Liability Costs
• Escrow Necessary Funds And Hold Until Cleanup Is
Completed
• Indemnification For Any Costs Incurred (May Be Limited –
Time, Amount, Viability)
• Environmental Land Use Restrictions
• Covenants Not to Sue
• Insurance May Be Used To Supplement Or Replace Other
Risk Management Measures
What is the Mission?
On Site,
Known
Conditions?
-RSR
Compliance?
Remediation?
- Cost Cap
Insurance
Offsite, Third
Party Exposure?
Change?
-Clean up Costs
- New Conditions;
Changed Regs;
Change in Use
-Personal Injury
Construction?
- Create
Endorsements
Insured
Contracts
- Create
Endorsement
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.
• In real estate transactions, both Pollution Liability
and Cost Cap policies are sometime used on a
combined basis.
Pollution Liability Basic 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)
• Natural Resource
Damage Claims
• Loss of Use or Loss Of
Rents
• Business Interruption
Due To Contamination
The Process
• Develop Understanding of the Site
• Develop Understanding of Client Goals
• Gather all Relevant Documents
• Contact Broker
• Work Out Confidentiality Arrangements
• Work with Broker to Apply and Seek Indications
• Analyze Language of Policy
Working With Insurance Broker
• Can’t get anywhere with out one!
• Provide independent, objective insurance advice
• Perform risk analysis/program design/placement
servicing/claims management
• Negotiate with insurance carriers on behalf of clients
• A good broker can be a very helpful intermediary
Some Key Definitions
• Insured/Named Insured
• Pollution Conditions
• Claim
• Pollution Conditions
• Environmental Laws
Named Insured
• All parties with ownership, tenancy, management control,
financial interest may be named in a suit regarding
pollution releases at a given property.
• Named Insured Endorsement.
• List all entities that require coverage.
• Broaden the definition of insured to include all related
entities (present, past and future), those with a financial
interest or management control in the property, and those
who have the responsibility to provide insurance for the
property.
Definition of Pollution Conditions
• The Definition of Pollution Conditions should be both
comprehensive and site specific
• Definition of Pollution Conditions Endorsement
• Endorsement should include, if necessary: LLRW, Bacterial Matter
and acts of terrorism
• for example: 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…
Definition of a Claim
• Claim Definition Endorsement
• Customize the coverage for local regulations
• Endorsement should include remedial obligations
under Transfer Act
• May also need to amend definition of
“Environmental Laws”
Disclosed Document Schedule
• Potential disputes may arise regarding document
disclosure
• Disclosed Document Schedule Endorsement
• To avoid claim disputes over disclosure, ensure that all
documents submitted to the carrier become part of the
policy, and carrier agrees that all documents are
deemed disclosed
Pollution Liability Key Coverage –
Insured Contracts
•
Indemnification Contracts
•
Insured Contract Schedule Endorsement
•
Policies typically exclude Contractual Liability, but with
an endorsement such exclusion may be removed or
modified to cover contracts where insureds are assuming
the liabilities of others
•
The Purchase &Sales agreement should be scheduled if it
includes an environmental indemnification
Pollution Liability Key Coverage –
Material Change in Use
• Site redevelopment typically involves changes in use
• Material Change in Use Endorsement
• Exclusion for material change in use of the property that is
different from the “intended” use disclosed in the application
process -- therefore insured needs to carefully define the intended
use.
• Intended use may be residential, commercial, industrial, mixed use
etc. Intended use may determine cleanup levels.
• If the site is being sold, this endorsement should be removed or a
deed restriction established to control future use.
Known Pollution Conditions
• Known Pollution Conditions Endorsement – Generally, “known
conditions” are excluded from cove
• Delineate discrete areas of pollution
• Endorsement may afford coverage for Bodily Injury and
Property Damage, and in rare instances, cleanup of the Known
Conditions
• It is imperative that the site engineer participate in the
negotiation of this endorsement
Known Conditions
• Re-openers or “Burning off” of exclusions
• LEP verifications
• DEP audits
Issues to Negotiate–Future Concerns
• Capital Improvements
– Are there any exclusions or policy modifications that
restrict site development?
– Can you schedule planned improvements?
• Institutional Controls
– What if breached? By whom?
• Natural Resource Damage
– Increasing regulatory activity and interest
Cost Cap
• Cost Cap covers cost overruns for:
• New found contamination during execution of
RAP
• Change orders required by government that are
incurred during project execution during the
policy term
Cost Cap
• Cost Cap Basic
Structure:
• Insured may participate
in Cost Overrun
Insurance
Buffer Layer
Expected Costs
Cleanup Cost Cap Key Coverage –
Definition of Cleanup
• What are the cleanup activities?
• Definition of Remedial Plan endorsements
• Engineer needs to describe in detail all cleanup activities and
associated procurement, mobilization, demobilization ,
operation and maintenance, transportation and disposal to
include in said endorsement
• Endorsements may include changes to the remedial plan
required by regulators which may include change in remedy
Cleanup Cost Cap Key Coverage Definition of Cleanup Costs
•
Coverage may be afforded for
Voluntary Cleanups
•
Amend Definition of Cleanup Costs
Endorsement
•
Endorsement defines all the activities
that the insurance company will pay
in the course of a cleanup to the
extent required by Environmental
Laws or to satisfy a Voluntary
Cleanup.
•
Add definition of a Voluntary
Cleanup Program.
Cleanup Cost Cap Key Coverage –
Transfer of Coverage
• If the insured is unable to complete the cleanup or
sells the property coverage may be transferred to new
entity
• Policy Assignment Endorsement
• Endorsement insures that the policy stays in force
and new entities receive full benefit of any funds
expended by previous insured
Benefits of Environmental Insurance
• Due Diligence exercise and protection against
Catastrophic events
• Helps to Manage Risk Associated With Cost of
Cleanup and Potential Tort Liability
• Removes uncertainty associated with Environmental
Liability
• Worldwide Coverage
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
Pamela Elkow
Robinson & Cole LLP
[email protected]
203-462-7548
Michael Long
William Gallagher Associates
[email protected]
617-204-6710