Environmental Liability: Using Insurance As a Tool to Manage Risk

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A Strategic Alliance
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Pollution Liability Using Insurance As a Tool
to Manage Risk

• Denise M. Brinley
• Intercorp, Inc.
• www.intercorpinc.net

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Agenda

• Why consider pollution insurance?
• Pollution exposures
• Pollution insurance
• Pollution claims
• Benefits of pollution insurance

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Why Consider Pollution Insurance?
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Why Consider Pollution Insurance?

• Laws and Regulations

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Federal Legislation Protecting the Environment

• Clean Air Act
• Clean Water Act
• Resource Conservation and Recovery Act
• Superfund (CERCLA)
• Toxic Substances Control Act
• Land Use and Species Protection Laws

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Why Consider Pollution Insurance?

• Laws and Regulations
• Financial Implications
• Absolute pollution exclusion in general liability
  policies
• Losses can be severe
• Disclosure requirements

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Sarbanes-Oxley

• Historical under reporting of environmental
  liabilities

Corporate scandals

USEPA and SEC stepping up enforcement on existing
requirements
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Sarbanes-Oxley

• The end of
• Dont ask - Dont tell

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Sarbanes-Oxley
Corporate Disclosure of Environmental Liabilities
Favorable Impact on Economic Performance
Creates Long Term Financial Stability
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What are your pollution exposures as a
manufacturing facility?
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Pollution Exposures

• Inactive manufacturing facilities
• Active manufacturing facilities
• Property transactions

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Pollution Exposures at Inactive Manufacturing
Facilities
-Has pollution been addressed? -Has it been
reported in financial statements?
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Pollution Exposures at Active Manufacturing
Facilities

• Raw materials
• Waste streams
• Emissions

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Pollution Exposures in Property Transactions

• Known environmental conditions
• Phase I environmental site assessment
• Phase II environmental site assessment
• Unknown environmental conditions

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Dealing with Pollution Exposures in Property
Transactions

• Indemnification clauses
• Escrow accounts

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Gaps!

• What happens if historical contamination that was
  previously UNKNOWN is discovered at a property?
• What happens if the seller becomes insolvent?

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Types of Pollution Insurance
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Pollution Cleanup Cost Cap Insurance(Known
Contamination)

• Coverage to cap the cost of environmental cleanup
• Includes cost overruns for known contamination
• Mitigates uncertainty in forecasting cleanup costs

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Pollution Liability Insurance (Unknown
Contamination)

• What is typically covered?
• Onsite cleanup costs
• Offsite cleanup costs
• Bodily injury (third party)
• Offsite property damage (third party)
• Legal defense expense

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Onsite and Offsite Cleanup Costs
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Onsite and Offsite Cleanup Costs
The cost to clean up pollution
-Of contaminated soil, surface water, groundwater
or other contamination -How clean is clean?
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Bodily Injury in other words, someone sustains
injury from pollution and they sue you
Example Cancer/leukemia clusters
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Third Party Property Damage in other words,
someone elses property is damaged by pollution
you cause, and they sue you
Example Explosion
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Legal defense expense
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Enhancements to Pollution Insurance Policies
Or, what is typically covered by request?
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Enhancements to Pollution Insurance Policies

• Non-Owned Disposal Sites
• (Treatment, Storage, and Disposal Facilities)

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Enhancements to Pollution Insurance Policies

• Underground storage tanks

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Enhancements to Pollution Insurance Policies

• Natural Resource Damage

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Enhancements to Pollution Insurance Policies

• Business interruption
• Diminished property value
• Fines and penalties
• Punitive damages

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Pollution Claims

• Release of fragrance
• at a manufacturing facility

• Air release of a caustic substance
• Damage to paint finish on 800 cars
• 1 million in property damage

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Pollution Claims

• Paint Manufacturer

• Historical air emissions with lead particulates
• Children high blood lead levels
• Properties reduced values
• 6 million settlement

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Pollution Claims
Property Transaction

• Intended redevelopment of property
• Contamination discovered during due diligence
• Additional metals contamination during demolition
• 750,000 in additional cleanup costs

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Benefits (Known Contamination)

• Addresses existing environmental liabilities and
  closes the loop
• Provides balance sheet relief
• All stakeholders are assured the liability has
  been addressed

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Benefits (Unknown Contamination)

• Protects balance sheet
• Ensures long term solvency of company
• Protects reputation
• All stakeholders are assured the liability has
  been addressed

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Benefits(Property Transfer)

• Replaces or supports environmental
  indemnification
• Contract language
• Escrow amount
• Financial strength of indemnitor
• Provides security net
• Historical property use is unclear or unknown
• Due diligence fails
• All stakeholders are assured the liability has
  been addressed

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Questions?
Denise M. Brinley Intercorp, Inc. 800-640-7601 www
.intercorpinc.net