Title: Environmental Professionals of Connecticut Environmental Insurance: What LEPs Need To Know Pamela Elkow, Robinson
1Environmental Professionals of Connecticut
Environmental Insurance What LEPs Need To
KnowPamela Elkow, Robinson Cole LLPMichael
P. Long, William Gallagher AssociatesMay 3, 2007
2Insurance 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
3What is the Mission?
On Site, Known Conditions?
Offsite, Third Party Exposure?
Change?
- New Conditions Changed Regs Change in Use
- Clean up Costs
- Personal Injury
Insured Contracts
Remediation?
Construction?
- Cost Cap Insurance
- Create Endorsements
- Create Endorsement
4Environmental 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.
5Pollution 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
6Pollution 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
7The 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
8Working With Insurance Broker
- Cant 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
9Some Key Definitions
- Insured/Named Insured
- Pollution Conditions
- Claim
- Pollution Conditions
- Environmental Laws
10Named 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.
11Definition 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
12Definition 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
13Disclosed 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
14Pollution 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
15Pollution 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.
16Known 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
17Known Conditions
- Re-openers or Burning off of exclusions
- LEP verifications
- DEP audits
18Issues to NegotiateFuture 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
19Cost 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
20Cost Cap
- Cost Cap Basic Structure
- Insured may participate in Cost Overrun
21Cleanup 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
22Cleanup 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.
23Cleanup 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
24Benefits 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
25Pollution 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
26- Pamela Elkow
- Robinson Cole LLP
- pelkow_at_rc.com
- 203-462-7548
- Michael Long
- William Gallagher Associates
- mlong_at_wgains.com
- 617-204-6710