Environmental Professionals of Connecticut Environmental Insurance: What LEPs Need To Know Pamela Elkow, Robinson

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Environmental Professionals of Connecticut
Environmental Insurance What LEPs Need To
KnowPamela Elkow, Robinson Cole LLPMichael
P. Long, William Gallagher AssociatesMay 3, 2007
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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

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What is the Mission?
On Site, Known Conditions?
Offsite, Third Party Exposure?
Change?
- New Conditions Changed Regs Change in Use

• Clean up Costs
• Personal Injury

• RSR Compliance?

Insured Contracts
Remediation?
Construction?
- Cost Cap Insurance
- Create Endorsements
- Create Endorsement
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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.

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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

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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

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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

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Working 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

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Some Key Definitions

• Insured/Named Insured
• Pollution Conditions
• Claim
• Pollution Conditions
• Environmental Laws

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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.

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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

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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

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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

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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

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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.

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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

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Known Conditions

• Re-openers or Burning off of exclusions
• LEP verifications
• DEP audits

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Issues 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

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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

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Cost Cap

• Cost Cap Basic Structure
• Insured may participate in Cost Overrun

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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

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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.

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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

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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

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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

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• Pamela Elkow
• Robinson Cole LLP
• pelkow_at_rc.com
• 203-462-7548
• Michael Long
• William Gallagher Associates
• mlong_at_wgains.com
• 617-204-6710