Insurance Alternatives for Brownfields DevelopmentFall 1996
A number of new insurance vehicles have been developed to reduce risk on buying and selling contaminated property. These new policies include:
- Pollution Legal Liability Policies. These policies provide coverage for third-party as well as first-party claims for bodily injury, property damage, and cleanup costs relating to contamination events, and also provide defense costs. These policies are ideally suited for property that is cleaned up for known contamination but there remains a risk that latent contamination still exists at the property.
- Cleanup Cost Cap Policies. This new insurance vehicle provides coverage for cleanup costs that exceed a range of estimated costs for cleanup that is known to be required for contaminated property. In general, this policy may provide additional insurance for specifically identified and authorized cleanup technology for contamination known to exist. This policy is qualified to cover those situations where cleanup for the property is known to be required, but there is no guarantee that the cost of implementing the cleanup will not exceed the estimated costs.
- Post-Remediation Liability Insurance. This new insurance policy provides coverage for costs up to designated policy limits for additional cleanup work that is directed by a governmental authority. This insurance vehicle exists for a term certain of two or three years. This policy is suited for those sites where regulatory agencies have approved a site closure but reserve the right to require additional cleanup in the future as a result of the implementation of new cleanup standards.
- Environmental Remediation Insurance. This policy is more limited than pollution legal liability, in that its coverage is limited to cleanup costs for on-site and off-site contamination. However, it does not provide liability coverage for bodily injury or property damage resulting from contamination. This policy generally provides more affordable premiums and is suited for a purchaser of contaminated property who is otherwise reluctant to purchase property because of concerns regarding cleanup costs from latent contamination.
- Contractors’ Pollution Liability. This insurance vehicle provides coverage for contractors to cover the exclusion which otherwise exists for pollution under commercial general liability policies. This policy provides coverage for bodily injury, property damage, and cleanup costs as a result of pollution caused by the contractor on the client’s property. This policy is especially attractive for development which must occur in a very defined way on known contaminated property, and covers liability for the contractor in the event construction does not occur consistent with agency approval authorized for construction on contaminated property.
- Professional Liability with Pollution Coverage. This insurance vehicle affords coverage for professionals’ liability arising from pollution due to the negligent act of design professionals such as architects or engineers. This policy affords coverage for contractors who follow the cleanup design, but the design is ineffective and fails to accomplish the cleanup goals for which it was intended.
There are at least three insurance markets for some or all of these new insurance policies. AIG, Zurich, and Reliance are three companies that are active in these insurance markets. The availability of these policies should not be overlooked when parties are attempting to structure transactions involving contaminated property and desire to reduce risks of pollution liability for purchasers and/or sellers.