Environmental Insurance
(By: Michael Lang, Ph.D., Michigan State University)
The insurance industry is beginning to provide environmental insurance
that offers financial protection against the risks associated with
ongoing operations, site remediation, and property transfers. The
major insurance companies in the environmental field include AIG,
Zurich, ECS (Reliance), Kemper and United Capitol. Because each
case may be unique, it is recommended to seek the assistance of
experienced professionals.
In general, Environmental Insurance may cover one
of the following three areas: 1) environmental risks associated
with on-going operations; 2) environmental risks associated with
site remediation; or 3) environmental risks associated with property
transfers.
1) Environmental Risks Associated with On-going Operations
Insurance for basic business operations:Policy provides coverage
for general risks of the business place (e.g., workman's compensation
in the event of an on-the-job accident).
Insurance for catastrophic accidents: Insurance covers a firm
in the event of a significant accident (e.g., fire, major spill).
Insurance for non-catastrophic environmental impairment: Policy
covers property damage claims that result from environmental impairment
at a covered location. This policy may be appropriate for helping
businesses insure their property and thereby improve their access
to capital. Environmental impairment insurance was very expensive
in the past, but prices have come down significantly recently.
Hazardous releases from disposal sites used by the insured. Policy
protects firms against litigation associated with contamination
at disposal sites.
2) Environmental Risks Associated with Site Remediation
Errors and omissions policies for remediation contractors. Also
known as professional liability policy or an "E&O", this policy
is specifically directed at environmental consultants, engineers
and laboratories. Policies cover a wide range of risks associated
with mistakes made during remediation activities.
Stop loss policies for cleanup costs. Stop Loss Insurance protects
an insured against a cleanup project that runs substantially over
budget. These policies insure the purchaser against cost-overruns
on the remediation of a site. By allowing prospective purchasers
and lenders to bound the cost of remediation, these policies make
contaminated properties much easier to transfer and to finance.
These policies maybe referred to as Cleanup Cost Cap or Finite
Risk policy.
3) Environmental Risks Associated with Property Transfers
Insurance for site transfer. Policy provides coverage for risks
from contamination that is discovered subsequent to the transfer
of the property. Such coverage commonly lasts for up to five years,
although a few policies have been written for up to ten years.
Insurance to protect lenders from environmental risks. If a
borrower defaults on a loan, the lender runs the risk of foreclosing
on a property with undiscovered contamination. This policy protects
the lender from a decrease in the value of property it has taken
as collateral on a loan. The insurer is responsible for assessing
a property (to be taken as collateral) for existing contamination
and environmental risks. Lenders can make a claim on the policy
if both of the following conditions apply: 1) the loan is in default
(e.g., 90 days past due); and 2) undiscovered contamination is
found on the site.
Property Transfer Insurance. This policy protects an insured
against on-site cleanup costs of unknown, pre-existing or new
conditions, and against third-party claims for off-site cleanup
costs that result from on-site pollution. These policies maybe
referred to as a site-specific pollution liability policy, the
"pollution legal liability policy" ("PLL") or the "environmental
impairment liability policy" ("EIL").
Site-Specific Insurance. Policies designed specifically for the
real estate transaction. These products can include a combination
of the above policies and/or include a single insured party or
insure all parties involved. These policies are becoming more
popular because they can be part of the real estate transaction
and limit the liability for all parties.
For more information
Brownfields
Money Matters - EPA information on federal funds available for
brownfields cleanup.
Public
and Private Financing for Brownfield Redevelopment 
South and Southwest HSRC's web page provides useful information
about federal and private funding.
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