Insurers Reach Out to Brownfields Market

January 1, 2001

At the state and federal levels, efforts are under way to remove liability barriers to the redevelopment of brownfields, but if you have a deal that can’t wait until lawmakers act, there’s good news for you.

Environmental liability insurance policies have been around for decades, but historically the coverage of such policies has been extremely expensive and largely inadequate for buyers and sellers. The result has been widespread hesitation on the part of buyers to get tangled up in deals involving contaminated properties.

Even the spate of state brownfields laws enacted in recent years hasn’t made a decisive difference. The laws have failed to tackle one of the main concerns of buyers and sellers--the specter of third-party liability exposure for bodily injury in toxic tort lawsuits and property damage claims.

Over the past few years, however, the market for environmental liability insurance has improved, and it’s now possible for buyers to get coverage at a reasonable cost.

What’s behind the change? For starters, the environmental consulting and contracting industry has begun working more closely with insurers and environmental lawyers. Together they’ve developed products that package the expertise of environmental contractors with the environmental policies offered by insurance carriers to provide complete liability transfer programs.

Under such programs, an owner, buyer, or seller transfers the liability associated with preexisting environmental conditions to a contractor-insurance carrier team and, for a fixed price, receives liability protection and remediation services.

Through the packages, buyers and sellers can get much-improved versions of standard pollution legal liability policies, known as PLL policies, which historically have been one of the main sources of liability coverage.

The packages also include much-improved remediation cost cap policies, also known as stop loss policies. They fill the cost gap for owners undertaking remediation who find the cleanup costs greater than estimated.

When these two types of policies--PLL and cost cap—are combined, buyers and sellers can get comprehensive coverage applicable to both liability transfers and site redevelopment. The cost cap policies are used to fix the remediation costs, and the PLL policies are used to protect against first- and third-party claims.

At the same time, a lender-oriented policy has emerged. These policies protect lenders from loss of collateral value due to environmental impairment or the inability of borrowers to repay their loans because of environmental problems. They also cover liability for environmental conditions of foreclosed properties.

What’s more, the cost of this environmental insurance is reasonable. In the past five years, the market has softened, greatly reducing the cost of coverage and extending the terms. Insured amounts per property can generally range from $1 million to $50 million, but coverage as high as $70 million is available. Deductibles range from $10,000 to $25,000. Policies generally are written on a “claims made” basis, and periods commonly range from one to 30 years.

Of course, even in this new environment, without careful scrutiny, it’s possible to buy a policy that offers insufficient coverage. It’s also possible to buy unnecessary coverage. Each policy should be individually written, ensuring coverage of precisely the type and scope you need.

Andrew N. Davis is a partner at LeBoeuf, Lamb, Greene & MacRae L.L.P., Hartford, Conn.

James A. Thompson Jr. is a partner at LeBoeuf, Lamb, Greene & MacRae L.L.P., Hartford, Conn.

Kevin R. Murray is a partner at LeBoeuf, Lamb, Greene & MacRae L.L.P., Salt Lake City.

Cynthia C. Retallick is an associate at LeBoeuf, Lamb, Greene & MacRae L.L.P., Hartford, Conn.

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