Brownfield Redevelopment

The Problem. Brownfields are abandoned, idled or underused industrial and commercial properties at which real or perceived contamination interferes with real estate transactions and redevelopment or reuse efforts. They are also referred to as lightly contaminated sites. They are not Superfund sites, but fear of strict, joint and several, and retroactive Superfund liability often prevents them from being sold. Also, owners “mothball” these sites because they’re afraid of what they’ll find and will have to report if they look too closely. Thus, the risks and liabilities don’t get transferred.

The Solution: EIA can:
• Provide integrated environmental risk management services by working as a part of a team with the client, lawyers, engineers in any project.
• Identify and analyze specific risks of concern based on proper technical and legal analysis.
• Structure the transaction. Identify indemnity goals of buyer and/or seller; help in drafting and negotiation of environmental provisions of purchase and remedial agreements
• Negotiate/draft/manuscript environmental insurance policies to support or substitute for contractual indemnities
More sophisticated insurance tools are making it easier to protect your property
Contaminated properties represent a huge investment opportunity… (Click to read full article)
Click here to view the Environmental Coverage Chart
• Suggest alternative risk transfer (ART) mechanisms where appropriate: guaranteed fixed price remediations (GFPR’s), structured settlements, portfolio or pooled insurance.

Contractors & Consultants

The Problem: Contractors and consultants enter into contracts, with clients and sub-contractors, that are the heart and soul of their business. Everyone knows that you should not sign a contract without having a lawyer review it, and an environmental contract should probably be reviewed by an environmental lawyer. Typically, however, only large contractors and consultants (with revenues exceeding $5 million) hire inside or outside counsel to review or draft their contracts. The result? Many small environmental contractors are operating under contracts that are drafted unfavorably from their point of view, or may lack standard risk allocation provisions.

The Solution: EIA’s environmental lawyers can review your contracts for legal sufficiency and for how well they protect you. We can recommend changes in the language of contracts offered to you or can provide you with contracts that you can offer to other parties. In most instances, there will be no charge for such services.
The Solution: EIA can:
• Provide integrated environmental risk management services by working as a part of a team with the client, lawyers, engineers in any project.
• Identify and analyze specific risks of concern based on proper technical and legal analysis.
• Structure the transaction. Identify indemnity goals of buyer and/or seller; help in drafting and negotiation of environmental provisions of purchase and remedial agreements
• Negotiate/draft/manuscript environmental insurance policies to support or substitute for contractual indemnities
More sophisticated insurance tools are making it easier to protect your property
Contaminated properties represent a huge investment opportunity… (Click to read full article)
Click here to view the Environmental Coverage Chart
• Suggest alternative risk transfer (ART) mechanisms where appropriate: guaranteed fixed price remediations (GFPR’s), structured settlements, portfolio or pooled insurance.

Renewable Energy Exposures

The Problem: Renewable energy projects involve potentially overlapping environmental as well as energy related property and liability exposures. The complex set of contracts involved in such projects, including power purchase agreements (PPAs), also determines how risks and exposures will be allocated. In addition, combining renewable energy with brownfields projects/sites may create unique combinations of risks that do not diminish over time. Solar or wind operations may damage engineering controls that are part of a remedy, and PPA’s often have 20 year terms.

The Solution: EIA can:
• Tailor an insurance program integrating manuscripted site pollution liability policies for brownfields risks with and customized property/liability policies issued by the Energy Department of an A+ rated insurance company.
• Provide long-term insurance coverage: SPL policy has institutional/engineering controls coverage and is automatically renewable after 10 years; property and CGL policies have rates locked in for several years at a time.
• Structure the transaction including integrating the environmental contracts and insurance with the overall PPA and related contracts.
• Arrange long term loss control based on monitoring and annual certification of institutional/engineering controls and green building/renewable energy compliance.

Renewable Energy Projects on Contaminated Property: Managing the Risks
Managing brownfields risks requires complex technical and legal analysis. Analyzing risks in renewable energy projects is equally complex. Both projects involve several contracts that must be integrated and made consistent with each other. Combining these types of projects creates a unique combination of risks,including, for sites where institutional/engineering controls are part of the remedy, risks that will not diminish over time.

Indoor Pollution

The Problem: Indoor pollution is the main environmental risk to residential housing. Lead-based paint or friable asbestos in older buildings can result in third party liability bodily injury claims, and mold in existing buildings can cause third party and first party property losses. Coverage for such exposures is available under site pollution liability policies as well as first party property policies but is expensive for one house or one apartment building. In addition, such insurance may be difficult to obtain since many environmental insurance underwriters require expensive surveys (which identify and pinpoint the location of existing LBP or asbestos) and O&M plans as part of the application process.

The Solution: EIA can design and provide portfolio SPL coverage for owners or managers of groups of apartment buildings or condominiums. The SPL policy will cover standard environmental pollution as well lead, asbestos or mold related claims. Portfolio coverage is usually much less expensive than if coverage is provided on a per site basis because the portfolio policy can have an aggregate for all sites. Not all environmental insurers require surveys, but if they do EIA can connect the insured with competent consultants who will perform such surveys or O&M plans at reasonable prices. Such portfolio SPL coverage can be combined with first party property coverage from the same insurer which includes “green building” and mold coverage.

Small Sites Problem

The Problem: One of the thorniest challenges to the success of a contaminated property transactions is known as the “small sites problem.” Cleanup costs charged on a time and materials basis can be uncontrollable and unpredictable. There needs to be some way, for purposes of a transaction, of estimating what those costs will be. Some way of capping them. One method is cleanup cost cap insurance, which pays for cost overruns over an estimated cost. The problem is that this insurance is only available or cost effective for cleanup costs of $2 million or more; the two insurers (Zurich and ACE) who currently provide cleanup cost cap insurance charge a minimum premium of $350,000, so it does not make any sense for the typical brownfields cleanup which is usually under $1 million.

The Solution: This problem can be addressed by a variety of “alternative risk transfer” (ART) products. The most commonly used in recent years has been the guaranteed fixed priced remediation (GFPR) contract; an engineering company basically assumes or indemnifies the buyer or seller of a property for cost overrun liability under such a GFPR. If there are other risks of concern at the site, as is usually the case, e.g., third party claims or cleanup costs from unknown conditions, the GFPR can be accompanied by an SPL policy. In situations with the small sites problem, EIA can recommend engineers who will do GFPR’s. EIA can also assist in integrating the three contracts: SPL policy, GFPR, and purchase and sale agreement (PSA).

Other ART products can solve the small sites problem by grouping together or pooling sites with small cleanup costs so that the total cost exceeds $2 million. These could include portfolio policies for two or more sites owned by the same insured; a risk purchasing groups (RPGs) which allow a group of insureds to purchase a group liabilitypolicy for their small sites from an insurer; and group captives or pooling arrangements, involving self-insurance and sharing of losses among a group under a high deductible or self-inured retention. Pooling arrangements have benefits in addition to aggregating cleanup costs including cost and premium savings and the ability to obtain coverages not available in the general market. Whatever method is used, EIA’s integrated environmental risk management services will ensure that it is implemented effectively.

The Long-Term Stewardship Problem

The Problem: Waste left in place at brownfields sites must be subject to “institutional“ or “engineering controls.” IC’s are legal and administrative restrictions, such as deed restrictions and zoning regulations, on the use of or access to a site. EC’s are physical modification to the site such as caps or fences. Both IC’s and EC’s are designed to reduce or eliminate the potential for exposure to known pollution conditions/waste left in place. The problem is that these IC/EC’s come with their own liabilities because they must be monitored, maintained, and enforced in perpetuity. State laws are a little spotty in whether and how they require owners or operators of sites to monitor and maintain IC/EC’s. As a result, until recently most environmental insurers attached “failure to maintain” exclusions to their SPL policies in situations where IC/EC’s were part of a site remedy. Moreover, even if they would cover such liabilities, the policy periods never extended beyond 10 years.

The Solution: EIA has drafted/manuscripted coverage for IC/EC liabilities which can be attached to an SPL policy of an A+ rated insurer. The endorsement covers liabilities arising out of the failure to maintain IC/EC’s, provided that an approved engineering company:
• Continually monitors the IC/EC’s for actual or potential breaches, alerts the insured and insurer to such breaches, and provides a plan to address the breaches
• Annually certifies that the IC/EC’s are consistent with the remedial plan and continue to be protective of human health and the environment.
The long-term aspect of this problem is addressed by an “automatic renewal” clause in the policy. In other words, if the insurer is in existence at the end of the 10 year period and is still writing SPL insurance, it will renew the policy for another 10 years.

EIA can supplement this insurance coverage with a 20 year structured settlement which will cover the costs of monitoring the IC/EC’s.

More sophisticated insurance tools are making it easier to protect your property.
Contaminated properties represent a huge investment opportunity, but much of it lies untapped because of environmental liability concerns. Anyone who buys property that is actually or potentially contaminated should consider insurance as a risk management option, and they should do so very early in the brownfield transaction process. Two types of insurance policies are now available that provide meaningful and inexpensive coverage to sites that are actually or potentially contaminated: the new pollution liability policy and the cleanup cost cap policy. It’s important to understand these policies and know how to use them most effectively as part of the contaminated-property transaction process. Click to read the full article…

Tailored Insurance Coverage for Post Remedial Risks
Environmental insurance policies have not kept pace with the increasing regulatory focus on post-remedial risk.

Environmental Insurance Agency, Inc.
618 Forest Avenue
Larchmont, NY 10538

Phone: 914-833-5100
Fax: 914-833-5102

Email:
sneuman@hickeysmith.com
www.enviroinsurance.com

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