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Environment
Insurance Coverage's
Environmental Site Protection
policy provides for on-site and off-site coverage for the Insured against
third party liability for bodily injury and property damage (including
defense costs). Remediation costs resulting from both pre-existing and new
pollution conditions at the insured location can also be covered. Multiple
locations can be insured under the same policy, sharing the limits and
reducing average cost. A lender can also have coverage under this policy as
an additional insured.
Unlike
the Lenders Environmental Protection policy which is triggered by default on
the loan and the discovery of a recognized environmental condition, this
policy affords coverage for a recognized environmental condition or a
government mandated cleanup without a default.
Active remediation sites can be covered. Limits up to
$100,000,000 are available and deductibles start at $5,000.
How is
this policy utilized?
This
policy addresses the unique needs of the real estate investor in transaction
and portfolio management. It can be used as a tool to expedite real estate
financing or mergers and acquisitions. It can also be used to take the risk
out of environmentally challenged properties that are otherwise a sound
investment.
Supplemental
coverage is available for transportation, non-owned disposal sites, and
business interruption.
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Lender Environmental
policies address the special needs of banks, lenders, loan originators,
financial institutions and investors that may hold or invest in loans backed
by commercial real estate. These policies provide collateral value protection
in the event of a loan default and the subsequent discovery of a recognized
environmental condition at the covered location during the policy period.
In
the event of the borrower's default and discovery of environmental damage at
the collateral property, the policy reimburses the lender for the
"lesser-of" the unpaid loan amount or remediation costs (Coverage
A) or, following foreclosure, for on-site remediation costs (Coverage B). The
policy also helps to protect the lender against third-party liability claims
arising from pollution incidents on the collateral property (Coverage C).
Coverage
A can be alternatively structured as a "loan balance" coverage such
that the lender would be paid the unpaid loan amount at the time of default
and discovery of environmental damage.
Limits up to $100,000,000 are available and deductibles start
at $5,000. Active remediation sites can be covered.
How is
this policy utilized?
A
bank wants to implement a new program that will:
-
streamline
the environmental due diligence process for loans with real estate as
collateral;
-
offer
a cost-effective alternative to traditional due diligence borne by the
bank's borrowers; and
-
provide
an efficient mechanism for transferring the environmental risks to a
financially secure company.
A customized
due diligence and insurance program can be designed our partnership with the
bank to cover the bank's commercial loan portfolio or to cover each loan
separately.
An
Example of How It Works:
After the program's inception, a loan has an event of default.
The bank's pre-foreclosure due diligence investigation reveals the presence
of environmental contamination from a past dry cleaning operation. In lieu of
foreclosing on the property, the bank makes a claim for the outstanding loan
balance and extra expense associated with the loan. This policy is usually
structured for the “lesser-of” the unpaid loan amount or remediation costs as
mentioned above.
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Environmental
Liability Transfer
programs can provide a solution for companies seeking an exit
from their legacy environmental liabilities or long-term closure obligations.
The scope of a liability transfer can range from a commitment to remediate a
site for a guaranteed fixed price to the outright transfer of the
contaminated asset and its associated liabilities.
How is
this policy used?
A growing number of firms, primarily from the environmental engineering
services sector, are actively pursuing opportunities to help contaminated
property owners resolve liability issues through such transfers.
These
liability outsourcing contracts are supported by comprehensive financial
assurance and insurance programs which can, in some cases, run for 30 years
or more.
Environmental
Liability Transfer programs allow organizations to transfer the responsibility
and management of known contamination issues, large and small, for a single
facility or group of properties. These programs may also transfer third-party
"toxic tort" liability and legal defense costs. In most cases,
ownership and control of the asset are not transferred and organizations can
still realize value from sale or development opportunities.
The
principle benefits of these innovative programs include:
-
Cost
certainty and stakeholder reassurance
-
Creation
of real estate value for non-performing assets
-
Facilitation
of transactions
-
Improved
financial disclosure and accounting treatment of liabilities
Reduced management distraction on non-core operations
- Financial
Specialty's Remediation Cost Cap
policy helps to
eliminate financial uncertainty from environmental remediation projects
by "capping" the costs that an insured would pay for
remediation activities. If the self-insured retention is exhausted in
the course of performing the remediation project, the RCC pays cost overruns
which can occur as a result of increased volumes of: "identified"
pollutants (i.e., those that are the focus of the remediation project),
-
discovery
of unidentified pollutants (i.e., pollutants other than
"identified" pollutants),
-
changes
made by the regulatory authority to the remediation project scope of
work or to the cleanup standard.
The Remediation Cost Cap protection can be complemented with
Environmental Site Protection coverage to "wrap" around the
remediation project.
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