INSURANCE

A limited number of insurance companies now issue specialized liability policies offering protection against specified environmental risks. These policies fall into the following classes: pollution legal liability insurance, property transfer insurance, contaminated property development insurance; "cleanup capB"‚ or "stop loss" or "cost containment" insurance; closure or post closure insurance; secured creditor insurance; contractor's pollution liability and errors and omissions insurance ; and finite risk coverage. With the exception of contractor's pollution liability coverage, all of the foregoing types of insurance coverage are written on a claims-made basis only.

'Understand the possible concerns relating to environmental insurance, including premiums are paid up front, not annually like a typical general liability policy; there is no guarantee that the insurance company will remain in existence; there is little case law or claims experience for these new types of environmental liability policies; the facts of the particular transaction may not warrant coverage or may cause the policy premiums to be cost prohibitive; and the coverage may not be precisely as described by the broker, agent, or insurer promotional materials.

The second basic category of insurance policies highly relevant to brown field redevelopers is referred to here as pollution liability. The coverage's included under this label have been given various policy names by different companies including pollution legal liability, pollution and remediation legal liability, Brown fields restoration, environmental response compensation and liability. Commercial property redevelopment, real estate pollution, real estate environmental liability and other labels. Note that some insurance carriers have more than one pollution liability policy relevant to brown field redevelopers. While limited forms of pollution liability products have been in existence for over twenty years, the scope of coverage's in the policies developed in the last three to four years has been greatly expanded.

Pollution liability policies provide protection for costs that result from a pollution condition that can be preexisting.

The risks covered may be categorized into three basic components:

1. The first consists of protection for the costs of third party claims arising from a pollution condition.
2. The second provides protection for first party cleanup costs and other expenses related to a pollution problem.
3. The final component involves legal defense costs associated with the first two components.

Each of these elements requires a brief explanation:

• Third party claims refer to assertions, such as lawsuits, alleging legal responsibility for damage, third parties may include private parties and government entities enforcing environmental regulations. The damages may take place onsite or offsite. Claims may be made for bodily injury, property damage caused by contaminants, offsite remediation and other expenses related to a pollution condition such as business interruptions during a cleanup.
• First party cleanup cost coverages entail protection for the insured against the expense of onsite remediation resulting from pollution. Remediation may be for pre-existing but newly discovered contaminants that were not addressed in an initial planned cleanup and for cleanup of pollution arising from ongoing operations. Also included is what many refer to as re-opener coverage. This coverage insures for the costs of additional remediation ordered by environmental regulators or compelled by law after a cleanup has been completed and a state agency has provided an assurance such as a "No Further Action" letter. As noted, such assurances generally indicate that further remediation was not required at the time the assurance was written. However, they always include a statement that reserves the right of the agency to re-open a cleanup if circumstances at the site change or if changes in environmental regulations mandate cleanup levels that are more stringent than those employed in the initial remediation.
• Legal defense costs may be associated with the first two elements. These expenses can be substantial, even if the insured is not a major contributor of contamination on a site, in part because of the imposition of joint and several liability and in part because of the complex mix of federal, state, and local regulatory oversight that applies to any one property. The policies generally indicate that the carrier has both the right and the duty to defend the insured. The costs of such defense are included in the policy dollar limits.

A pollution incident may occur as a result of contractor's operations either during remediation or development works. These two stages are potentially hazardous as contaminants will inevitably be disturbed and may travel. It may take some time for an incident of this nature to come to light. Contract Pollution Liability policies are designed to cover these risks.

Remediation cost overrun or cost cap insurance policies are written to correspond with specific remedial action plans and their expected costs. Once the expected costs plus a self-insured retention are exceeded, the insurer pays all additional costs up to the limits of the policies.

Alternative risk transfer is a collective term for more recent risk management methods. The most popular forms are self insurance, finite concepts and the transfer of insurance risks to the capital market.