Environmental Insurance

Environmental insurance is an important risk management tool used in connection with the purchase, sale, financing, and development of sites with known or potential historic contamination. It can frequently assist the parties to a transaction to bridge the "risk gap" in circumstances where due diligence and standard contract indemnities and representations are inadequate. It is also used in managing the environmental risks associated with ongoing operations at businesses that handle hazardous substances or other potentially polluting materials.

The most common form of environmental insurance, pollution legal liability coverage, can provide insureds with coverage for on-site and off-site cleanup costs and third party claims for bodily injury and property damage arising from existing and new pollution conditions. As such, our real estate developer clients frequently look to this coverage as a means to manage the risks associated with historic contamination at brownfield properties they acquire to redevelop. In addition, clients with ongoing operations may acquire this type of coverage to insure against the possibility of new pollution associated with their business activities.

A second type of environmental insurance, remediation cost cap coverage, can play an important role in managing the risk of unexpected cost overruns for the cleanup of known conditions. Such costs may arise from higher than expected remediation expenses, regulatory changes, or the discovery of new or more contamination.

Lenders often look to lender environmental coverage (or inclusion as an additional insured on the borrower's pollution legal liability coverage) to address lender concerns such as protecting the value of their security interests and providing the lender itself with coverage against contamination claims. Many brownfield transactions cannot be financed without such lender pollution liability coverage.

In addition, various combinations of pollution legal liability, remediation cost cap, and lender liability policies may be tailored to specific circumstances. For example, finite risk coverage is a specialized insurance product through which the insured pays the carrier the present value of the estimated cleanup cost for known conditions, along with a risk premium for liability coverage and cost overruns. In return, the carrier assumes responsibility for the expected cleanup cost, cost overruns, and unknown conditions.

Our attorneys regularly deal with several environmental specialty insurance brokers and all of the major carriers who provide these types of coverages. We assist clients in identifying the appropriate insurance products to facilitate a particular transaction or protect an ongoing business, evaluating quotes provided by carriers, and negotiating appropriate policy and endorsement language to enhance the terms of the policies and fit site and deal conditions.

Finally, environmental coverage may sometimes be available under older forms of comprehensive general liability policies issued before the various pollution exclusions were instituted. We assist clients in making claims and recovering under those policies, as well as under current environmental insurance policies, and have successfully litigated these claims as described on our insurance litigation practice page.

The following are examples of representative matters our lawyers have handled for clients who need to place various forms of environmental liability coverage:

• MGKF assisted a developer client in selecting an insurance carrier and negotiating the terms of pollution legal liability and contractors pollution liability policies to manage environmental risks for itself and the municipality in the mixed-use redevelopment of approximately 363 acres in the New Jersey Pinelands. The project includes remediation of buried demolition debris, as well as closure and post-closure monitoring of a former municipal landfill.
• The firm represented another developer, who aggregated multiple former industrial sites to develop a transit village mixed use project, in securing pollution legal liability policies for each parcel to help manage its risks and those of the investors and lenders involved in the project. We assisted the client in guiding the underwriters through multiple environmental reports for the project, and in negotiating the terms of the endorsements to these policies.
• We represented a Fortune 100 company in negotiating the terms of an environmental insurance policy, with multi-million dollar policy premiums, covering environmental liabilities arising from known and unknown environmental conditions at all divested properties. This included negotiating expanded coverage language to apply to "threatened" releases in addition to "actual" releases, extending coverage to apply to medical monitoring and emotional distress claims and claims for "stigma" damages to property, and expanding the insurer's obligation to defend environmental claims.
• We secured environmental insurance for a client constructing a new residential development on a brownfield adjacent to, and impacted by groundwater from, a neighboring Superfund Site. Policy coverages addressed potential claims for natural resource damages, diminution in property value, remediation of unknown conditions, third party bodily injury and property damage, and construction delays related to site conditions.