themselves from suits arising from the
threat of contamination.
Property owners also must spend the
time and money to figure out the source
of the contamination, then implement a
solution that can sometimes take many
years to complete. Environmental insurance policies can be an effective tool for
concerned parties to manage the risks
while protecting their assets as the real
estate market recovers.
Many city officials are moving forward with redevelopment plans, which
include the demolition and removal of
abandoned structures. The contractors
hired to perform the work will come into
contact with many of these environmental exposures during the course of debris
removal, site preparation, demolition,
grading, landscaping, and other activities.
A contractors’ pollution liability (CPL)
insurance policy protects contractors if a
pollution condition occurs as a result of
their work or work performed on their
behalf (i.e., subcontractors). Defense
costs are also covered under this type of
policy. For example, if a demolition contractor causes a release of asbestos fibers,
causing unsafe air quality conditions, an
injured third party could sue. An excavation contractor could unknowingly
unearth an abandoned storage tank and
puncture it, causing a leak and subsequent damage to a neighboring property.
Contractors do have options available
to them to adequately protect themselves
from any resulting claims or lawsuits,
as a CPL policy provides protection for
both ongoing and completed operations
after the contractor has finished work on
the project. Coverage can be purchased
on a claims-made or occurrence basis
and be tailored for specific projects/con-tracts. A CPL policy addresses potential
contaminants such as asbestos, lead,
silica and mold. Additional features of a
CPL program may include coverage for
over-the-road spills during transit and
disposal of waste at a non-owned location, such as a landfill. Limits of liability
generally start at $500,000 and can go
upward to $50 million.
Environmental insurance also ex-
ists for the property owner or manager,
including banks or other financial in-
stitutions that have taken over vacant
properties via foreclosure. Occupied
buildings have various environmental
exposures, but empty structures with no
supervision or maintenance can turn a
small issue into a multi-million-dollar
remediation project.
Site pollution, or pollution legal liability, is a policy crafted to cover both
third- and first-party claims, including
defense costs, resulting from pollution
conditions at, on, under, or emanating
from scheduled locations (in this instance, vacant properties). Variations of
this policy include secured creditor environmental insurance and lender liability, which protect financial institutions
and borrowers throughout the buying
and selling process. Many policies are
crafted especially for commercial property portfolios, and there is no exclusion
for vacant properties.
These policies can be tailored to cover
environmental hazards including mold,
storage tanks, transportation pollution,
illicit abandonment, in-place asbestos
and lead, soil/groundwater contamination, air and noise pollution, and waste
disposal to non-owned locations. Business interruption image restoration
may also be purchased and some policies today even assist with green standards compliance.
Most policies include coverage for
natural resources damages within the
policy form itself. Coverage is writ-
ten on a claims-made basis and policy
terms generally vary from 1 to 10 years
in length. Policy terms can be built to fit
the needs of the specific property owner,
lender requirements and the risks as-
sociated with that particular location.
Much like the CPL policy, liability limits
can range from $500,000 to beyond $50
million, depending on the complexity of
the property schedule and any transac-
tional requirements.
Vacant properties will remain a large
part of real estate landscape for the next
several years. Focusing on the potential
issue now will lend to a more successful
outcome as our economy continues to recover. When at all possible, property owners, municipalities, and financial institutions will need to best provide protection
for these properties as well as adjacent
property owners or tenants. Supervision,
security, maintenance, and environmental awareness—including the purchase of
adequate insurance—will manage challenges as well as create proactive solutions
for redevelopment in the future.
Amanda Duncan is president of
PartnerOne Environmental, a program
administrator providing environmental
coverages for small to middle market
contractors, consultants, and property
owners and managers. She is responsible
for developing, implementing, and
expanding inhouse underwriting
programs with several environmental
carriers for PartnerOne Environmental.
Contact her at aduncan@p1enviro.com.
Environmental
insurance policies can
be an effective tool
for concerned parties
to manage the risks
while protecting their
assets as the real estate
market recovers.
