Tag: Real Estate

  • Real Estate Owners & Developers 

    What is a Pollutant? 

    Any material, substance, liquid, product, etc… which is introduced into an environment for other than its intended use / purpose. Fresh water, cheese, and milk have all been classified as pollutants by Insurance Carriers under various circumstances. What pollutants are impacting your operation?

    Environmental Exposures Impacting Real Estate Owners and Developers 

    May include, but are not limited to;  Pollution from neighboring properties migrating onto yours, i.e. PFAS, Glyphosate, petroleum…;  Legionella / mold;  Storm water runoff;  Environmental cleanup and associated liabilities created after a fire is put out;  Vapor Intrusion;  Historical contamination from agriculture, mining, lagoons, landfills, manufacturing, scrap yards…;  Natural resource damages; Easements that cross the property which may leak or spill hazardous materials;  Leaks from elevator hydraulic fluid storage tanks;  Impacting sensitive areas such as wetlands or endangered species;  Corroded wastewater and storm water sewers;  Excavation through and spreading of unknown preexisting contaminated soil;  Impacting groundwater from drilling and excavation work (i.e. cross contamination of aquifers, etc.);  Old and/or unknown leaking underground storage tanks;  Impacting underground utilities during construction;  Collapse and/or or explosion during and after construction;  No auditing of waste handling and disposal companies;  Tenants using or storing environmentally sensitive materials, chemicals, waste….;  Spill of oils/fuels/chemicals brought onsite;  Vandalism;  Sick building syndrome;  Asbestos;  Lead;  loading and unloading products/materials from tucks, rail road, barges, aircraft over unsealed ground;  Past/present use of septic systems;  Above ground or underground storage tanks;  Adverse reactions and interactions of chemical compounds that accidentally commingle during a fire;  Wastewaters generated from human septage;  Janitorial cleaning compounds;  No emergency and spill control plans;  nuisance odors;  Illegal dumping or burial of hazardous materials;  Illicit abandonment;  Brownfields….

    Environmental Loss Examples 

    1. Several office employees became ill from Legionella.  The cause of the Legionella was the improper sealing for the ducts during the installation of a new HVAC unit, which allowed condensation to build up.  The employees sued the property owner and the contractor.
    2. A warehouse housing a variety of materials caught on fire.  Hazardous materials caught on fire allowing vapors to impact neighbors and contaminated the ground and ground water.  Residents filed suits for bodily injury from inhalation of toxic vapors, cost for citizens suits and remediation exceeded $500,000.
    3. A real estate developer placed a new building on the site of a former parking lot. During excavation, petroleum hydrocarbon contamination was discovered.  Cleanup costs exceeded $700,000. 
    4. A real estate investment trust (REIT) owned several parcels of vacant land in a remote area. When the owner and contractor visited the site to begin construction, they discovered that several piles of unidentified waste had been illegally dumped on the property. The owner had the piles tested, at a cost of several thousand dollars. The piles were determined to contain hazardous waste, and the owner’s cost to dispose of it exceeded $250,000. 
    5. A real estate limited partnership acquired property previously used for farming on which they planned to build a mall. The firm hired a consultant to conduct a Phase I Environmental Assessment. The property was determined to be “clean.” However, when excavation for the mall began, 100 drums of buried pesticides and herbicides were unearthed. The chemicals contaminated the soil and had to be removed at the firm’s expense. Remediation and drum disposal costs exceeded $750,000 
    6. An environmental consultant performed a phase I site assessment at a site that had been previously used for industrial purposes.  The consultant submitted a report saying that negligible contamination had been found.  The property was subsequently sold.  During excavation an unregistered underground storage tank was discovered on the site that had been leaking.  The property developer sued the consultant for $1.2 million for remediation expenses, lost profits, and diminution in value. 
    7. An excavation/grading contractor unknowingly spread petroleum-contaminated soil across a project site during fill operations.  The contractor and property owner were named in a lawsuit for exacerbating the extent of contamination. After lengthy deliberations, the contractor and property owner were eventually removed from the lawsuit, however, they had invested $250,000 in defense. 
    8. An excavation contractor was subject to cleanup costs and business interruption expenses in excess of $500,000 when they ruptured and unmarked petroleum pipeline.  The contractor was forced out of business, so the property owner had to pay the bill.
    9. While clearing a construction site for a new shopping mall, the building contractor followed routine procedure by hauling construction debris to a local landfill. Later, when neighbors close to the landfill complained about a strange odor, it was discovered that the debris contained hazardous materials. The municipality sued the developer for clean-up costs, which the court awarded in the amount of $1.2 million.
    10. While excavating for a foundation, an unknown underground storage tank containing oil was ruptured. Hundreds of gallons poured out before the rupture was closed. The entire street and neighborhood lots were covered. Settlement costs paid by the developer to cover third-party claims for bodily injury, property damage and clean-up totaled $5 million.
    11. A real estate developer completed a subdivision.  Shortly after completion, small sinkholes began to appear in the development, soon giving up all kinds of debris. Residents feared the debris could extend underneath some of the homes. Homeowners filed a lawsuit against the contractor/developer. Because the contractor could not identify the owner of the debris, they were forced to clean it up at a cost exceeding $1 million.
    12. A HVAC contractor was hired to upgrade an office buildings heating system. While working in the building, the contractor failed to vent the system properly, causing a release of carbon monoxide. Building occupants complaining of headaches and nausea were rushed to the local hospital. As a result, several bodily injury suits were filed against the building owner in excess of $1,000,000. 
    13. The concrete secondary containment of a 10,000-gallon diesel aboveground storage tank was cracked. A release from the tank spilled 8,000 gallons into the containment. The diesel seeped into the underlying soils and required costly excavation and removal. The total cost for investigation, removal and disposal exceeded $320,000.
    14. A real estate owner hired an electrical contractor to upgrade a buildings electrical system.  During trenching operations, a backhoe hit a natural gas pipeline causing an explosion. Third parties filed bodily injury claims against the contractor, as well as the property owner whose building was destroyed in the explosion. Claims exceeded $2.5 million. 
    15. A dry cleaner leased commercial space from a property owner.  PCE a dry cleaning chemical was detected in soil and groundwater.  The dry cleaner was forced out of business and the property owner paid $940,000 for investigation, remediation, defense and third party bodily injury and property damage claims.   
    16. A commercial real estate owner was subject to defense costs exceeding $25,000, in addition to property damage and bodily injury claims exceeding $400,000 from a neighboring residential community. During sewage installation, a subcontractor improperly tied in piping. This caused raw sewage to migrate into the underlying groundwater and contaminate residential wells.
    17. New construction commenced on a previously undeveloped parcel of land.  During excavation and dewatering activities, contaminated groundwater was discovered.  The developer was required by State regulatory authorities to collect, test and treat groundwater pumped out during the excavation process.  Contaminated soils were also discovered at the site.  Construction delays and additional expenses totaling over $1,000,000 were incurred by the developer.  It was eventually determined that the contamination had migrated from a nearby manufacturing facility that had gone into bankruptcy several years prior to the development project.  
    18. A small power coating company which leased space in an industrial unit from a large property owner went into liquidation.  Contractors employed to refurbish the unit discovered large, poorly maintained process tanks leaking chlorinated solvents.  Furthermore, chemicals escaped through cracks in the concrete floor, causing extensive soil and groundwater contamination to the surrounding property.  As a result of the former tenant going into liquidation, the property owner became liable for the resulting environmental exposures.  Significant expense was incurred to remove the source area, impacted soils and to install a groundwater treatment system.

    Benefits of Environmental Liability Insurance 

    Most real estate developers/owners lack the financial strength to self-insure their potential environmental liabilities.  Under CERCLA, the government offers real estate buyers the innocent landowner defense if they perform environmental due diligence (All Appropriate Inquiry (AAI), Phase I or II site assessments, Baseline Environmental Assessments (BEA)….).  As we have learned, these reports are not perfect and unexpected environmental problems do occur.  

    While the innocent landowner defense protects real estate developers/owners from the government, it does not protect you from third parties such as neighbors, whose property is being contaminated by pollutants emanating for your property.  

    Most real estate developers/owners further address this issue by transferring their risk via legal environmental indemnifications to the property seller.  What value is a legal environmental indemnification if you discover an environmental problem and make a claim only to find out the seller who signed the indemnification has passed away and the estate dissolved?  What if the seller moves out of the country?  Gets a divorce?  Are monies set aside to address environmental issues or is all you have a signature?

    Another exposure that must be addressed is “who are you doing business with?”  As the real estate owner/developer you can do everything possible to minimize or eliminate your environmental exposures but those you do business with can draw you into a liability situation, i.e. contractors, tenants….  

    Three Overlooked Benefits of environmental liability insurance

    1. Defense Costs:  Environmental liabilities are relatively new and very litigious.  Even if you do nothing wrong you can still get named in a suit and have to expense defense costs i.e. legal fees, environmental investigations 
    2. Claim Management:  All policies come with specialists to assist you in handling a claim.  Who oversees communications, public relations, emergency response, government compliance, financial management, third party claims for bodily injury, property damage, natural resource damages….?
    3. Third Party Liability:  The majority of the time the cost to clean up the environmental problem/s is far less than the associated claims that come in from third parties for bodily injury, property damage and business interruption.  You need to look at your client’s and neighbors that can be impacted if you or a sub-contractor/vendor create an environmental loss.

    Environmental Liability Insurance Coverages

    Environmental Impairment Liability (EIL) 

    EIL is for real estate owners & developers susceptible to economic loss caused by pollution that actually or allegedly originated from their properties.  Sometimes referred to as Pollution Legal Liability (PLL), this coverage is for those who own, rent, lease, operate, or have any other insurable interest in real property and/or the operations. 

    Coverage can be written in a variety of ways to address new conditions that may occur and/or unknown preexisting environmental conditions.  Coverage can include third party bodily injury and property damage, along with business interruption, on and off-site clean-up, legal defense, Non-Owned Disposal Site Liability, Transportation Pollution Liability, and more. EIL can be offered on multiyear terms, which typically provides annual savings over the term of the policy. Most EIL policies cover above ground storage tanks up to a certain size.  You can also cover multiple locations on a single EIL policy.

    Contractors Pollution Liability (CPL)

    Real estate owners & developers have potential indirect environmental exposures from the service vendors & contractors they hire to perform work on their behalf.  CPL insurance protects real estate owners / developers should their vendors cause or exacerbate an environmental condition. 

    Property Transfer Coverage

    When buying or selling property there can be unknown preexisting environmental conditions. Since environmental due diligence (All Appropriate Inquiry (AAI), a Phase I or Phase II survey, Baseline Environmental Assessment (BEA)….), cannot guarantee uncovering all potential environmental liabilities, insurance companies have created property transfer insurance. This coverage protects the new owner or any party with an insurable interest, against unknown environmental conditions that may be discovered during the policy period, that were not caused by the new owner. 

    This coverage not only helps to keep the property at its maximum value, it will assist the purchaser in being able to secure the necessary financing to complete their transaction.  Real estate owners and developers who use this product as part of their risk transfer strategy often find they can negotiate with the seller to share the cost and negotiate a better mortgage rate than if they did not have property transfer coverage.  You can cover multiple locations on a single policy.

    Transportation Pollution Liability (TPL)

    Generally, Commercial Auto policies will exclude pollution losses arising from spills or other releases of their cargo. Broadened Transportation Pollution Liability affords coverage during the loading, unloading and transportation, for a spill, release or sudden upset and overturn of transported cargo.

  • ERMI Business Professional Series Realtors

    Licensed Real Estate Professionals have a duty to perform their services with a level of care which is established by contract and prevailing standards of conduct in their field.  The fact is, Realtors have professional duties to disclose material facts of which encompass environmental exposures / liabilities.

    Today’s, transparent business environment, means real estate professionals must be aware of the evolution of their E&O liability loss exposures.  Claims under E&O often include allegation of failure to disclose or misrepresentation on a transaction.

    Historically, Realtors have relied upon “Environmental Indemnifications” in buy sell agreements.  The vast majority in the private sector have been slow to implement financial assurance requirements because they have been falsely content that contracts utilized are iron clad.  What we have learned is “Environmental Indemnifications” in buy / sell agreements may not be worth the paper they are written on if not backed by a financial assurance strategy.

    Governmental financial assurance requirements have been around for decades.  For example, when I began working with pollution insurance in the 1980’s we were selling primarily to asbestos / lead abatement / remediation contractors because the government required them to have Contractors Pollution Liability insurance to perform their remedial services.  Industrial and hazardous waste haulers must evidence transportation pollution liability insurance coverage in force before they can move any waste.  Owners of regulated underground storage tanks must evidence financial assurance before they can put any product into a storage tank and the list goes on.

    You may ask, why has the real estate profession been so slow to react?  Answer: Lack of environmental education.  That is where Insurance Professionals add their value in teaming with Professional Realtors.  By coaching Realtors on better protect their E&O exposure while assuring they are dealing with cleaner and greener real estate, backed by a financial assurance strategy.

    To understand why “Best Practices” for realtors means moving beyond traditional environmental indemnifications / site assessments to possessing a working knowledge of managing and transferring environmental exposures, we first must be on the same page about a few environmental facts.

    1. What is a “Pollutant”? If you look at a Buy / Sell Agreement they generally describe a Pollutant as smoke, vapors, soot, fumes, acids….  However, due to the way courts and insurance companies have responded to lawsuits and insurance claims, environmental Strategist™ (eS) has developed a definition that is easier to understand.  eS define a “Pollutant” as a material, substance or product, introduced to an environment for other than its intended use or purpose.”  In other words, something that ends up where it does not belong can be a Pollutant.  eS have examples where fresh water, milk, cheese, fruit, beer and more have all been defined as a “Pollutant”.
    2. A leading source of E&O claims against real estate professionals is failure to disclose potential environmental liabilities. From Sick building Syndrome, (i.e. mold, Legionella, vapor intrusion, asbestos, lead paint, category 3 water…), storm water runoff, natural resource damages, leaking aboveground or underground storage tanks, Renovation Repair & Painting Rule, meth labs… the list goes on.  Pollution insurance can protect against these environmental exposures and much more.
    3. Every real estate transaction presents its unique set of environmental exposures and has changed the way Realtor’s must address environmental financial assurance for their client’s.
    4. eS research has determined that fewer than 50% of Phase I Site Assessments are accurate. eS has heard from environmental professionals who feel in excess of 80% of Phase I site Assessments are inaccurate.  Also, environmental due diligence (Phase I, Phase II…) as part of meeting the innocent landowner defense only protects the real estate owner from the government.  Impacted non-governmental third parties can still file suit.  Note:  In Phase I Site Assessments when investigating who neighbors are that could have contamination going onto a subject property, environmental engineers do a minimum of a 2-mile radius search.  Pollution insurance can protect against third party liabilities.
    5. Illegal disposal of waste in the United States is a tens of billions of dollars a year industry and real estate, especially vacant real estate, is a popular place to illegally dispose of waste. Pollution insurance can protect against illegal disposal of waste.
    6. In the United States there are more than 250,000 known leaking underground storage tanks. How many don’t we know about?  Leaking underground tanks can and do cause Pollutants to go onto neighboring properties.  Pollution insurance can protect property owners if third parties contaminate their property.

    Professional realtors need to know if they are selling / purchasing an asset or environmental liability.

    Educating realtors on managing and transferring environmental exposures will better protect their E&O exposure while driving the sales of pollution liability insurance.  Why is this critical?  Environmental exposures can be a deal killer and realtors not proactively addressing environmental exposures may find their professional liability insurance at risk of a claim when a client discovers an environmental liability on property the realtor sold. 

    Environmental Insurance Products to Meet Financial Assurance on Real Estate Transactions

    Overlooked Benefits of Environmental Liability Insurance

    Unlike other liability exposures impacting commercial real estate owners, pollution losses are not a frequency risk, but rather a severity risk. Because all commercial real estate owners have environmental exposures, consideration needs to be given to the economies of scale afforded with environmental liability insurance as part of your risk transfer strategy, versus self-insurance.

    Furthermore, most commercial real estate owners only consider the remediation costs associated with a pollution event. However, often the clean-up costs are far less than other costs that can arise from an environmental loss.

    Overlooked Benefits of Environmental Liability Insurance:

    1. Defense Costs: Environmental liabilities are relatively new and very litigious.  Even if you do nothing wrong you can still get named in a suit and must expense defense costs i.e. legal fees, environmental investigations, etc.
    2. Claim Management: All policies come with specialists to assist you in handling a claim.  Who oversees communications, public relations, emergency response, government compliance, financial management, third party claims for bodily injury, property damage, natural resource damages….?
    3. Third Party Liability: Most the time the cost to clean up the environmental problem/s is far less than the associated claims that come in from third parties for bodily injury, property damage and business interruption.  You need to look at your client’s and neighbors that can be impacted if you or a sub-contractor/vendor cause an environmental loss.

    Environmental Liability Insurance Coverages

    Property Transfer Coverage:  When buying or selling property there can be unknown preexisting environmental conditions. Since environmental due diligence (All Appropriate Inquiry (AAI), a Phase I or Phase II survey, Baseline Environmental Assessment (BEA)….), cannot guarantee uncovering all potential environmental liabilities, insurance companies have created property transfer insurance. This coverage protects the new owner or any party with an insurable interest, against unknown environmental conditions that may be discovered during the policy period, that were not caused by the new owner.

    This coverage not only helps to keep the property at its maximum value, it will assist the purchaser in being able to secure the necessary financing to complete their transaction.  Real estate owners and developers who use this product as part of their risk transfer strategy often find they can negotiate with the seller to share the cost and negotiate a better mortgage rate than if they did not have property transfer coverage.  You can cover multiple locations on a single policy.

    Mergers, Acquisitions & Pollution Protection (MAPP):  Combining Representations & Warranties Insurance w/ Pollution Liability Insurance to keep your company’s growth & value on course.

    Key to any acquisition is the correct valuation and effective due diligence and MAPP operates as a backstop against issues that the diligence or valuation processes may not be able to identify.

    As a financial assurance mechanism for M&A’s, pollution liability insurance has become part of “Best Practices”.  Representation & Warranties (R&W) insurance is proving its value for M&A’s much the same as pollution liability insurance has.

    R&W insurance is designed expressly to provide insurance coverage for the breach of a representation or a warranty contained in a Buy / Sell Agreement, in addition to or as a replacement for all or most of the seller’s contractual representations and warranties.

    As we have learned from environmental indemnifications in transactional documents, if there is not a pre-determined financial assurance mechanism in place, the environmental indemnification the seller agrees to may not be worth the paper the agreement is written on.  With MAPP, Environmental Risk Managers, Inc. (ERMI) has raised the bar on financial assurance for M&A deals.

    The insurance industry has learned that one out of every four M&A deals has at least one claim of a breach of the reps and warranties.  In the past, the response has been let’s try to negotiate around the problem.  Unfortunately, negotiating often is expensive, time consuming and rarely brings about the most desirable outcomes for the parties involved.

    MAPP delivers a cost-effective way to transfer R&W and pollution liabilities to a financially stable third party.

    Environmental Impairment Liability (EIL):  EIL is for commercial real estate owners susceptible to economic loss caused by pollution that actually, or allegedly originated from their property.  Sometimes referred to as pollution legal liability, this coverage is for those who own, operate, lease, or have any other insurable interest in real property and/or the operations. Coverage can be written to cover preexisting conditions and/or new conditions.

    Coverage can include third party bodily injury and property damage along with business interruption and extra expense, on and off site clean-up costs, legal defense expenses, non-owned disposal sites, transportation and more. EIL can be offered on multiyear terms.  Sewer lines and pump/lift stations can be covered by EIL.  Most EIL policies cover above ground storage tanks up to a certain size.  You can also cover multiple locations on a single policy.

    Transportation Pollution Liability: Generally, Business Auto or Truckers policies will exclude pollution losses arising from spills or releases of transported cargo. Broadened auto pollution liability (typically Form CA 9948) affords coverage during the loading, unloading and transportation, for a spill, release or sudden upset and over turn of transported cargo.  Whether it’s building materials or business supplies, you need to strategize on your exposure to transportation.  How are goods received?  FOB point of Shipment or FOB point of delivery?  Do not be confused by thinking the MCS-90 endorsement is auto pollution liability coverage.

    Underground Storage Tanks

    Storage tank financial responsibility requirements ensure that owners/operators of underground storage tank systems have the ability to financially handle a release from the tank system. The responsibility encompasses the ability to pay funds for corrective action and third party bodily injury and property damage from non-sudden and sudden and accidental releases from a regulated underground tank system.

    Real estate owners with a financial responsibility strategy dependent upon state UST funds need to regularly confirm fund solvency and length of time it will take to get reimbursed.  If part of your business strategy depends upon the state tank fund, you are putting the future success of your business in the hands of the state.  You need to strategize on “just how strong is your business” if you are putting its future in the hands of your state government.

  • ERMI Business Professional Series Realtors

    Licensed Real Estate Professionals have a duty to perform their services with a level of care which is established by contract and prevailing standards of conduct in their field.  The fact is, Realtors have professional duties to disclose material facts of which encompass environmental exposures / liabilities.

    Today’s, transparent business environment, means real estate professionals must be aware of the evolution of their E&O liability loss exposures.  Claims under E&O often include allegation of failure to disclose or misrepresentation on a transaction.

    Historically, Realtors have relied upon “Environmental Indemnifications” in buy sell agreements.  The vast majority in the private sector have been slow to implement financial assurance requirements because they have been falsely content that contracts utilized are iron clad.  What we have learned is “Environmental Indemnifications” in buy / sell agreements may not be worth the paper they are written on if not backed by a financial assurance strategy.

    Governmental financial assurance requirements have been around for decades.  For example, when I began working with pollution insurance in the 1980’s we were selling primarily to asbestos / lead abatement / remediation contractors because the government required them to have Contractors Pollution Liability insurance to perform their remedial services.  Industrial and hazardous waste haulers must evidence transportation pollution liability insurance coverage in force before they can move any waste.  Owners of regulated underground storage tanks must evidence financial assurance before they can put any product into a storage tank and the list goes on.

    You may ask, why has the real estate profession been so slow to react?  Answer: Lack of environmental education.  That is where Insurance Professionals add their value in teaming with Professional Realtors.  By coaching Realtors on better protect their E&O exposure while assuring they are dealing with cleaner and greener real estate, backed by a financial assurance strategy.

    To understand why “Best Practices” for realtors means moving beyond traditional environmental indemnifications / site assessments to possessing a working knowledge of managing and transferring environmental exposures, we first must be on the same page about a few environmental facts.

    1. What is a “Pollutant”? If you look at a Buy / Sell Agreement they generally describe a Pollutant as smoke, vapors, soot, fumes, acids….  However, due to the way courts and insurance companies have responded to lawsuits and insurance claims, environmental Strategist™ (eS) has developed a definition that is easier to understand.  eS define a “Pollutant” as a material, substance or product, introduced to an environment for other than its intended use or purpose.”  In other words, something that ends up where it does not belong can be a Pollutant.  eS have examples where fresh water, milk, cheese, fruit, beer and more have all been defined as a “Pollutant”.
    2. A leading source of E&O claims against real estate professionals is failure to disclose potential environmental liabilities. From Sick building Syndrome, (i.e. mold, Legionella, vapor intrusion, asbestos, lead paint, category 3 water…), storm water runoff, natural resource damages, leaking aboveground or underground storage tanks, Renovation Repair & Painting Rule, meth labs… the list goes on.  Pollution insurance can protect against these environmental exposures and much more.
    3. Every real estate transaction presents its unique set of environmental exposures and has changed the way Realtor’s must address environmental financial assurance for their client’s.
    4. eS research has determined that fewer than 50% of Phase I Site Assessments are accurate. eS has heard from environmental professionals who feel in excess of 80% of Phase I site Assessments are inaccurate.  Also, environmental due diligence (Phase I, Phase II…) as part of meeting the innocent landowner defense only protects the real estate owner from the government.  Impacted non-governmental third parties can still file suit.  Note:  In Phase I Site Assessments when investigating who neighbors are that could have contamination going onto a subject property, environmental engineers do a minimum of a 2-mile radius search.  Pollution insurance can protect against third party liabilities.
    5. Illegal disposal of waste in the United States is a tens of billions of dollars a year industry and real estate, especially vacant real estate, is a popular place to illegally dispose of waste. Pollution insurance can protect against illegal disposal of waste.
    6. In the United States there are more than 250,000 known leaking underground storage tanks. How many don’t we know about?  Leaking underground tanks can and do cause Pollutants to go onto neighboring properties.  Pollution insurance can protect property owners if third parties contaminate their property.

    Professional realtors need to know if they are selling / purchasing an asset or environmental liability.

    Educating realtors on managing and transferring environmental exposures will better protect their E&O exposure while driving the sales of pollution liability insurance.  Why is this critical?  Environmental exposures can be a deal killer and realtors not proactively addressing environmental exposures may find their professional liability insurance at risk of a claim when a client discovers an environmental liability on property the realtor sold. 

    Environmental Insurance Products to Meet Financial Assurance on Real Estate Transactions

    Overlooked Benefits of Environmental Liability Insurance

    Unlike other liability exposures impacting commercial real estate owners, pollution losses are not a frequency risk, but rather a severity risk. Because all commercial real estate owners have environmental exposures, consideration needs to be given to the economies of scale afforded with environmental liability insurance as part of your risk transfer strategy, versus self-insurance.

    Furthermore, most commercial real estate owners only consider the remediation costs associated with a pollution event. However, often the clean-up costs are far less than other costs that can arise from an environmental loss.

    Overlooked Benefits of Environmental Liability Insurance:

    1. Defense Costs: Environmental liabilities are relatively new and very litigious.  Even if you do nothing wrong you can still get named in a suit and must expense defense costs i.e. legal fees, environmental investigations, etc.
    2. Claim Management: All policies come with specialists to assist you in handling a claim.  Who oversees communications, public relations, emergency response, government compliance, financial management, third party claims for bodily injury, property damage, natural resource damages….?
    3. Third Party Liability: Most the time the cost to clean up the environmental problem/s is far less than the associated claims that come in from third parties for bodily injury, property damage and business interruption.  You need to look at your client’s and neighbors that can be impacted if you or a sub-contractor/vendor cause an environmental loss.

    Environmental Liability Insurance Coverages

    Property Transfer Coverage:  When buying or selling property there can be unknown preexisting environmental conditions. Since environmental due diligence (All Appropriate Inquiry (AAI), a Phase I or Phase II survey, Baseline Environmental Assessment (BEA)….), cannot guarantee uncovering all potential environmental liabilities, insurance companies have created property transfer insurance. This coverage protects the new owner or any party with an insurable interest, against unknown environmental conditions that may be discovered during the policy period, that were not caused by the new owner.

    This coverage not only helps to keep the property at its maximum value, it will assist the purchaser in being able to secure the necessary financing to complete their transaction.  Real estate owners and developers who use this product as part of their risk transfer strategy often find they can negotiate with the seller to share the cost and negotiate a better mortgage rate than if they did not have property transfer coverage.  You can cover multiple locations on a single policy.

    Mergers, Acquisitions & Pollution Protection (MAPP):  Combining Representations & Warranties Insurance w/ Pollution Liability Insurance to keep your company’s growth & value on course.

    Key to any acquisition is the correct valuation and effective due diligence and MAPP operates as a backstop against issues that the diligence or valuation processes may not be able to identify.

    As a financial assurance mechanism for M&A’s, pollution liability insurance has become part of “Best Practices”.  Representation & Warranties (R&W) insurance is proving its value for M&A’s much the same as pollution liability insurance has.

    R&W insurance is designed expressly to provide insurance coverage for the breach of a representation or a warranty contained in a Buy / Sell Agreement, in addition to or as a replacement for all or most of the seller’s contractual representations and warranties.

    As we have learned from environmental indemnifications in transactional documents, if there is not a pre-determined financial assurance mechanism in place, the environmental indemnification the seller agrees to may not be worth the paper the agreement is written on.  With MAPP, Environmental Risk Managers, Inc. (ERMI) has raised the bar on financial assurance for M&A deals.

    The insurance industry has learned that one out of every four M&A deals has at least one claim of a breach of the reps and warranties.  In the past, the response has been let’s try to negotiate around the problem.  Unfortunately, negotiating often is expensive, time consuming and rarely brings about the most desirable outcomes for the parties involved.

    MAPP delivers a cost-effective way to transfer R&W and pollution liabilities to a financially stable third party.

    Environmental Impairment Liability (EIL):  EIL is for commercial real estate owners susceptible to economic loss caused by pollution that actually, or allegedly originated from their property.  Sometimes referred to as pollution legal liability, this coverage is for those who own, operate, lease, or have any other insurable interest in real property and/or the operations. Coverage can be written to cover preexisting conditions and/or new conditions.

    Coverage can include third party bodily injury and property damage along with business interruption and extra expense, on and off site clean-up costs, legal defense expenses, non-owned disposal sites, transportation and more. EIL can be offered on multiyear terms.  Sewer lines and pump/lift stations can be covered by EIL.  Most EIL policies cover above ground storage tanks up to a certain size.  You can also cover multiple locations on a single policy.

    Transportation Pollution Liability: Generally, Business Auto or Truckers policies will exclude pollution losses arising from spills or releases of transported cargo. Broadened auto pollution liability (typically Form CA 9948) affords coverage during the loading, unloading and transportation, for a spill, release or sudden upset and over turn of transported cargo.  Whether it’s building materials or business supplies, you need to strategize on your exposure to transportation.  How are goods received?  FOB point of Shipment or FOB point of delivery?  Do not be confused by thinking the MCS-90 endorsement is auto pollution liability coverage.

    Underground Storage Tanks

    Storage tank financial responsibility requirements ensure that owners/operators of underground storage tank systems have the ability to financially handle a release from the tank system. The responsibility encompasses the ability to pay funds for corrective action and third party bodily injury and property damage from non-sudden and sudden and accidental releases from a regulated underground tank system.

    Real estate owners with a financial responsibility strategy dependent upon state UST funds need to regularly confirm fund solvency and length of time it will take to get reimbursed.  If part of your business strategy depends upon the state tank fund, you are putting the future success of your business in the hands of the state.  You need to strategize on “just how strong is your business” if you are putting its future in the hands of your state government.

  • Illicit Abandonment

    environmental Strategist®, between the lines:  Illicit Abandonment is an environmental exposure, which most commercial real estate lessors don’t think about.

    Let me digress, back in 2008 when the economy tanked, we received a call from an insurance agent who explained his client had a leased facility and the tenants went out of business.  When the client went to inspect their property, they found raw materials stored in 55 gallon drums, totes and other storage containers, which were left behind by the bankrupt tenant.  None of the containers were leaking or causing an environmental liability, but to rent the building out the owner had to get rid of the raw materials and it cost more than $80,000.  That is a simple example of illicit abandonment and this exposure can be covered with pollution liability insurance.

    The article below talks about refurbishing of containers, such as 55 gallon drums, and the environmental exposures it creates for workers and neighbors to business those refurbish containers.  The article also talks about how most containers they receive have some residual product left in the containers.

    Photo credit: www.jabat.com

    When you see a facility like the one in this picture, which stores old containers outside over an unsealed surface, over time residuals will leak out and contaminate the ground and ground water.  Under federal law the owner of the property is ultimately responsible for the environmental condition of their property.  What if the contamination migrates onto a neighboring property?

    What the article does not talk about is the huge environmental exposure storage and use of 55 gallon drums, totes, buckets… creates for businesses that use them.  How does the business buy the raw materials; FOB point of shipment, or FOB point of delivery?  Do they store them in a secure area with secondary containment?

    As your client’s professional risk manager, do you go out and inspect their rental properties to make sure a tenant is not creating an environmental exposure for your insured?  What is the tenant’s strategy to meet the environmental indemnification contained in the lease agreement they signed?

    Is the tenant’s financial assurance strategy to go out of business if they create an environmental liability, and leave the property owner with an illicit abandonment exposure?

    Working with Environmental Risk Managers we can coach you and your client’s on better managing and transferring their environmental exposures.

    ERMI Sales Strategy:  Every time you go out and inspect a client’s tenant, it creates a potential new sales opportunity for you with the tenant.  While serving your client’s better, you are also creating a great opportunity to increase your sales.  Win /Win!!!!!

    https://projects.jsonline.com/news/2017/2/15/chemicals-left-in-barrels-leave-many-at-risk.html

  • Illicit Abandonment

    environmental Strategist®, between the lines:  Illicit Abandonment is an environmental exposure, which most commercial real estate lessors don’t think about.

    Let me digress, back in 2008 when the economy tanked, we received a call from an insurance agent who explained his client had a leased facility and the tenants went out of business.  When the client went to inspect their property, they found raw materials stored in 55 gallon drums, totes and other storage containers, which were left behind by the bankrupt tenant.  None of the containers were leaking or causing an environmental liability, but to rent the building out the owner had to get rid of the raw materials and it cost more than $80,000.  That is a simple example of illicit abandonment and this exposure can be covered with pollution liability insurance.

    The article below talks about refurbishing of containers, such as 55 gallon drums, and the environmental exposures it creates for workers and neighbors to business those refurbish containers.  The article also talks about how most containers they receive have some residual product left in the containers.

    When you see a facility like the one in this picture, which stores old containers outside over an unsealed surface, over time residuals will leak out and contaminate the ground and ground water.  Under federal law the owner of the property is ultimately responsible for the environmental condition of their property.  What if the contamination migrates onto a neighboring property?

    What the article does not talk about is the huge environmental exposure storage and use of 55 gallon drums, totes, buckets… creates for businesses that use them.  How does the business buy the raw materials; FOB point of shipment, or FOB point of delivery?  Do they store them in a secure area with secondary containment?

    As your client’s professional risk manager, do you go out and inspect their rental properties to make sure a tenant is not creating an environmental exposure for your insured?  What is the tenant’s strategy to meet the environmental indemnification contained in the lease agreement they signed?

    Is the tenant’s financial assurance strategy to go out of business if they create an environmental liability, and leave the property owner with an illicit abandonment exposure?

    Working with Environmental Risk Managers we can coach you and your client’s on better managing and transferring their environmental exposures.

    ERMI Sales Strategy:  Every time you go out and inspect a client’s tenant, it creates a potential new sales opportunity for you with the tenant.  While serving your client’s better, you are also creating a great opportunity to increase your sales.  Win /Win!!!!!

    https://projects.jsonline.com/news/2017/2/15/chemicals-left-in-barrels-leave-many-at-risk.html

  • Look Out Below

    environmental Strategist, between the lines:  Exacerbate:  means to make worse, aggravate, intensify.  If you exacerbate a pollution incident, under federal law you can be held accountable and have to expense defense dollars, claims management, clean up costs, business interruption, bodily injury, property damage, reputational risk….Contractors pollution liability insurance covers the insured should they cause or exacerbate a pollution incident.

    USA Today is doing a series of pieces on our infrastructure and below are some links to give you some insight why. Contractors, real estate owners, municipalities, or owners or operators of our county’s infrastructure are all potentially at risk (i.e. oil and gas pipelines, water / sewer / storm water pipes, roads, bridges…)  The United States is falling apart and most of it is out of sight so out of mind.

    Exacerbation liabilities have put many a business out of business because they elected to self insure their environmental exposures.  Our aging infrastructure creates a huge exacerbation environmental exposure for those that own, work on or live near our aging infrastructure.  What is your financial assurance strategy?

    http://www.usatoday.com/longform/news/nation/2014/09/23/gas-pipes-cast-iron-deaths-explosions-investigation/15783697/

    http://www.usatoday.com/story/news/local/2014/09/23/pensacolas-aged-gas-mains-cause-concern/16112477/

  • Lead tests close downtown Helena DEQ building

    environmental Strategist™ (eS), between the lines:   Caught the fox in the hen house!

    I had an accountant many years ago and the first time I went into pick up my paper work for filing my taxes we spent some time getting to know each other.  During the conversation he told he never balanced his own check book.  I thought to myself do I want to depend upon someone with my finances who did not even perform the most basic of accounting functions, balancing your own check book?  Needless to say I switched accounts.

    When it comes to managing the environmental exposures impacting businesses, we need to be on the same page that in today’s business environment, government environmental regulation is just a bump in the road.  Private business understands to compete in today’s business environment, managing the environmental exposures impacting your operations has become part of “Best Practices”.

    Besides do you want to put your company’s future in the hands of someone that can’t follow the most basic of environmental principals, or what government regulation calls environmental due diligence.  Environmental site assessments (Phase I, Phase II…) are performed so you can determine if you are buying an asset or a liability.  Try getting a commercial property loan from a bank without evidence of environmental due diligence.    Not everyone is as fortunate as the Montana DEQ with access to the tax payers pocket book to take care of their lack of following their own environmental regulations.

    For more on managing your environmental exposures to drive growth and profits go to www.estrategist.com.

    eS Risk Management Strategy:  As this article points out the cost to investigate and test for environmental liabilities can get to be very expensive.  Just a few of the benefits of environmental insurance versus self insuring is environmental insurance can pay for claims investigations such a lead testing, medical screenings, along with third party bodily injury, first and third party business income, remediation costs, legal fees….  When it comes to managing and transferring a business’s environmental exposures there is just one question a business needs to answer.  Question:  Based upon our business model, are we better off transferring our environmental exposures for fractions of a cent on the dollar or self insure and wait until an environmental loss occurs and pay 100 cents on the dollar out of our pocket for claims management, legal fees, investigation costs, third party bodily injury, third party property damage, first party clean up….

    October 28, 2013 3:30 pm  •  By MATT VOLZ Associated Press

    HELENA – The state Department of Environmental Quality closed its downtown Helena building on Monday after finding lead levels up to 40 times higher than federal standards in ceilings throughout the former National Guard armory.

    The results have prompted testing of the air and surfaces in the building’s work areas to find out whether employees have been exposed to lead, DEQ director Tracy Stone-Manning said. The results are due Wednesday.

    “Out of an abundance of caution, we chose to close the building,” Stone-Manning said.

    The employees are on paid leave through Wednesday. They and former employees who worked at the location are being asked to take free blood tests to determine whether they have been exposed, Department of Administration Director Sheila Hogan said.

    Exposure to high levels of the toxic metal can result in lead poisoning, which can eventually lead to brain and kidney damage and anemia, according to the federal Centers for Disease Control and Prevention.

    Even low levels of exposure can damage an unborn child’s nervous system and affect behavior and intelligence, according to the CDC.

    DEQ officials are asking employees who were pregnant or nursing when they worked in the building to test their children.

    The state took over the building at the intersection of Last Chance Gulch and Euclid Avenue in 2002, and it now houses nearly 100 workers of the DEQ’s remediation division.

    The remediation division, which oversees investigations and cleanup of contaminated sites across the state, now finds itself looking for a temporary home while its own offices are tested for contamination.

    “The irony is not lost on us,” Stone-Manning said. “But the reason we are asking these detailed questions is because we are the DEQ and the remediation division.”

    It is unclear if or when the workers will return to the building. Even if the additional tests turn up acceptable airborne lead levels, the lead found in the initial tests above the ceiling tiles must be cleaned and abated, DEQ officials said in a memo to staff.

    The building was constructed in 1942 and housed a firing range for the Montana National Guard. The range was closed in 1994 and remediated for lead, Hogan said.

    But only the range was tested and cleaned, not the rest of the building.

    Medical screenings of field employees in August 2012 showed higher than average levels of zinc protoporphyrin, an indicator of possible elevated lead levels in the blood, in six to eight workers, DEQ spokeswoman Lisa Peterson said.

    Previous tests had been conducted from 1994 to 2009 in individual rooms after employees there reported health complaints, she said.

    “We have had employees inform us of symptoms, however, we have no evidence at this time that they were related to lead exposure,” Peterson said.

    Rather, DEQ officials identified lead testing as a “data gap” in their information, and this month’s initial tests were conducted as part of a plan to identify any and all environmental hazards in the building.

    The plenum, or the area above the ceiling tiles, was tested in 22 areas of the building on Oct. 16 and 18. On Friday, the results found lead dust levels higher than the federal standard for commercial properties of 40 micrograms per square foot in 14 of those 22 areas, according to a copy of the laboratory results.

    One area above the second-floor men’s bathroom tested for 1,600 micrograms per square foot, which is 40 times the federal standard.

    Stone-Manning said there are many questions still to answer, including why it took more than 10 years to find out about the potential lead hazards. She said officials will put together a scientific and historical analysis to answer those questions.