REAL ESTATE: ENVIRONMENTAL INSURANCE

1
REAL ESTATE ENVIRONMENTAL INSURANCE

• By
• Ryan Hoffman
• Katie Hughes
• Dan Roehl

2
Environmental Claims and Insurance Coverage

• Policy language and jurisdictional laws
• Occurrence basis
• Claims-made basis

3
Risk Management

• Pollution prevention activities
• Benefits

4
Claims Management

• Get all of the facts up front
• Formulate a theory of the case
• Understand all of the relevant policies

5
Insurance In Real Estate Transactions

• Environmental Insurance
• Real Estate Transfers

6
Case Study

• Seller Liability 15 year indemnity agreement in
  which seller was liable for 100 million dollars
• Buyer Demands Seller guarantee payment of all
  cleanup costs

7
Solution Environmental Insurance

• Seller insures cleanup costs through self
  insurance, guaranteed by underwriter
• Cost overruns insured for 40 million
• Third party claims insured for a limit of 100
  million

8
Premium Costs Example

• Sale of Chemical Plant
• Seller was unable handle a 100 million dollar
  environmental indemnity provision
• Sale complicated by serious contamination

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Solution and Cost of Solution

• 20 year 100 million dollar insurance policy
• Coverage includeson-site cleanup, off site
  cleanup, third party claims for bodily injury and
  property damage
• Premium cost less 0.5 of selling price
  

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Environmental Insurance Benefits

• There are more than 25 types of environmental
  insurance available and more than 80 different
  insurance forms used to provide coverage for
  different environmental risks
• Environmental Insurance programs
• Manage liability
• Brownfields
• Asset Conservation, Lender Liability, and Deposit
  Insurance Protection Act of 1996

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Benefits to Buyers

• Undisclosed or undiscovered problems may await
  discovery after the sale
• Known or Suspected Conditions may culminate in
  creditors not financing sales

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Benefits to Sellers

• Sellers
• Seller remains liable for past environmental
  contamination of properties
• Buyer may contaminate property after the sale and
  call attention to sellers past contamination
• Seller may warrant that no contamination exists
  but can become liable after an investigation by
  the buyer
• Known problems at a property can render it
  unmarketable

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Benefits to Banks and Creditors

• Banks
• Creditors rely on the market value of a property
  in order to secure a loan
• Known past environmental contamination can
  devalue property and increase the risk of a loan
• Given a foreclosure sale, a creditor may lose the
  option to protect its loan given fears of
  environmental concerns

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Benefits to Investors and Developers

• Discovery of environmental contaminants on a
  property may make redevelopment out of reach
  financially
• Contamination discovered during redevelopment or
  aggravation of a preexisting contamination by a
  third party may result in increased costs due to
  third party claims and regulatory oversight

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Benefits to Governments

• Can exert control over contaminated sites that
  pose a threat to communities and erode the tax
  base
• Incidents following redevelopment can trigger an
  investigation of the property
• Contracting or consulting activities can
  aggravate a preexisting contamination resulting
  in additional cleanup expense and third party
  claims