known to exist on the site which either have been the subject of regulatory closure (i.e., written confirmation they have been cleaned up) or have little risk of giving rise to a cleanup obligation exceeding the deductible. If those pollution conditions somehow later require further cleanup, then those costs would be covered. Further, some policies provide that known pollution conditions that are excluded from coverage at policy inception will be covered upon regulatory closure during the policy period in the event those issues are later reopened and further remediation is required. during the policy period. Typically, this is coverage for the risk that current operations on the insured property may cause pollution conditions. The insurer will ordinarily prepare a policy endorsement describing the types of operations that will be covered, which may exclude coverage if the operations change. Even if the main transactional concern is the risk of discovering pre-existing pollution conditions, by purchasing new conditions coverage the insured can avoid future disputes with the insurer over the timing of the discharge for which coverage is sought. or Property Damage for property damage and bodily injury to third parties arising from pollution conditions on, or migrating from, the insured property. Property damage includes the "tangible" property of a third party, including real and personal property, as well as diminution of property value, stigma damages, loss of use and natural resource damages. Cleanup costs are not included in the definition of third- party property damage because they are insured, if at all, under the cleanup coverage discussed above. Property damage to the insured property. Bodily injury often includes disease, mental injury or death resulting from a pollution condition. Third parties are often defined to exclude the employees of any named insured. While the employees of a named insured would ordinarily be covered by workers' compensation, the exclusion may result in one named insured having no insurance for claims by the employees of another named insured (which would not be covered by the workers' compensation policy of the insured who is not their employer). Care must be taken during policy negotiation to avoid or minimize coverage gaps. Although the cleanup of pollution conditions known to exist at policy inception are generally excluded from coverage under a PLL policy, typically coverage can be negotiated for third- party claims for property damage and bodily injury arising from all types of pollution conditions, including those that are known. business interruption or loss of rent at the insured property. To obtain this coverage, the insurer often requires significant amounts of information concerning the covered business. Unless the business is established, the uncertainty often makes underwriting difficult and premiums uneconomical. Many clients conclude this coverage is more trouble than it is worth, especially given how rare it is for environmental remediation to cause a significant business interruption. PLL policies cover legal costs to defend claims covered by the policy. For example, the policy would provide coverage for legal fees incurred overseeing the remediation of pollution conditions on, or migrating from, the insured property. Generally, the insurer has the right and obligation to defend the claim, usually with counsel chosen by the insured where permitted by law. Even where no such law applies, some insurers will consent to using the fee rates ordinarily paid by the insurer in that locale. used, along with PLL policies, in contaminated property transactions to cover the risk that the cost to clean up the contamination known to exist at the inception of the policy exceeded expectations. Coverage is not provided until such costs exceed both the self- insured retention ("SIR," similar to a deductible) and any co-insurance layer above the SIR that must be paid before coverage attaches. Generally, the SIR is based upon the price under a guaranteed cleanup cost contract (sometimes referred to as a fixed price contract) entered into by an environmental consultant and the insured. The consultant under the guaranteed cleanup cost contract agrees to pay all costs in excess of the guaranteed cost, which would usually include any co-insurance layer and claims in excess of the Cost Cap coverage. Today, an approved cleanup plan is routinely required to obtain Cost Cap coverage. Few insurers are willing to provide such coverage these days, including Beazley and Axis, as excessive claims made Cost Cap coverage unprofitable. Recently, insurers' engineering and underwriting for Cost Cap coverage have become problematic. The co-insurance layers have gotten larger, the coverage limits are capped (e.g., not exceeding the amount of the cleanup cost) and the premiums have gotten larger. The few insurers issuing Cost Cap coverage have come to view it as catastrophic coverage. For these reasons, many of those involved with environmental insurance have concluded that, for most intents and purposes, Cost Cap coverage is not available. Practitioners whose clients are involved in real estate or commercial transactions where environmental contamination is an issue should advise them to consider environmental insurance coverage. |