Since federal statutes governing liability for environmental contamination were passed some 20 years ago, concerns about environmental liabilities have derailed many business transactions and the magnitude and uncertainty of potential environmental liabilities and claims has challenged corporate planners.

More often than not, insurance companies have refused to pay environmental claims under comprehensive general liability (CGL) policies, which has led to lawsuits with billions of dollars under dispute.

Insurance companies have, however, begun offering policies that give businesses a way to address liability for environmental cleanup. The complexity of environmental issues and the sheer size of the liabilities involved make these insurance policies different from the off-the-shelf products. Before buying an environmental liability policy, a business should:

*Clearly identify the risks it wants to cover

*Have a good grasp of the history of the site or sites and the technical issues relating to contamination and remediation

*Rely on someone familiar with insurance coverage, environmental law and the vast body of case law that has developed in the wake of the Superfund Act (CERCLA) to negotiate the terms of the policy.

If a business fails to take these preparatory steps, the policy it purchases may not turn out to provide the coverage it expects.

The new environmental insurance policies fall into two broad categories:

*Cost-cap policies typically provide coverage when a claim requiring the insured to incur cleanup costs has already been made. These policies usually cover cost overruns and other cost increases resulting from unexpected factors (for example, a change in the law or the failure of a remedy) up to a limit beyond a self-insured retention.

*Pollution legal liability policies typically provide coverage for a broader range of environmental exposures, provided that claims are first made during the policy period.

Here are some examples of situations in which these environmental liability policies have worked:

Capping CERCLA Liability - the former owner/operator of a manufacturing facility with large environmental liabilities under CERCLA wanted to cap its exposure to reduce unknown liabilities for planning and balance sheet reasons. It was the only potentially responsible party that was solvent and available to fund the cleanup.

Buying facilities with Environmental Problems. A business was interested in purchasing a facility with environmental liabilities. It did not, however, wish to obligate itself to unknown future environmental costs and did not feel that standard indemnity and liability-shifting contract provisions would be effective.

Selling Contaminated Property. A company was interested in selling an environmentally contaminated site, but was unwilling to establish enormous escrow funds to cover future unknown environmental liabilities.

Providing Settlement Protection. The PRPs at a Superfund site wished to enter into a final settlement agreement even though there remained substantial cleanup costs that had not yet been fully quantified.

The new environmental insurance products offer great opportunities to address difficult problems. With sufficient planning and caution, they can be a very poweful tool in controlling corporate exposure, settling the seemingly unsettleable claim or closing a difficult transaction.

Carol Press and Albert Bixler are lawyers for Eckert Seamans Cherin and Mellott, LLC, in the firm's Philadelphia office. You can contact the company at www.escm.com.