Whether you are buying or leasing a new piece of property, a necessary part of your due diligence will be the purchase of environmental insurance.
Because environmental liability is considered a “strict” liability, environmental conditions on your new site — be they known or unknown — are your responsibility.
While your attorneys may have successfully negotiated indemnification for environmental conditions, there is still a genuine exposure to your company generated from the environmental conditions at your new site.
If the former owner or landlord become insolvent, or your company has “deep pockets,” you may get pulled into third-party lawsuits or regulatory cleanup orders. You can be held responsible for what may seem like an inappropriate share (or maybe all) of the expenses.
The only effective way to manage environmental liability associated with the occupation of a new location is to insure your risk.
Environmental insurance has been available in one form or another for about 25 years. Although originally developed to plug the gap left by the absolute pollution exclusion on general liability policies, environmental insurance products have evolved in scope and application and now cover myriad exposures.
You may be surprised to learn that environmental conditions can be found on pristine, vacant land as it is being developed just as easily as they can be found on commercial property. Many times, drum graveyards and unlined, unlicensed landfills are found during construction activities on a newly developed property.
To cover the exposure associated with the occupation of a new facility, a long-term pollution legal liability policy, commonly referred to as a PLL in the insurance industry, is the appropriate risk-transfer mechanism. The PLL provides coverage for:
§ Known and unknown pre-existing environmental conditions.
§ Sites that have undergone remediation or are in the process of clean up.
§ Any type of site, from office buildings and warehouses to manufacturing and heavy industry.
§ Cleanup costs for your site and neighboring properties.
§ Third-party claims for bodily injury and property damage for both on- and off-site exposures.
§ Legal defense.
Legal defense coverage is critical, as up to 70 percent of all costs associated with environmental claims are attributed to defense.
The deductible ranges from $10,000 to $500,000, depending on your company’s financial resources and appetite for large deductibles. Limits are available from $1 million to $100 million, and policy terms are available for three, five and 10 years.
Although coverage for pre-existing conditions is a primary reason for purchasing such a policy, the policy can also cover your operations as you begin to occupy the site. By designing a policy in such a manner, your environmental liability coverage is seamless.
There are even coverage extensions available for environmental conditions that may occur during the shipping of your product, shipping waste and for the liability associated with waste disposal.
While environmental reports and indemnification provisions appear to be sufficient for the management of your environmental due diligence, they may not provide you with actual protection. By transferring this risk through environmental insurance, you are getting quantifiable, real protection against the unknown.
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