RISKVUE ARCHIVE | FEATURE STORIES

Negotiating Environmental Insurance Coverage

By Dick Nowlin and Barbara Battiste Kelley

Environmental liability insurance is once again available in a number of different forms for some types of property-related risks. Better yet, the costs are reasonable in relation to the benefits.

History

State and federal Superfund Laws enacted in the early 1980s eventually drove insurers out of the business of providing environmental incident-related property liability coverage. Beginning in the mid-1990s, with the development of state-pioneered land recycling/brownfield redevelopment programs that eliminated superfund liability, environmental liability coverage for remediated sites began to reappear.

At least nine major insurers, including AIG, Chubb, ECS, Gulf, Hartford, Kemper, Zurich, ACE, and London Markets, are now offering some form of pollution liability coverage for remediated sites and other “clean” commercial/industrial properties. The types of coverages available generally include direct pollution liability coverage for owners, purchasers, lessees, and lenders; remediation cost cap; contractor/consultant errors and omissions; and secured property or credit protection coverage. Coverage is available for a variety of environmental risks, including storage tanks, asbestos, lead, radioactive waste, as well as garden variety hazardous substance contamination.

Negotiation

To get the environmental liability coverage that you need at a good price, you should be prepared to negotiate specific coverage elements and wording using an experienced insurance broker, legal counsel, or others with knowledge of insurance and environmental law. Such a team is often needed because (1) there is no standard form for these coverages and they can sometimes be combined, (2) there is a lot of litigation on the meaning of coverage words and phrases, (3) figuring out needed coverage is often complex, and, (4) the market is very competitive, with opportunity for price improvement. In addition, the particulars of coverage and price can cause wide price variations from policy to policy and among the insurers. Limits, deductibles, terms of renewal, and other factors can have a considerable effect on price.

An experienced team working on product identification, product solicitation, assessment, and selection is key to getting the best deal to favorably match the types of coverage for the types of risk involved and the indemnification needed.

The following are suggested steps in the coverage negotiation process:

• Gather information about the environmental condition of the site. Learn about its past use and site investigations.
• Translate intention and objectives into needed coverages. Is the coverage to be procured incident to remediation to facilitate redevelopment and/or resale? Is a guaranteed cap on remediation costs the objective? What coverage term is desired?
• Select an experienced environmental insurance broker.
• Prepare an RFP, working with the broker, counsel, and environmental consultant. Solicit responses from a number of insurers; narrow the field to two or three and compare the offerings.
• Analyze and review the responses; prepare a chart comparing the type of coverage, price, and other pertinent aspects of the proposals.
• Have the broker then negotiate the most favorable terms possible with one or two insurers.
• After this round of negotiations, you, with your broker and counsel, should focus on one proposal. Analyze and discuss both fine and gross points of coverage.
• When satisfied that the best possible and appropriate coverage has been developed, summarize and review the proposed coverage; obtain the final policy language from the insurer and review it carefully, both from an insurance and a legal viewpoint; and then secure an insurance binder from the insurer.
• Secure the insurer’s written assurance that all requirements in the policy for submittal of information, and other requirements for coverage, are met.

We also suggest periodic review of each environmental insurance policy to assess whether changes are required.

Remember that everything is negotiable. These are new and innovative policies and insurers are generally flexible and accommodating. The trick is to determine what coverage enhancements and modifications are important, and to know what can be gained with negotiation.

Some of the key “additions” we try for, depending on price, include:

• Coverage for “new” contamination that is caused by future, more stringent regulations
• As broad an array as possible of who is covered (e.g., your company, remediators, property seller, future buyers, mortgagors)
• Removal of some of the common exemptions from coverage, such as asbestos, if they are a concern at the particular site
• Retroactive coverage
• Option to renew at the end of the policy period
• A portfolio policy for several sites 

ABOUT THE AUTHORS

Dick Nowlin is chair of the Environmental, Land Use and Energy Law Group at Lindquist & Vennum P.L.L.P., practicing in the firm’s Saint Paul, Minnesota, office. Mr. Nowlin has practiced in the environmental waste and land use law areas throughout his 25-year career. He may be contacted by e-mail at dnowlin@lindquist.com.

Barbara Battiste Kelley is a legal assistant in Lindquist & Vennum’s St. Paul office, with over 13 years’ experience in the environmental, regulatory and legislative arenas. Ms. Kelley is also a nationally certified Environmental Risk Manager. She may be contacted by e-mail at bkelley@lindquist.com.

riskVue | The webzine for risk management professionals
March 2002