Brownfields Brownfields

Urban redevelopment is generally beset by many problems and issues and presents major challenges to communities across the United States.  Brownfield concerns about pollution and the difficulties associated with cleanup for land reuse compound an already difficult matter.

Environmental Insurance is a tool that might be able to help stimulate redevelopment of brownfield projects by addressing some of the issues and problems associated with brownfields.  Environmental Insurance provides a method to quantify economic risks associated with brownfields.  This ultimately assists in the investment decision-making for developers and other equity investors and helps to give lenders justification for providing investors easier access to debt capital.

Sound risk management should consider the use and benefits of environmental insurance along with other traditional risk management techniques such as indemnification agreements and risk retention.

Body-Borneman has stepped to the plate to offer municipalities, redevelopment agencies, developers, investors, lenders and other interested parties customized environmental insurance services and products.  Body-Borneman offers these stakeholders significant experience in both brownfields redevelopment and environmental risk management.  Environmental insurance products placed by Body-Borneman include:

Cleanup Cost Cap

The Cleanup Cost Cap policy indemnifies the insured for cleanup costs, as defined in the remedial study, that are above the anticipated cost of cleanup. Coverage is provided for cleanup costs at, adjacent to or emanating from the defined site location. The policy attaches above the expected cleanup costs (self-insured retention). Premium discounts are available if the insured elects to have the coverage attach in excess of a buffer layer. Additional premium discounts are available if the insured shares in the cost overruns.

The Cleanup Cost Cap is designed to address the risk and uncertainty associated with beginning an environmental remediation project. This mechanism is crucial to property owners who are cleaning up properties.

Pollution Legal Liability

Pollution Legal Liability provides coverage against unknown and, in some cases known pollution conditions. This policy provides both first and third party coverage for the insured property. The policy responds to third party legal liability claims including on-site and off-site bodily injury and property damage, remediation expense from pollution conditions on, at, under or emanating from covered locations, and provides legal defense expense arising from on-site and off-site loss or in connection with remediation expense. The policy can be endorsed to include coverage for environmental exposures related to owned transportation, vendor transportation and non-owned disposal sites.

Finite Program

A finite program is generally structured whereby the entire expected cleanup costs might be included in the insurance program by incorporating a risk funding provision. This limited risk transfer program incorporates the use of the underwriter’s environmental management experts to review remediation action plans, provide oversight of the remediation and initiate aggressive cost containment. Other potential benefits of this type of program include:

  • Investment income on premiums paid into an experience fund can be applied toward loss payments
  • The program may allow the policyholder to spread losses over several underwriting years, thus a multi-year contract with premiums paid annually provides for leveling of payments
  • The program may contain profit sharing provisions
  • Partial or complete repatriation of the balance in the experience fund to the policyholder at the
    end of the contract period, or application of the balance to policy extension options.

Secured Creditor Impaired Property (SCIP)

SCIP enhances a lender’s environmental due diligence process for commercial real estate backed loans.  The policy protects the lender from loss of collateral value; the inability of the borrower to repay the loan due to environmental problems; and, liability for environmental conditions at foreclosed properties.  Although the policy is designed to protect the lender, it is important from the viewpoint of redevelopers as the SCIP might make lenders more willing to provide capital for brownfield redevelopment projects.

Integrated Program

An integrated program can be tailored to the specific needs of the policyholder and may include a blending of any or all of the above-described programs. By combining a cost cap, pollution legal liability and finite program, a policyholder can use cost effective financing to handle remediation of pollution conditions while using true risk transfer of other environmental risks.