Pollution Insurance: What you need to know

Any present property or any commercial real estate site you might buy could be polluted with contaminated soil, ground water or structures, and it could even be causing environmental damage to adjacent properties.

Property owners, past or present, can find themselves facing clean-up costs that exceed the value of the property or paying for hidden costs associated with complying with environmental statutes and laws.

Environmental liabilities may cause property to lose value or restrict its use and development. And as the owner or former owner, you could face liability for contaminants migrating to adjacent properties, as well as for personal injury and property damage caused by the release of hazardous substances (including emissions).

The two most comprehensive of laws impacting environmental liability are CERCLA (Comprehensive Environmental Response, Compensation and Liability Act of 1980) and its amendment SARA (Superfund Amendments and Reauthorization Act of 1986). Congress designed these laws to provide funding for the clean-up of abandoned sites and to recover costs from potentially responsible parties.

Liabilities
Federal mandates, such as CERCLA, can be potential time bombs for property owners. They are liable for whatever contaminants that preceded their ownership unless there is an act of God, an act of war, or proven innocent landowner. To earn this last defense, the real estate buyer must perform due diligence in advance of purchase to uncover all of the previous uses of the property. This last defense requires:
-  All potentially responsible parties to have reviewed current and historical ownership and uses of the property by using historical evidence such as interviews with knowledgeable sources, government files, historical archives, aerial photographs, etc.
All potentially responsible parties to have reviewed governmental records documenting past and current environmental violations and restrictions.
-  Past, current, and potential owners should have physically inspected the property for such contaminants as asbestos, underground storage tanks, radon, transformers (containing PCBs), and signs of contamination (stressed vegetation, spills, etc.) as well as potential sources of contamination.
-  In addition, all reviews must include the inspection of adjacent properties for their current and historical use, signs of contamination, as well as past or current environmental violations.

If pollution is found on a site, a review of your Commercial General Liability (CGL) policies is imperative. Past court decisions have sometimes found these to include pollution coverage, even though the policy was not intended to cover pollution. As a result, most current CGL policies have been amended to specifically exclude coverage for pollution.

Protections
Many insurance companies have policies specifically designed to provide environmental coverage, including:
-  Providing coverage for certain types of on-site clean-ups.
-  Property damage to personal property of third parties and bodily injuries.
-  Clean-up costs for third party claims beyond the boundaries of the insured site and coverage for non-owned site cleanup costs.
-  Third party claims arising from transportation of product or waste by vendors causing pollution conditions.
-  Endorsements for business interruption that cover gross earnings and extra expense when policy holders sustain losses from interruption of their business due to on-site pollution conditions.

To minimize a company’s risk, arm yourself with all available information concerning a real estate site, review insurance coverages (both current and past) with your broker, and possibly consider the purchase of an insurance product that will offer protection from the high costs of an environmental clean-up

For more information, contact:
Edward X. McNamara
216-367-5998
emcnamara@oswaldcompanies.com