The
environmental insurance marketplace has evolved over the decades it has been in
existence. Our experience over the last few years shows that the market is
active, with carriers willing to be innovative in order to remain competitive.
Because environmental policies are written on a manuscript basis, meaning the
policy is written on a custom basis to include coverage or conditions not
included in a standard policy, policyholders have an opportunity through
negotiation to obtain the best policy possible to suit their needs. The
following are three areas where we are seeing flexibility and creativity in the
carrier’s underwriting that address our client’s specific needs.
Known Pollution Conditions – Pollution policies generally
do not cover cleanup costs for conditions known at the time the policy is
issued. How these known conditions are defined in the policy is critical to the
scope of coverage provided. Accordingly, working with the underwriter so that
the policy defines known conditions as narrowly as possible is worth the
effort. Toward this end, providing the underwriter with a detailed summary or
chart outlining each known condition, its location on the property, the media
impacted (e.g., soil or groundwater) and the specific contaminants
identified is particularly helpful in negotiating this aspect of the policy.
Coverage for Conditions Discovered During Redevelopment – Many
environmental insurance policies contain an exclusion for contamination
discovered when demolishing existing structures or during the course of capital
improvements. Thus, for clients who are purchasing (or selling) property for
redevelopment, this exclusion may effectively operate to bar coverage. While
subject to more underwriting scrutiny, we have had success in limiting the
exclusion to contaminants found in building materials rather than a broad
exclusion for any contamination discovered during redevelopment. Carriers also
are willing to entertain providing coverage for contamination discovered during
redevelopment if such a claim is subject to a deductible or self-insured
retention that is higher than for other coverages afforded by the policy.
Named Insureds and Additional Insureds –
Insurance is often purchased in order to allocate risk between parties to a
real estate transaction. These transactions involve multiple parties, each with
their own interests (e.g., the buyer and the seller and their
affiliates, as well as even potential future owners of a property that is being
redeveloped). These parties all generally want to have the benefits of coverage
under the policy. Not all parties, however, should have or are entitled to the
same coverage. Accordingly, it is important to carefully consider which
entities receive the broadest rights under the policies (typically referred to
as a “named insured”) and which parties have other insured status (typical
referred to as an “additional insured”). This issue is further complicated by
the fact that not all policies define a “named insured” and an “additional
insured” in the same way. Accordingly, it is important to understand the
rights, duties and privileges provided by the policy to each category of defined
insureds to ensure proper coverage is extended to the appropriate parties. This
may involve discussions with the underwriter about the interests of each party.
Procuring appropriate insurance can make the difference in whether
a deal is done. Accordingly, best practice includes consulting with
professionals experienced in procuring coverage (including both brokers and
attorneys) to identify which carriers have an appetite and are willing to be
creative in their underwriting to meet the needs of the deal as well as to
negotiate with the carrier to develop policy terms that cover the risks for
which the insurance is purchased.
For more information, please contact the author Alexa Richman-La Londe at alalonde@riker.com or any attorney in our Environmental Practice Group.
