Environmental Lawsuit Protection

Environmental Protection for Real Estate Transactions Commercial and Industrial Council Scott Barry January 10, 2007 Environmental Protection for Real Estate Transactions  Scott Barry, President of Intercorp, Inc.    Intercorp is a Managing General Insurance Agency. Intercorp specializes in environmental insurance and real estate appraisers errors and omissions insurance. Intercorp has developed a product specifically for the agricultural community. Trends - Environmental  Why now - we never had this problem in the past?  At the Tipping Point… new wave of environmentalism is upon us.  Strict laws have been implemented over the past 30 years. Court challenges have been rebuffed.  New rules are being implemented resulting in fewer defenses from environmental lawsuits.  New party in control. A Trends – Impact on Real Estate Community How do all of these things tie together? Increased awareness of pollution!  Legal and social protections for property transactions are quickly being eroded!  Neighbors and others are no longer willing to “look the other way”!  Impact of pollution reduces the value of property where the pollution took place AND to adjacent properties as well!  What is Pollution? Pollution is the discharge, dispersal, release or escape of:  Smoke Vapors Soot Fumes  Toxic Chemicals Liquids or Gases Waste materials Other irritants         Acids Alkalis  Contaminants …into or upon land, the atmosphere or any watercourse or body of water. Federal and State Laws  Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) aka Superfund Law  Imposes strict liability (liability without fault)  Is retroactive  Includes current and prior owners of contaminated property.  Comprehensive Environmental Response, Compensation and Liability Act (CERCLA)  “All Appropriate Inquiry” Rule aka ASTM International standard E1527-05.  Effective November 1, 2006.  Clarifies the standard requirements to identify hazardous substances in Phase I reports.  New implications to purchasers of properties.  Comprehensive Environmental Response, Compensation and Liability Act (CERCLA)  “All Appropriate Inquiry” Rule  Rule imposes specific educational, certification, licensing and relevant experience for the “Environmental Professional” (EP).  Rule requires that the written Phase I report include two signed declarations by the EP.  Places greater emphasis on sources of information used by the EP.  Enhanced requirements to search for and review historical records. Environmental Liability  Environmental Liability is “strict” liability  Environmental conditions on a property, be they known or unknown, are the responsibility of the buyer and financier. Environmental Losses  Environmental issues affecting properties Asbestos  Lead paint  Underground Tanks  Unknowns buried/undocumented by previous owners  Lead in soil  Mold  History of Environmental Insurance Emerging environmental awareness coupled with the passage of federal and state laws imposing strict liability has resulted in the exclusion of almost all liability coverage for pollution in standard insurance policies.  This coverage gap has led to the growth of specialized pollution policies.  Actual Claims  Real Estate Development firm purchased property that Phase I identified as “clean”.  During development 100 drums of buried pesticide were found. Cost - $750,000.  Dry Cleaner - insolvent & vacated premises  Solvents had been dumped down sewer pipe – Cost to clean up $1,000,000. Tenant insolvent - property owner was sued.  Tenant stored hazardous waste - it leaked.  Why Buy Insurance?  Benefits of Insurance Indemnification for the costs of covered losses  Reducing the buyers financial uncertainty  Promoting insurers loss control activities  Protecting the buyer and the financier  What Products are Available? Environmental Insurance has been specifically designed for buyers and sellers of real estate.  Coverage for:  Cleanup costs for the property.  Cleanup costs for the neighbors properties.  Bodily Injury to other people and their property. * Subject to terms, conditions and exclusions of the actual policy.  What to be aware of…     Not all environmental policies are the same. Be sure to understand what is being purchased. Cheaper coverage, while available, often does not provide the coverages really needed. Pay particular attention to the exclusions contained in the environmental policy. With environmental insurance, you usually “get what you pay for”. Environmental Lawsuit Protection Questions and Answers www.intercorpinc.net or 800-640-7601