Real Estate Owners & Developers 

What is a Pollutant? 

Any material, substance, liquid, product, etc… which is introduced into an environment for other than its intended use / purpose. Fresh water, cheese, and milk have all been classified as pollutants by Insurance Carriers under various circumstances. What pollutants are impacting your operation?

Environmental Exposures Impacting Real Estate Owners and Developers 

May include, but are not limited to;  Pollution from neighboring properties migrating onto yours, i.e. PFAS, Glyphosate, petroleum…;  Legionella / mold;  Storm water runoff;  Environmental cleanup and associated liabilities created after a fire is put out;  Vapor Intrusion;  Historical contamination from agriculture, mining, lagoons, landfills, manufacturing, scrap yards…;  Natural resource damages; Easements that cross the property which may leak or spill hazardous materials;  Leaks from elevator hydraulic fluid storage tanks;  Impacting sensitive areas such as wetlands or endangered species;  Corroded wastewater and storm water sewers;  Excavation through and spreading of unknown preexisting contaminated soil;  Impacting groundwater from drilling and excavation work (i.e. cross contamination of aquifers, etc.);  Old and/or unknown leaking underground storage tanks;  Impacting underground utilities during construction;  Collapse and/or or explosion during and after construction;  No auditing of waste handling and disposal companies;  Tenants using or storing environmentally sensitive materials, chemicals, waste….;  Spill of oils/fuels/chemicals brought onsite;  Vandalism;  Sick building syndrome;  Asbestos;  Lead;  loading and unloading products/materials from tucks, rail road, barges, aircraft over unsealed ground;  Past/present use of septic systems;  Above ground or underground storage tanks;  Adverse reactions and interactions of chemical compounds that accidentally commingle during a fire;  Wastewaters generated from human septage;  Janitorial cleaning compounds;  No emergency and spill control plans;  nuisance odors;  Illegal dumping or burial of hazardous materials;  Illicit abandonment;  Brownfields….

Environmental Loss Examples 

1. Several office employees became ill from Legionella.  The cause of the Legionella was the improper sealing for the ducts during the installation of a new HVAC unit, which allowed condensation to build up.  The employees sued the property owner and the contractor.
2. A warehouse housing a variety of materials caught on fire.  Hazardous materials caught on fire allowing vapors to impact neighbors and contaminated the ground and ground water.  Residents filed suits for bodily injury from inhalation of toxic vapors, cost for citizens suits and remediation exceeded $500,000.
3. A real estate developer placed a new building on the site of a former parking lot. During excavation, petroleum hydrocarbon contamination was discovered.  Cleanup costs exceeded $700,000. 
4. A real estate investment trust (REIT) owned several parcels of vacant land in a remote area. When the owner and contractor visited the site to begin construction, they discovered that several piles of unidentified waste had been illegally dumped on the property. The owner had the piles tested, at a cost of several thousand dollars. The piles were determined to contain hazardous waste, and the owner’s cost to dispose of it exceeded $250,000. 
5. A real estate limited partnership acquired property previously used for farming on which they planned to build a mall. The firm hired a consultant to conduct a Phase I Environmental Assessment. The property was determined to be “clean.” However, when excavation for the mall began, 100 drums of buried pesticides and herbicides were unearthed. The chemicals contaminated the soil and had to be removed at the firm’s expense. Remediation and drum disposal costs exceeded $750,000 
6. An environmental consultant performed a phase I site assessment at a site that had been previously used for industrial purposes.  The consultant submitted a report saying that negligible contamination had been found.  The property was subsequently sold.  During excavation an unregistered underground storage tank was discovered on the site that had been leaking.  The property developer sued the consultant for $1.2 million for remediation expenses, lost profits, and diminution in value. 
7. An excavation/grading contractor unknowingly spread petroleum-contaminated soil across a project site during fill operations.  The contractor and property owner were named in a lawsuit for exacerbating the extent of contamination. After lengthy deliberations, the contractor and property owner were eventually removed from the lawsuit, however, they had invested $250,000 in defense. 
8. An excavation contractor was subject to cleanup costs and business interruption expenses in excess of $500,000 when they ruptured and unmarked petroleum pipeline.  The contractor was forced out of business, so the property owner had to pay the bill.
9. While clearing a construction site for a new shopping mall, the building contractor followed routine procedure by hauling construction debris to a local landfill. Later, when neighbors close to the landfill complained about a strange odor, it was discovered that the debris contained hazardous materials. The municipality sued the developer for clean-up costs, which the court awarded in the amount of $1.2 million.
10. While excavating for a foundation, an unknown underground storage tank containing oil was ruptured. Hundreds of gallons poured out before the rupture was closed. The entire street and neighborhood lots were covered. Settlement costs paid by the developer to cover third-party claims for bodily injury, property damage and clean-up totaled $5 million.
11. A real estate developer completed a subdivision.  Shortly after completion, small sinkholes began to appear in the development, soon giving up all kinds of debris. Residents feared the debris could extend underneath some of the homes. Homeowners filed a lawsuit against the contractor/developer. Because the contractor could not identify the owner of the debris, they were forced to clean it up at a cost exceeding $1 million.
12. A HVAC contractor was hired to upgrade an office buildings heating system. While working in the building, the contractor failed to vent the system properly, causing a release of carbon monoxide. Building occupants complaining of headaches and nausea were rushed to the local hospital. As a result, several bodily injury suits were filed against the building owner in excess of $1,000,000. 
13. The concrete secondary containment of a 10,000-gallon diesel aboveground storage tank was cracked. A release from the tank spilled 8,000 gallons into the containment. The diesel seeped into the underlying soils and required costly excavation and removal. The total cost for investigation, removal and disposal exceeded $320,000.
14. A real estate owner hired an electrical contractor to upgrade a buildings electrical system.  During trenching operations, a backhoe hit a natural gas pipeline causing an explosion. Third parties filed bodily injury claims against the contractor, as well as the property owner whose building was destroyed in the explosion. Claims exceeded $2.5 million. 
15. A dry cleaner leased commercial space from a property owner.  PCE a dry cleaning chemical was detected in soil and groundwater.  The dry cleaner was forced out of business and the property owner paid $940,000 for investigation, remediation, defense and third party bodily injury and property damage claims.   
16. A commercial real estate owner was subject to defense costs exceeding $25,000, in addition to property damage and bodily injury claims exceeding $400,000 from a neighboring residential community. During sewage installation, a subcontractor improperly tied in piping. This caused raw sewage to migrate into the underlying groundwater and contaminate residential wells.
17. New construction commenced on a previously undeveloped parcel of land.  During excavation and dewatering activities, contaminated groundwater was discovered.  The developer was required by State regulatory authorities to collect, test and treat groundwater pumped out during the excavation process.  Contaminated soils were also discovered at the site.  Construction delays and additional expenses totaling over $1,000,000 were incurred by the developer.  It was eventually determined that the contamination had migrated from a nearby manufacturing facility that had gone into bankruptcy several years prior to the development project.  
18. A small power coating company which leased space in an industrial unit from a large property owner went into liquidation.  Contractors employed to refurbish the unit discovered large, poorly maintained process tanks leaking chlorinated solvents.  Furthermore, chemicals escaped through cracks in the concrete floor, causing extensive soil and groundwater contamination to the surrounding property.  As a result of the former tenant going into liquidation, the property owner became liable for the resulting environmental exposures.  Significant expense was incurred to remove the source area, impacted soils and to install a groundwater treatment system.

Benefits of Environmental Liability Insurance 

Most real estate developers/owners lack the financial strength to self-insure their potential environmental liabilities.  Under CERCLA, the government offers real estate buyers the innocent landowner defense if they perform environmental due diligence (All Appropriate Inquiry (AAI), Phase I or II site assessments, Baseline Environmental Assessments (BEA)….).  As we have learned, these reports are not perfect and unexpected environmental problems do occur.  

While the innocent landowner defense protects real estate developers/owners from the government, it does not protect you from third parties such as neighbors, whose property is being contaminated by pollutants emanating for your property.  

Most real estate developers/owners further address this issue by transferring their risk via legal environmental indemnifications to the property seller.  What value is a legal environmental indemnification if you discover an environmental problem and make a claim only to find out the seller who signed the indemnification has passed away and the estate dissolved?  What if the seller moves out of the country?  Gets a divorce?  Are monies set aside to address environmental issues or is all you have a signature?

Another exposure that must be addressed is “who are you doing business with?”  As the real estate owner/developer you can do everything possible to minimize or eliminate your environmental exposures but those you do business with can draw you into a liability situation, i.e. contractors, tenants….  

Three Overlooked Benefits of environmental liability insurance

1. Defense Costs:  Environmental liabilities are relatively new and very litigious.  Even if you do nothing wrong you can still get named in a suit and have to expense defense costs i.e. legal fees, environmental investigations 
2. Claim Management:  All policies come with specialists to assist you in handling a claim.  Who oversees communications, public relations, emergency response, government compliance, financial management, third party claims for bodily injury, property damage, natural resource damages….?
3. Third Party Liability:  The majority of the time the cost to clean up the environmental problem/s is far less than the associated claims that come in from third parties for bodily injury, property damage and business interruption.  You need to look at your client’s and neighbors that can be impacted if you or a sub-contractor/vendor create an environmental loss.

Environmental Liability Insurance Coverages

Environmental Impairment Liability (EIL) 

EIL is for real estate owners & developers susceptible to economic loss caused by pollution that actually or allegedly originated from their properties.  Sometimes referred to as Pollution Legal Liability (PLL), this coverage is for those who own, rent, lease, operate, or have any other insurable interest in real property and/or the operations. 

Coverage can be written in a variety of ways to address new conditions that may occur and/or unknown preexisting environmental conditions.  Coverage can include third party bodily injury and property damage, along with business interruption, on and off-site clean-up, legal defense, Non-Owned Disposal Site Liability, Transportation Pollution Liability, and more. EIL can be offered on multiyear terms, which typically provides annual savings over the term of the policy. Most EIL policies cover above ground storage tanks up to a certain size.  You can also cover multiple locations on a single EIL policy.

Contractors Pollution Liability (CPL)

Real estate owners & developers have potential indirect environmental exposures from the service vendors & contractors they hire to perform work on their behalf.  CPL insurance protects real estate owners / developers should their vendors cause or exacerbate an environmental condition. 

Property Transfer Coverage

When buying or selling property there can be unknown preexisting environmental conditions. Since environmental due diligence (All Appropriate Inquiry (AAI), a Phase I or Phase II survey, Baseline Environmental Assessment (BEA)….), cannot guarantee uncovering all potential environmental liabilities, insurance companies have created property transfer insurance. This coverage protects the new owner or any party with an insurable interest, against unknown environmental conditions that may be discovered during the policy period, that were not caused by the new owner. 

This coverage not only helps to keep the property at its maximum value, it will assist the purchaser in being able to secure the necessary financing to complete their transaction.  Real estate owners and developers who use this product as part of their risk transfer strategy often find they can negotiate with the seller to share the cost and negotiate a better mortgage rate than if they did not have property transfer coverage.  You can cover multiple locations on a single policy.

Transportation Pollution Liability (TPL)

Generally, Commercial Auto policies will exclude pollution losses arising from spills or other releases of their cargo. Broadened Transportation Pollution Liability affords coverage during the loading, unloading and transportation, for a spill, release or sudden upset and overturn of transported cargo.