Over the past decade, industry has become increasingly aware of the environmental risks associated with property transfer. Liabilities can stem from unknown historical conditions or past operations. While it’s natural to associate heavy industrial and manufacturing sites with environmental exposures, these exposures are just as much a liability for residential, commercial, transportation and light manufacturing properties as well. Because of federal and state regulations, past case law and due diligence, industry is seeking various strategies for transferring property with limited risk.

Environmental Assessments

Prior to finalizing property transfers, industry often opts to perform Phase I environmental site assessments in order to determine a property’s environmental condition. These assessments also identify a buyer’s liability and document that appropriate inquiry was made to satisfy the innocent landowner under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA).

A Phase I assessment can help to identify any potential environmental liabilities and encumbrances. However, it cannot fully eliminate a purchaser’s liability with regard to past uses or existing environmental conditions associated with a property. After completing the Phase I assessment, the environmental professional can make loss control recommendations either for or against improving the status of the property. He or she can also identify concerns which require further investigation such as sampling typically performed during a Phase II assessment.

Insurance Solutions

Financial institutions are exploring pollution insurance products as an acceptable risk transfer mechanism for overall portfolios, higher exposure portfolio classes or individual locations. Various pollution insurance products are currently available. Pollution Legal Liability (also known as Environmental Impairment Liability) provides sudden and gradual coverage for third-party liability.

First-party pollution policies provide coverage for a government-mandated on-site pollution cleanup at covered locations. XL Environmental's Pollution and Remediation Legal Liability (PARLL) protects industry from both on-site and off-site pollution conditions under one policy form. Unlike traditional policies which require a government-mandated cleanup to trigger coverage, our PARLL policy responds to the mere discovery of on-site pollution conditions.

XL Environmental will also manuscript policy forms to meet various industry needs. Risk Management options include a funding mechanism for environmental liabilities or captives. Products are also available to blend self-funding layers or captives with true risk transfer insurance.