Using Environmental Insurance to Manage Legal Liability Exposures. SterlingRisk Construction & Real Estate Risk Transfer Forum February 11, 2014

Transcription

1 Using Environmental Insurance to Manage Legal Liability Exposures SterlingRisk Construction & Real Estate Risk Transfer Forum February 11, 2014

2 Why Should Owners worry about Environmental Exposure? Environmental liability is strict, joint and several if an owner, operator or generator Unexpected exposures in commercial buildings affect indoor air quality Owners Liability from contractors creating or exacerbating contamination Legionella, mold, carbon monoxide, fumes, odors, lead, asbestos, bacteria, fungi Leaking underground and above ground storage tanks Contaminants from historic operations at properties migrate in soil and groundwater onto and from the property

3 Why Should Contractors Worry about Environmental Exposure? General Liability: Your work causes or exacerbates bodily injury or property damage claim. Pollution exclusion applies. o Pollutant = ANY solid, liquid, gaseous, or thermal irritant or contaminant Contractors Pollution Liability: Your work causes a bodily injury or property damage claim relating to pollutant o Pollutant = ANY solid, liquid, gaseous, or thermal irritant or contaminant Professional Errors & Omissions: Covers Loss attributable to professional negligence including engineering activities, testing, laboratory services, water quality consulting, spill response and storage tank installations and removals

4 Key Risk Transfer Concerns Mold, Microbial, Lead & Asbestos Exclusions Pollutions Exclusions On General Liability and Property Policies Business Risk Exclusions Contractual Inadequacies o Defense and Indemnity Insurance Value

5 Examples of Recently Filed Claims for Owners and Contractors Contaminants cause neighboring properties to be diminished in value Midnight dumping on properties Disposal of waste which goes offsite Fear of getting sick by third parties and medical monitoring costs High severity bodily injury from bacterial exposure re: Legionella

6 Other Examples of Recently Filed Claims PCB containing electrical equipment Storage and use of chemicals in operations and by tenants Disposal of contaminants into septic systems or sanitary waste water systems Inadequate containment in storage areas and loading/unloading areas Re-development and renovations lead to discovery of latent conditions or cause new conditions Tenant operations impact property Natural disaster Vapor intrusion to building structures Volatization of compounds in building materials and interior furnishings, regional factors ie: perchlorate or MTBE in drinking water

7 Contractor Liabilities for GREEN Buildings LEED Environmental Exposures 1. Site Planning Historic soil and gw exposures on a brownfield site 2. Water Efficiency Vegetative Roofs, water intrusion and mold 3. Indoor Air Quality Volatile Organic Compounds 4. Materials Use Recycle and Minimize Offsite Hazardous Waste 5. Energy Efficiency HVAC Systems spreading airborne disease and contamination

8 General Categories of Claims Owners have Sought from Contractors Bodily Injury Bad Publicity/ Reputation Damage Higher Energy Costs Loss of Tenants/Use Lower Rents Loss of Tax Incentives Higher Water Costs Higher Carbon Emissions Lost Loan Incentive Relocation Costs Evacuation Costs Illicit Abandonment Disposal Costs Engineering and Legal Costs Diminished Property Values Natural Resource Damages Loss of Revenue Cleanup Costs Property Damage

9 Why are typical damages in millions not thousands? Real Estate Developer paid $11M Improper disposal of asbestos material during development 13 Families of North Ridge Estates, Oregon got awarded damages NY Landlord paid Tenant $3M plus Carbon monoxide from faulty building heating system caused birth defects to newborns Luxury NYC Building owner paid $3M plus Hired contractor to redo building s façade Toxic crystalline silica dust got inside building accumulating like snow Cleanup, personal injuries and property damage claims

10 Why are typical damages in millions not thousands? Owners of a track and contractor liable for $9M Allowed raw sewage to be dumped into Bronx River Successor to automotive brake manufacturer liable for $5M Prior company allowed plant waste to be used as fill material in Stratford, CT Cleanup of contaminants include 46 residential properties 12 prior owners jointly liable to pay EPA more than $33M Cleanup includes PCB contaminated soil from Oyster Bay Site in Nassau County

11 What Should Contractors Pollution Liability Policies Cover? Blanket operations and projects Seek Occurrence form (not claims made) Emergency response costs Remediation as recommended by environmental professional MOLD No asbestos, silica, silt, sediment, lead, EFIS or electromagnetic field exclusions Blanket non-owned disposal locations May seek to avoid or limit professional exclusions Can be Practice (annual) or Project Policy (term of project + completed operations)

12 What Do Pollution Liability Policies Cover? Protects owners and operators from environmental liability re: owning property or operating facilities Covers onsite and offsite pollution conditions, transportation of materials or wastes, and pollution at offsite disposal sites Both sudden and gradual pollution conditions New and pre-existing (historical) pollution conditions The cleanup of your own property Claims by others demanding offsite cleanup of pollution conditions and paying for the loss of value of the offsite property

13 What else do Pollution Liability Policies Cover? Claims by others for bodily injury Strict Liability for the disposal, transportation, treatment of waste Lost profits, rents, payroll expense and relocation from a pollution condition causing a business interruption Defense coverage Emergency response services (legal, engineering and technical) Punitive damages, fines, penalties where allowable by law Natural resource damages and biodiversity

14 Do Pollution Policies Pay Claims? One Environmental Insurer recently reported it has 3,400 open pollution claims Every Month they have 250 new pollution claims Every Month they pay out and close 265 claims 300+M in environmental was paid out in dedicated underwriters and 80 Dedicated Environmental Claims Specialists Less than 1% ends up with lawsuits being filed Another Environmental Insurer recently paid out more than $400M under pollution policies and pays $20M per month in environmental

15 What are the Key Takeaways? Pollution Insurance has Evolved to Fill the Gaps in General Liability and Property Policies Commercial Real Estate Owners and Contractors Have Exposure to Environmental Loss Environmental Claims can be Catastrophic in Amount of Claim and Time Involved to Resolve a Claim: Don t Bury Your Head in the Sand Pollution Insurance Provides Services, Legal Defense and Reimbursement Knowledgeable Counsel and Brokers Working Together Can Best Protect Client s Interests with Negotiating Coverage and Facilitating Claims

16 Thank You! Howard Tollin, President Sterling Environmental Services (516) Jeffrey J. Vita, Partner SDV (203)