A properly structured environmental policy can go a long way towards reducing the impact of unexpected risk of a rehabilitated site
Commercial Property Insurance
A fascinating trend today is the rehabilitation of historically industrial sites into exciting new spaces. Factories along a river can become loft apartments over trendy eateries. Old rail yards are being repurposed as high tech incubator spaces. From Denver’s Union Station to the banks of the Charles River in Boston, areas that were once considered unusable are becoming the hottest places to be.
Environmental insurance has played an important role in making this happen. Developers are buying policies to help protect themselves against excessive environmental risk, allowing the deals to go through. While no company will intentionally cover the remediation of known conditions (the burning part of the building), it is often possible to craft coverage around that. Third-party claims for Bodily Injury or Property damage for those known conditions are possible, as well as cleanup of other contaminants not discovered until the development starts. This allows developers to determine the costs related to remediating what they need to take out, and purchase insurance to protect from unforeseen complications.
The challenge of writing this coverage is twofold. The first issue is the amount of information the underwriters will need. Complete and thorough environmental assessments are absolutely required to purchase the most effective coverage. For most of these sites, that is not a problem as the developer has done a thorough evaluation before starting on the project.
The second challenge is the quality of the environmental reporting done. This is a relatively new issue and one that seems to be growing. We often find carriers pushing back on the methodology used in creating the reports themselves. Underwriters are coming back and contesting the quality of the report, and are thus unwilling to depend on it for underwriting purposes.
It is therefore important for people considering these types of opportunities to be thinking about hiring the best possible environmental professionals to assess their risks, as the quality of that work will have a direct impact on the availability, scope, and cost of coverage. It is also important for them to understand what insurance can, and cannot, help with. Known contamination that needs to be removed is the cost of developing the project and is not typically insurable. Where these policies shine however is when the unknown occurs, or when a neighbor alleges bodily injury from exposure to contaminants that have been uncovered during construction.
A properly structured environmental policy can go a long way towards reducing the impact of unexpected risk and can be the difference in achieving highly successful rehabilitation.
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