Allocation of risk for known and unknown environmental conditions remains one of the major challenges in real estate transactions (conveyances or lending) – particularly transactions involving known or suspected environmental risks. Carlton Fields has developed extensive use and reliance on environmental insurance products to facilitate transactions involving contaminated properties.
We have extensive experience with all of the major underwriters writing policies on Florida properties to cover environmental contamination, including pollution legal liability policies (PLL) to cover known conditions and negotiation of policies that will “wrap-around” and supplement the State of Florida Petroleum and Dry-Cleaner Cleanup Programs, third-party indemnifications and remediation agreements, as well as cap-cap policies and development of tailored "turn-key" remediation contracts and insurance products.
The promulgation of “Global Risk Based Corrective Action” under Chapter 62-780, F.A.C., and the Florida Supreme Court decision Aramark v. Easton, holding that Section 376.313., Fla. Stat., establishes a strict liability cause of action against the owner of a contaminated property for damage caused to adjoining properties, underscore the concern.
Environmental insurance is now a recognized tool for addressing these risks, particularly where a transaction party may be unwilling or unable to provide meaningful indemnification for known or potential liabilities. While the use of environmental insurance transactions involving industrial or “Brownfield” property is obvious, environmental insurance can be used to problems in more “routine” settings, such as risk allocation in the context of the sale of shopping centers or strip malls that have or once had a dry cleaner tenant, automotive service centers, or the redevelopment of former service station sites that have residual petroleum contamination.
Depending on the particular facts of each situation, coverage generally may be available for the following types of risks, including known conditions:
- on-site cleanup of pre-existing conditions
- on-site cleanup of new conditions
- third party claims for on-site bodily injury and property damage
- third party claims for off-site bodily injury including claims by off-site third parties for diminution of value;
- third party claims for off-site cleanup resulting from new or pre-existing conditions
- business interruption coverage
One of the particular advantages of these “pollution legal liability” (PLL) policies, is the ability to manuscript a policy that will “wrap around” other existing coverage. For example, policies can be written to wrap around the protections provided by the State of Florida Cleanup Programs (for example, the Petroleum cleanup or Drycleaning Solvent Cleanup Programs) to cover risks not addressed by those Programs, such as: (1) the potential failure or insolvency of the State Program funds; (2) the failure of the Program to respond to an action to compel cleanup or to recover costs against the insured not otherwise barred by the amnesty provisions of the Florida Program; or (3) third party claims for bodily injury or property damage including claims of diminution of value raised by adjoining property owners. Similarly, polices can be written to “wrap around” an existing contractual cleanup obligations relevant to the property.
Deductibles, specific coverages and policy term are all negotiable. Lenders can be added as insureds, and policies can drafted to be insure the transferability to successive owners and their lenders. These policies generally are not written on forms reviewed and approved by the State Insurance Commissioner, and the policies are not subject to protections under the State’s insurance protection fund (as would, for example, a home owner’s policy). Other forms of environmental policies are available such as “cost cap insurance” (which is used to insure over anticipated costs of site remediation) or secured creditor coverage (which protects the lender, but not the transaction parties, from existing environmental risks).