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AFFORDABLE HOUSING
ENVIRONMENTAL RISKS &
INSURANCE SOLUTIONS
Presented by:
Cliff Yeckes, P.G.
May 2013
Katrina
Sources: NOAA & AIR
Worldwide (9-29-05)
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Why we’re here today…
1. To ask questions and actively participate.
2. To learn a bit more about environmental risk transfer.
3. To learn about affordable housing environmental exposures
and how to mitigate them.
4. What we hear from clients before an incident arises:
– “I don’t have a pollution exposure”
– “I have governmental immunity”
– “We’ve never had a pollution loss”
– “I think we have pollution coverage built into our property
form”
– “It will be too expensive”
– “Too much underwriting info will be needed”
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Legal Basis for
Environmental Liabilities
Torts Negligence
Nuisance
Trespass
Strict liability
Contractual obligations Indemnification & hold harmless
Violation of environmental statutes
Complicated by:
Cost recovery
Proof of financial responsibility
Environmental Regulatory
Drivers
CWA
CAA
RCRA
CERCLA
NEPA
BRAC
National Historic
Preservation Act
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Environmental Insurance
Market Drivers
Corporate transparency & financial
disclosure
balance sheet management
historical clean-up liabilities
management of closure obligations
M&A - corporate restructuring
Real estate transactions
Environmental “Liability Buy-outs”
Operational risk control
T,S & D of hazardous substances
waste management processes
property portfolios pollution risks
Environmental Insurance
Market Drivers (cont.)
Mold, ACM and Indoor air quality
Natural Resource Damages claims
Brownfield programs
Environmental bonding
Privatization initiatives – Mass.
Brownfields, BRAC, etc.
Construction, development and
cleanup projects
Loan, real estate portfolio protection
Professional liability protection
Guaranteed fixed price remediation
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Key Exposures for
Affordable Housing
− Mold, Silica and Legionella exposures
− Asbestos, Lead Based Paint, site chemicals.
− Illicit Abandonment, Illegal dumping.
− Historic conditions
− Unknown conditions during renovation / remodeling.
− Indoor air quality, vapor Intrusion
− Emissions of fumes, dusts, vapors & spills of toxic
chemicals during demo & construction
− Exacerbation of pre-existing issues or importation of
“clean” fill or the blending of fill material
− BI/PD claims frequently occur following turnover /
occupancy of the buildings.
− Defense costs e.g. the duty to defend bogus claims
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What are we addressing? What are
some of the environmental risks?
Lead based paint
PCB in masonry
and caulking
Asbestos in place
Non-owned
disposal sites
Illicit Abandonment
Historic Contamination
Tenant “leavings”
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What is the exposure?
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The Evolution of
Environmental Insurance
1980 1990 2000
Increasingly Complex
Business Transactions
Awareness-based
Reactive and Tactical:
Focused on Risk of
Loss Due to Unknowns
Small number of “inside
the box” solutions
Risk management tools Transactional keys and
enablers
Sizeable number of creative,
“outside the box” solutions
Knowledge-based
Proactive and Strategic:
Focused on Management of
Known Pollution Conditions
Absolute Pollution
Exclusion
Changing
Legislation
Advent of Performance-
based Contracting Changes in Financial
Disclosure and
Reporting
Now Then
2013
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Key Markets
Carrier Financial Strength Available Limit
ACE AM Best : (FSR) A+ (Superior) (FSC) XV
S & P : AA- (Stable) $25M
AIG AM Best : (FSR) A (Excellent) (FSC) XV
S & P : A- (Stable) $50M
Chubb AM Best : (FSR) A++ (Superior) (FSC) XV
S & P : AA (Stable) $50M
Great
American
AM Best: (FSR) A (Excellent) (FSC) XV
S&P: A+ Strong $25M
Allied World AM Best : (FSR) A (Excellent) (FSC) XV
S & P : A (Stable) $25M
XL AM Best : (FSR) A (Excellent) (FSC) XV
S & P : BBB+ (Stable) $50M
Zurich AM Best : (FSR) A+ (Superior) (FSC) XV
S & P : AA- (Stable) $25M
•Limits subject to frequent change and do not include potential capacity available
through facultative reinsurance arrangements.
Market Commentary
• Sustained market growth - > $2.5 billion market
• Evolving Insurer risk appetite, limit, capacity and underwriting resources
• Willingness to innovate – significant flexibility
• Established claims history
• Increased focus on Insurer capital adequacy
• New product innovations – e.g. “green products”
• State Brownfield Redevelopment Programs and Incentives
• Emerging issues – e.g. vapor intrusion
• Growth in Environmental “Liability Buy-out” business
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Environmental Risk
Transfer Products
• Pollution Site Liability (PLL, etc.): still most flexible product,
10 yr. terms max., 5 yrs. only for “new” conditions – SITE /
PORTFOLIO SPECIFIC
• Contractor’s Pollution Liability: PROJECT SPECIFIC
• “CPL Wrap Up” with Mold Liability Coverage: beneficial to
residential/commercial contractors & owners
• Storage tanks
• Combined Forms – Professional / CGL / Pollution Liability –
Lots of combinations
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Pollution Liability Insurance
–The Basics
• Protects the insured against unanticipated losses associated with pollution conditions arising from:
- Unknown contamination (existing from past incidents but not yet discovered)
- New issues from known contamination (such as new regulatory requirements for completed
cleanup)
- New pollution
• Primary coverage
- Mandated clean up costs – on and off site
- Third party claims for damage or bodily injury – on or off site
- Legal defense costs
• May also cover:
- Business interruption
- Natural Resource damages
- Non-owned disposal sites
-Transportation risks
-Fines and penalties.
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Environmental Insurance Can Be
Key for an Affordable Housing
Project
1. The Analytical Phase – Environmental Studies
Environmental Consultants and Engineers
Phase I ESA – Professional Pollution Exposures
Phase II ESA – Sampling Plans and Execution, evaluation and
interpretation of subsequent Laboratory Data – Professional
Pollution Exposures as well as CPL exposures
2. Development of Remedial Action Plans and Cost
Estimates
Engineers have a Professional Pollution Exposure
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Environmental Insurance Can Be
Key for an Affordable Housing
Project
3. Demolition Phase
Demolition Contractors need CPL Coverage
4. Remediation Phase
Remediation Contractors need CPL Coverage
Site Owner should have Environmental Impairment Liability
Coverage (EIL)
Lender may desire a Real Estate Lenders Pollution Policy
to protect them from pollution conditions that may result in
loan default (or may require that they are listed as an
additional insured on the site owners EIL Coverage
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Environmental Insurance Can Be
Key for an Affordable Housing
Project
5. Real Estate Transaction Phase
Seller may provide Buyer with Indemnities. Seller may wish to
purchase EIL Coverage may cover buyer and seller.
Buyer may wish to buy EIL Coverage on their own due to lack of
indemnity or a lack of confidence in the indemnity
Seller may wish to buy EIL Coverage on their own to protect
them from environmental legacy issues
Lender may wish to be protected by being named on borrowers
policy or they may purchase Real Estate Lenders Pollution
Coverage
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Environmental Insurance Can Be
Key for an Affordable Housing
Project
6. Site Construction Phase
Site Owner may have environmental exposures from
undiscovered or under-remediated pollution conditions during
excavation and grading phases EIL Coverage
Construction GC, Grading and Excavation Contractors may come
across undiscovered contamination. May accidentally exacerbate
conditions, spills of fuels or hydraulics and fugitive dust emissions
could occur during grading or excavation CPL with tail or
completed operations coverage
Construction GC may have post construction mold issues CPL
with tail or completed operations coverage
Affordable Housing – Lessons
Learned
• Limits have ranged from $1M (minimum) to $5M.
• Terms are 1-5 years.
• Premiums are generally 1-2% of limits (for the entire term).
• Premium is 100% due at binding, some give back for
cancellation may be possible.
• Generally easy to add additional insureds to the policy.
• Deductibles are $25K to $100K.
• Be careful what you promise. Your timing is not the same as the
carriers.
• Full disclosure of all environmental data is critical. Your
coverage will be effected.
Affordable Housing – Lessons
Learned
• Goal - Narrow exclusions, broaden coverages. Data is critical.
• Keep in mind these are often small policies. Underwriters have
limited patience in manuscripting. They will walk away.
• Premium financing can be available.
• Fill out the applications thoroughly AND honestly.
• Invoices can be customized (e.g., Mass Brownfields).
• Keep in mind you are responsible for taxes and fees. Nonprofits
are still responsible.
Willis Environmental Practice
• Willis is one of three insurance brokers with a global platform
• We offer a full range of insurance, re-insurance and risk
management services – over $45 billion in premiums placed
globally
• Willis is a recognized industry leader in many specialist risk
sectors including environmental risk management
• The Willis Environmental Practice is a dedicated network of
specialists offering environmental risk transfer solutions and
• We offer a multi-disciplined approach: our members with
backgrounds and education in management, engineering, hard
sciences, law, and finance
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Saving our critters!
