What to Expect in Today’s Changing Marketplace
As premises pollution insurance comes of age, we are experiencing definite changes in carriers offering the product, risk appetite, policy duration and price.
Premises pollution insurance (also known as pollution legal liability) is a useful tool for the transfer of environmental liability in real estate transactions to the insurance carrier. Insuring agreements within the policy tackle both on- and off-site cleanup costs, associated third-party liability and legal defense expenses. Features such as natural resource damage, diminution in value, non-owned disposal site liability and hazardous constituent transportation are included. While environmental insurance claims are infrequent, they are costly and remedies are protracted.
Today’s policies include expanded perils such as mold, virus, illicit abandonment, and/or inadvertent disturbance of asbestos and lead paint. Business interruption coverage is available. Supplemental policy provisions add crisis communication expenses and green replacement costs.
What is constricting within the marketplace is the duration of the pre-paid policy term. Five years is becoming the new norm. Ten years maximum may be available when the property to be insured is not industrial or undergoing development.
Appetite for suspected environmental conditions is tightening as today’s underwriting process requires submission of detailed site history and, perhaps, supporting site investigation for cleanup coverage consideration. Should property history suggest pre-existing contamination, the cleanup insuring agreement may be conditioned by governmental mandated action triggers, no development clauses, voluntary investigation exclusions, or occasionally excluded.
With rare exception, cleanup of known contamination will be excluded until remediated and must be openly negotiated into the deal price. Cleanup limitations are tailored by constituent/exposure pathway to retain coverage for unknown contaminants. Policies can be endorsed to add back cleanup once regulatory no further action status is obtained, protecting the insured should a reopening future event occur.
Bear in mind that policies with cleanup limitations are still beneficial to the real-estate transaction, as the third-party insuring agreement includes bodily injury, property damage and associated legal defense costs related to known or suspected conditions.
Even with AIG’s surprising exit from this product line in 2016, and mergers between Chubb/ACE, XLCatlin, the count of carriers offering premises pollution insurance has grown from a handful to over 20 in the past 10 years. Added competition softened pricing, and claims severity tightened risk appetite. The majority of carriers have recently pulled back on their limit capacity per policy issued. To counterbalance, they created follow-form excess limit products to fill any limit gap and foster carrier sharing of large risks.
Should your business plans include divestiture or acquisition of commercial property, we encourage you to reach out Hylant’s in-house environmental brokerage specialists.