1. Environmental Insurance
A Tool for Successful Redevelopment
Thomas J. Barry
Senior Vice President
Massachusetts Business Development Corporation

2. Contaminated Property Transactions
We’ve got issues!
Toxic Torts Loan Defaults
Legacy Liabilities Regulatory Re-Openers
Property Devaluation Cleanup Cost Overruns
Unproductive Assets Disposal Site Risk
Downtime Remedy Failure
Value Proposition

3. Contaminated Property Transactions
The Good News...
Existing Infrastructure
Permitting/Zoning
Cost Advantages
“Location-Location-Location”
Limited “Green Space”

4. Platform for Consensus
Divergent Views Common Goals
Communities
Regulators Lenders
Environmental Insurance
Buyers Developers
Sellers

5. Risk Mitigation Tools Contractual Tools Reps. & Warranties
Indemnification's
Financial Guarantees
Liability “Buyouts”
Performance Guarantees

6. More Risk Mitigation Tools
Regulatory Tools
Comfort Letters
Prospective Purchaser Agmts.
Covenants
Regulatory Sign-off’s (NFA’s)
MOA’s
Statutory protections

7. Still More Tools... Financial Tools: Escrow Arrangements Holdbacks
L/C’s
Trust Funds
Guar.Fixed-Price Contracts
Environmental Insurance

8. Environmental Insurance
Working Definition:
A vehicle for transferring the financial responsibility for certain risks or costs that may be present in contaminated property transactions.

9. Environmental Insurance
Brief History:
Available for past 25 years
Extensively used for the past 5 to 10 years
Grew out of need caused by:
federal “Superfund” legislation and various state environmental statutes.
Exclusion of environmental risk from CGL & Title Insurance policies.
Increasing awareness of environmental impacts.

10. Who are the Players? Have come and Gone
Five majors now provide 85% to 90%
AIG
ACE XL
Chubb
Zurich
All over $30 Billion in Assets
All rated “A” or better

11. Environmental Insurance
Benefits of Environmental Insurance:
Financial Certainty
Broad Range of Protections
Eliminates “Guesswork”
Predictable Cost
Can Protect Multiple Parties
Extensive Capacity to Cover Risk
Environmental Peer Review
Flexibility

12. Environmental Insurance
A few Disadvantages:
Doesn’t transfer ultimate responsibility for environmental issues. (Sarbanes-Oxley)
Can be difficult to obtain
Cost

13. Environmental Insurance
Disadvantages of Environmental Insurance:
$$$ COST $$$
Negotiation - Deductible - Retentions
Premium

14. What impacts the Price? Limits Purchased Underwriting Cost
Remedies/Science
Quality of Site Characterization
Regulatory Oversight
Future Use
Financial Strength of Insured
# Parties
Policy Term
Property History
Special Coverage’s
Environmental Conditions

15. What’s Out There? About 20 separate insurance products
Pollution Liability/Real Estate Liability
Contractor Liability
UST
Cost Cap/Stop Loss
Blended Finite Risk
Remediation Warranty/Remedy Assurance
Secured Creditor
Transportation
Spill/Release policies

16. Contaminated Property Transactions
The “Big Ones”
Pollution Legal Liability
Cleanup Cost Cap/Blended Finite Risk
Applicable to 90% of
Contaminated Property Transactions

17. Primary Coverage’s Pollution Legal Liability
Third Party Claims for Bodily Injury, Prop. Damage, Cleanup, both On-Site & Off-Site
Natural Resource Damages
Diminution of Value
Business Interruption/Loss of Use or Income
Regulatory Re-Openers
Transportation
Non-Owned Disposal Sites
Legal Defense/Expense
New Environmental Conditions

18. Pollution Legal Liability
Benefits
Flexibility (Highly “Manuscripted”)
Transfers Env. Risk to Insurer
Financially Backstops Other Tools
Facilitates Loan and Investment Capital
Assures Financial Performance

19. Primary Coverage’s Cleanup Cost Cap (Stop Loss)
Cost Overruns on planned cleanup
Additional cleanup due to change in regulations
Discovery of new contaminants or more
Contamination, within a RAP area
Transport & Non-owned Disposal Sites
SIR applies (usually a function of cleanup estimate)
Co-Insurance may be required
Only for cleanups of $1MM and up

20. Cleanup Cost Cap Benefits Adds Certainty/Finality to Cost
Deals with Unexpected related issues
Facilitates Loan & Investment Capital

21. What Environmental Insurance Can’t Do...
Transfer Risk in Absence of Data
Cover Risk in Perpetuity
Directly Eliminate Balance Sheet Liabilities
Pay claims related to Known Conditions
(“burning building”)
Change Real Estate Market Realities
Pay Costs Resulting from Voluntary Change
in Use

22. What Environmental Insurance Can Do...
Transfer Financial Risk
Respond to Regulatory Changes
Provide Financial Assurance (Regulatory)
Provide Broad Range of Protections
Provide Extensive Levels of Protection
Protect Multiple Parties to a Transaction
Provide a “Second Look” at Environmental Issues by a party with financial interest

23. Placing an Environmental Policy
A Few Tips for Users
Allow sufficient time
Assemble competent “team” (Broker, Counsel, LEP)
Identify & Quantify issues/risks
Practice full disclosure
Elaborate on the “Deal”
Keep Copies of everything

24. Some Points to Remember
Aggregate Limits/Multiple Insureds
Single Limit/Self-Depleting Policies
“Claims Made & Reported” Policies
Choice of Law
Language consistent with state statutes

25. Commonwealth of Massachusetts Brownfields Redevelopment Access to Capital Program (Mass.) BRAC
Thomas J. Barry, SVP, Director
Massachusetts Business Development Corporation
500 Edgewater Drive
Wakefield, MA

26. (Mass.) BRAC Program Program Purpose...
to mitigate environmental risks and unexpected costs associated with the cleanup and/or redevelopment of Brownfield sites in Massachusetts, in order to facilitate the access to private sources of loan and investment capital to fund such projects.

27. Accomplishing the objective
Make
state- subsidized
environmental insurance available to:
Parties who undertake Brownfield cleanup
redevelopment projects, and to
Lenders who finance any aspect of such
projects.

28. Program Benefits State Subsidized 50%* of standard premium for
qualifying policies/projects reimbursed
by BRAC.
* Maximum $50,000 for privately sponsored projects; $150,000 for publicly or quasi-public sponsored projects.

29. Does my site qualify? Program Requirements
site must be considered a “Brownfield”
must be some form of “financing” associated with some aspect of the Project

30. Program Carriers XL
Environmental
CHUBB
ACE USA
AIG Environmental

31. (Mass.) BRAC Program Results (Inception through 12/31/06)
Total Projects
Total Insurance Provided $1.06 billion
Total Premiums $13.8 million
Subsidies Paid $5.5 million
Environmental Cleanups $165 million
Development Expenditures $3.15 billion
Permanent Jobs Created ,131
Permanent Jobs Retained 9,362
Housing Units ,500+* * since 2004