1. 1 October 8, 2013 The Risks of Bonding Environmental Remediation Contractors Presented by: Larry Howard The Guarantee Company of North America

2. 2 October 8, 2013 2 BIOGRAPHY Larry Howard Jr. is Vice President – Environmental Surety for The Guarantee Company of North America USA. He is based in Atlanta, Georgia. Mr. Howard started his surety career in 1989 and began building his environmental surety expertise in 1995. Over his career he has spent time with Safeco, AIG, Zurich, American Safety and now The Guarantee. He received his B.A. in Finance from the University of Northern Iowa.

3. 3 October 8, 2013 3 SCOPE OF THIS PRESENTATION Focus on Environmental Remediation Contractors Not Reclamation or Closure/Post Closure Bonds My Background is Surety, Do Not Profess to be an Insurance Expert Asbestos AbatementLead AbatementUST Soil Remediation Groundwater Remediation Demolition Landfill Constructors/Liners Mold Remediation Brownfield Remediation

4. 4 October 8, 2013 4 Environmental Remediation Background and History 1970’s - Emergence of the Hazardous Waste Problem Prior to 1970’s – Threat Not Understood or Solution Not Readily Available Many Environmental Contaminants are Naturally Occurring Substances

5. 5 October 8, 2013 5 Environmental Remediation Background and History Market Levers – EPA Regulations – –Real Estate Transactions Economically Sensitive Cost - Reducing Technologies

6. 6 October 8, 2013 6 Environmental Remediation Background and History Most States Have, Had or Will Have UST Removal Programs Estimated Size of Environmental Surety Market - $100,000,000 USD Most Buildings Built Before 1972 Contain Asbestos

7. 7 October 8, 2013 7 Environmental Remediation Background and History Former Active Environmental Sureties Kemper ECS Reliance AIG Frontier Midwest Indemnity Gulf

8. 8 October 8, 2013 8 Federal Environmental Legislation 1972 – Clean Water Act – Addresses the Mounting Problem of the Poor Quality of our Rivers and Streams due to Industrial Pollution 1976 – Resource Recovery and Response Act (RCRA) – Regulates the Disposal of Solid Waste, Particularly Hazardous Waste – –But it did not address contamination from inactive waste sites – –Subtitle C – –Subtitle D 1976 – Toxic Substances Control Act (TSCA)

9. 9 October 8, 2013 9 Federal Environmental Legislation 1980 – Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) A KA Superfund Congress enacted in response to increasingly widespread public alarm over abandoned or inactive hazardous waste sites 1978 – 1980 – Love Canal Empowers EPA to address the threats posed by releases of hazardous substances NPL (National Priorities List) = Federal Superfund Sites Liability Scheme

10. 10 October 8, 2013 10 Overview of Contract Terms and Conditions Affecting Environmental Risk Indemnification Clause Environmental claims by third parties for property damage or personal injury resulting from remediation activity or disposal of hazardous wastes.

11. 11 October 8, 2013 11 Overview of Contract Terms and Conditions Affecting Environmental Risk Site Investigation and Differing Site Conditions Clause The discovery of hazardous wastes of different types, different concentrations or different quantities than anticipated.

12. 12 October 8, 2013 12 Overview of Contract Terms and Conditions Affecting Environmental Risk Permits and Responsibilities Cause Responsibility for complying with environmental laws and regulations and the associated liability for obtaining permits and exposure to fines for failure to comply.

13. 13 October 8, 2013 13 Overview of Contract Terms and Conditions Affecting Environmental Risk Force Majeure Clause Dispute Resolution Clause Actual vs. Liquidated Damages Clause

14. 14 October 8, 2013 14 Checklist for Evaluating Risk on Environmental Remediation Contracts Contracting Method – –Traditional “Bid to Specifications” – –Design/Build Responsibilities – –Method of Compensation Cash vs. Salvage Monthly, Unit Price, Milestone, Cost Cap

15. 15 October 8, 2013 15 Checklist for Evaluating Risk on Environmental Remediation Contracts Additional Questions Type of ContaminantsOwnership of Waste Method of RemediationDisposal Facility Specified by OwnerWaste Transported by Whom Chosen by ContractorDisposal Directed by Whom Worker Protection LevelOperations and Maintenance

16. 16 October 8, 2013 16 Checklist for Evaluating Risk on Environmental Remediation Contracts Funding OwnerPublic or Private EPAState or Federal PRP Group State Tank Funds

17. 17 October 8, 2013 17 Checklist for Evaluating Risk on Environmental Remediation Contracts Adequate Insurance Coverages GL, Auto, Worker’s Compensation CPL – Contractors Pollution Liability – –Occurrence – –Highly Rated Carrier

18. 18 October 8, 2013 18 Checklist for Evaluating Risk on Environmental Remediation Contracts Red Flags Patented or Proprietary Technology Long Term Contracts Efficiency Warranties Unproven Method or New Territories Unfamiliar Soil Conditions

19. 19 October 8, 2013 19 Sureties Risks on Environmental Claims Typical Performance Bond Options for Surety 1. 1.Cure 2. 2.Takeover Agreement 3. 3.Tender New Contractor 4. 4.Finance Original Contractor 5. 5.Pay Owner 6. 6.Deny Liability

20. 20 October 8, 2013 20 Sureties Risks on Environmental Claims Q.Can a Contractor be held Liable as a PRP? A.ERCLA contains a clause that states “entities who render care, assistance or advice on a cleanup project are relieved of the strict liability standard.” Only susceptible to PRP status if negligent.

21. 21 October 8, 2013 21 Marketing Ideas – –Who Do Your Clients Sub Environmental To? – –Yellow Pages – list is usually short – –Partner With an Environmental Insurance Professional Still a Contractor Types of Remediation?Specialties? Competitors?Prime or Sub? Typical Worker Protection Level?Utilize Subcontractors?

22. 22 October 8, 2013 22 The Risks of Bonding Environmental Remediation Contractors YOUR QUESTIONS? If you do not have the opportunity to have your question addressed during the Seminar, you may contact the presenter directly: Larry Howard The Guarantee Company of North America LHoward@gcna.com