INSURANCE: Capping Land Reuse Costs

Joseph Catanese

In the waste industry, turning closed landfills into parks or golf courses has become commonplace.

Around the country, companies are redeveloping such sites so that they can be reused safely and effectively. According to Exton, Pa.-based ESC Underwriting's second annual 2001 Land Reuse Report, more than 112,000 acres are being recycled. However, to make all this happen, the right tools, including an insurance program that can minimize liabilities, control cleanup costs and offer financial protection against future claims, should be in place.

Environmental insurance, such as Pollution and Remediation Legal Liability (PARLL) and Remediation Stop Loss (RSL) policies, protects against unknown and future risk. For example, PARLL insurance is commonly used for redevelopment because it protects the developer and the former landfill owner against any pollution that is later discovered. It also covers against third-party personal injury and property claims related to a site's pollution.

RSL coverage addresses any unknown contaminants associated with a property's remediation and enables redevelopers to “cap” the maximum project costs, and injury or property damage claims.

Exit strategies also exist to help private and public entities dissolve their own environmental liability associated with properties.

In an exit strategy, specialty environmental service companies “take on” the environmental liability of a property, assuming a property's assessment, cleanup and monitoring. To assume such risks, companies providing the exit strategy services purchase environmental insurance policies, transferring their risk to an insurance carrier. This protects the environmental service company and its clients from any of the property's environmental issues.

EnCap, Tampa, Fla., which develops Brownfields into golf courses, uses environmental insurance to alleviate concerns about big cleanup projects' potential risk and uncertainty. This also provides protection so that EnCap does not have to subject itself to inevitable technical, regulatory and financial hurdles. Working with an insurance carrier's claims group, EnCap manages cleanup projects that could exceed initial budgets or trigger adverse regulatory outcomes.

For landfill owners, redevelopment creates an opportunity to transfer a property's environmental liabilities. However, liability concerns have traditionally stalled redevelopment. Often, exorbitant cleanup costs and potential lawsuits made holding onto a property “as is” a better choice. But improvements are being made to help redevelopment become a better option.

Recently, President Bush signed new Brownfields legislation that limits liability and protects landowners. The legislation increases federal Brownfield funding to more than $250 million. Also, grants are available for assessment and remediation costs. Grant recipients may use a portion of the money to purchase environmental insurance.

Visit www.ecsinc.com/landreuse for ECS's 2001 Land Reuse Report.