Feature
Rules of environmental insurance continue to evolve
Think those old insurance documents are useless pieces of paper? Think again. The world of environmental insurance is an evolving one, and the better your paper trail, the better off you might be if insurance becomes a factor in cleanup.
Thirty years ago, property owners faced with contamination relied on comprehensive general liability (CGL) insurance to cover cleanup costs when the pollution affected third parties. But CGL eventually became more restrictive.
After 1973, insurance companies put pollution exclusions into their liability policies. Policies restricted coverage to “sudden and accidental pollution” before liability insurance would pay for cleanup. The insurance companies took the term “sudden” to mean a “boom” event, explains Frank V. Langfitt, chairman of the litigation department at Ater Wynne LLP in Portland, which represents both policyholders and insurers.
However, courts later interpreted “sudden” to mean accidental or unexpected. (Not until 1996 did Oregon courts agree with this, Langfitt says.) In most cases since 1985, it’s been difficult to get liability coverage for possible contamination.
Finally, in the 1990s, insurance companies loosened up some and started to write environmental insurance policies. In fact, more options are being developed all the time, says Doug MacCourt, a partner at Ater Wynne.
Over the years, arguments over whether an insurance company will pay for liability damages have become more technical than ever, Langfitt says. Key to determining if a policy covers damages is whether a third party’s property was affected by the contamination on your property.
“Most of these cases involve businesses who were just handling their products or wastes the way everyone did,” he points out.
When looking into environmental insurance, the first step is to have a thorough understanding of your site’s condition and its potential risks, MacCourt says. (You can bet any lender is doing the same thing, he adds.) Property owners must decide if they’re willing to pay for an expensive policy upfront or pay later for any problems that may arise. Premiums a couple of years ago cost about 10 percent of the covered amount. So, $1 million in coverage cost $100,000 a year.
“By and large what I’m seeing is most people are choosing to put the money into the ground rather than buy insurance,” MacCourt says.
The most common types of environmental insurance policies available include:
- Pollution liability – Protects the insured against on-site cleanup costs of unknown, pre-existing pollution and current pollution from ongoing operations, and third-party claims arising from pollution conditions (e.g., bodily injury, property damage).
- Cost cap – Protects against cleanup costs exceeding the anticipated cost.
- Secured lender – Protects a lender in the event that a borrower defaults on a loan and the default is associated with a pollution condition.
- Finite risk – Transfers financial liabilities from the insured to an insurance carrier. Insured pays the insurer the entire present value of the projected cleanup cost when the insurance is obtained. Term is negotiable but is typically issued for more costly cleanups lasting more than five years.
There are ways to convince a court to show that a pollution exclusion doesn’t apply, Langfitt says. In the past, Oregon and Washington courts have been favorable to policyholders. For example, some courts are ruling contamination at a gas station is a basic risk of running the business, so it can’t be excluded when a third party isn’t affected, he explains.
Brownfields add an interesting twist to insurance issues because contamination on these properties often happened before 1985. An insurance archeologist is another tool property owners can use when filing a claim.
Insurance archeologist Jeff Berebitsky of Restorical Research in Portland has seen his business steadily grow over the past three years. In many of his cases, a property owner wants to sell his land, but he must clean up the contamination on it first. It’s Berebitsky’s job to investigate which past insurance policies may have covered contamination that occurred decades ago.
“All we’re really doing is looking for clues,” Berebitsky says.
Property owners can make historical claims up until 1985. If a property owner can demonstrate contamination occurred prior to 1985, then there may be a potential claim.
“Most people view insurance archeology as too good to be true,” Berebitsky says.
Still, insurance archeology is nothing new; it’s been around for 30 years. Large corporations caught onto it first, and now it’s the small businesses that are taking advantage of it, Berebitsky says.
You will pay from $75 to $300 an hour for an insurance archeologist. It can take Berebitsky from 20 to 80 hours to find what he’s looking for and develop a case for the policyholder. Typically, a property owner or a law firm hires him to do the work.
The message experts such as Berebitsky and Ater Wynne send is this: Never throw away old insurance records because it’s the insured’s obligation to prove what is covered. Keeping those insurance records around may save you time and money.
“(People) should treat their insurance policies as if they’re assets,” Langfitt says.
Some of the leading insurance underwriters providing environmental products include:
Oregon Supreme Court to hear environmental insurance case
Before the Oregon Supreme Court in March 2006 is a case where Schnitzer Investment Corp. in Portland is seeking to reverse a lower court’s decision that says the company’s insurance policy doesn’t cover contamination that occurred on site.
The company owns land on the west bank of the Willamette River. Over the course of decades, contamination occurred in the soil and groundwater. While some contamination was found in the groundwater, it was not extensive. The Oregon Department of Environmental Quality determined that no ground water remediation was required. The soil, however, on the property had to be cleaned up at a great cost to Schnitzer to protect public health and the environment.
Representatives for Schnitzer argue if the soil isn’t cleaned up, the groundwater will become more contaminated, to the point that remediation must take place. This would affect neighboring property.
The insurance company, Lloyd’s of London, argues because Schnitzer wasn’t required to remedy existing groundwater contamination, no third party was affected at that time. So, it does not have to pay for cleanup costs, the insurance company argues.
The Oregon Supreme Court will decide whether an insurer that has issued a liability policy covering damage to property owned by a third party, but excluding damage to property owned by the insured, is liable for the cost of pollution cleanup, when pollution to soil owned by the insured is inextricably linked to pollution to groundwater owned by a third party, and the remedy to clean up the soil and groundwater pollution are one and the same.
Problem Solver
Oregon pilot project uses retirees to inventory brownfields
Just a couple years ago, retiree Ken Corliss couldn’t tell you what a brownfield was. In fact, he didn’t even know there were any in his hometown of St. Helens, Ore.
Today, Corliss is somewhat of an expert on the subject. He’s part of a team of retirees from the St. Helens area who have been working with the Oregon Department of Environmental Quality (DEQ) to inventory and then prioritize brownfield sites on public lands in this rural community. Corliss talks with passion of the work he and this team from the Columbia County Retired and Senior Volunteer Program (RSVP) have done in getting contaminated lands one step closer to being put back on the county tax rolls.
“We were just hoping to help our county,” he says of why he became involved in the project.
When the 2002 Brownfields Act provided money to states to build their response teams, the act stated that timely surveys and inventories of brownfields sites must be done by states and tribes. The act also calls for providing an opportunity for the public to participate in the brownfield program. This pilot project in St. Helens not only takes a unique approach to inventorying contaminated sites but it also is getting the community to take on a role in its own redevelopment.
The pilot project has exceeded her expectations, says Ann Levine, DEQ cleanup program coordinator. The volunteers completed the inventory, then went a step further by championing the redevelopment of two of the sites, Levine says. Without the program, DEQ doesn’t have the resources to do this kind of work, she says.
The pilot project has been so successful Levine hopes to emulate it in other counties around the state. She’s exploring using senior volunteers in at least three other counties next year. Idaho also is looking at modeling the Oregon pilot project, she says.
The unique project started when Levine was looking for a way to get volunteers involved in brownfield activities. In late 2003, she approached the RSVP in St. Helens, a small community about 30 miles north of Portland on the Columbia River. While senior volunteers have been used in other parts of the country to do some brownfields work, Levine knows of no other brownfield project that has enlisted the help of retired senior volunteers to inventory brownfield sites in their community.
RSVP director Nancy Harwood put together a team of four volunteers, all recently retired professionals in the community. Prior to working with the DEQ, no one in the small group had ever heard of a brownfield, not even herself, Harwood says.
“They called me and asked me and I said, ‘What is this?’” she recalls.
The Environmental Alliance for Senior Involvement (EASI) hosted a one-day training session for the volunteers and Harwood to prepare them for the work. Also coming to the volunteers’ aid was the Technical Assistance to Brownfields Communities (TAB) program at Oregon State University. Jerry Orlando, a TAB technical assistance specialist, worked with the volunteers this past year, giving them technical advice and helping them make contact with local officials.
The volunteers put together the inventory and visited each site to determine the prospects for redevelopment. They then narrowed their focus to two properties and developed profiles of the properties. The group chose the two sites they thought had the best potential for redevelopment. They especially wanted properties that were identifiable to local people, Corliss says.
Both properties are owned by the Port of St. Helens. One is the former PSI Manufacturing facility on Milton Way, near the center of town. Originally built as a lumberyard, the property has a 24,000-square-foot building where circuit boards were once made. Certain hazardous materials were thought to contaminate the concrete floor and outside area; however, that property has since been cleared by DEQ. It now has a renter.
The second property is a former wood treatment plant, known as the old creosote plant, where wooden poles were treated. It’s an important piece of property because of its location on the Willamette River. An open house, put together by the volunteers and TAB, was held on the site in May to attract real estate professionals and developers. A large portion of the site has been cleared for redevelopment by DEQ. The well water there continues to be tested for any remaining contaminants at the site, while DEQ and the former property owner complete their assessment of the more contaminated portion of the site.
Through outreach efforts to many local organizations, the volunteers have educated their community about brownfields and garnered support for the redevelopment of those two properties. They have taken their story outside St. Helens, speaking at conferences in Eugene and Portland as well as New Orleans and San Diego. Their next step is to inventory privately owned brownfields in Columbia County. They expect to recruit two or three more volunteers to help with this project.
Levine believes using community volunteers is important because the redevelopment of these lands is a local issue. “What this (project) has done is engage people in that process,” she says.
Groundwork
Revolving loan funds aid in cleanup efforts
Low-interest loans are available for private landowners and public entities looking for financial help to clean up contaminated properties.
Revolving loan funds have been established in three of the four states in EPA Region 10: Oregon, Washington and Idaho. (Alaska is hoping to have its revolving loan fund established in 2006. The Kenai Peninsula Economic Development District in Kenai, Alaska, has applied for a $3 million grant from the EPA to capitalize a revolving loan fund for cleanup of brownfield sites throughout that state.)
The goal behind revolving loan funds is to become self-capitalizing over time as loans with low-to-no-cost interest rates and some sub-grants are awarded to support cleanup activities on sites contaminated with hazardous substances and petroleum, and then re-paid.
The EPA awards up to $1 million per eligible entity to capitalize a revolving loan fund. In the case of each of the states in Region 10, coalitions have been formed to capitalize and manage these loan funds. The coalitions then can make loans to other eligible entities, nonprofits, private site owners or developers throughout their respective states. Sub-grants also can be made to eligible entities or nonprofits to clean up a site they own. However, only up to 40 percent of the original grant can be sub-granted.
The money is usually used for cleaning up low-risk petroleum sites, abandoned gas stations, old dry cleaners, old mill sites, leaking underground storage tanks, illegal drug labs and municipal dumps.
Washington has one of the older revolving loan programs in the nation. Formed in 2000, the Washington implementation model has been used in about 10 states, says Sharon Kophs, Washington State Community, Trade and Economic Development manager. The coalition was formed among King County and the cities of Seattle, Tacoma and Spokane. CTED serves the rural communities across the state. Up to $4 million can be loaned by the coalition. It has awarded three loans and one grant. Kophs currently is reviewing another four projects for loans.
Overseeing the newest revolving loan fund in Idaho is the Reuse Idaho Brownfields Coalition, which consists of Idaho’s six economic development districts and the Idaho Department of Environmental Quality (DEQ). It has $3 million available, of which $1.5 million is dedicated for hazardous substances and $1.5 million for petroleum-related contamination. Keith Donahue, Brownfields program manager for DEQ, expects to begin accepting loan applications this spring.
“If we could do three to five loans in the first year, that would be very successful,” Donahue says.
Often, lenders don’t like to loan money to contaminated sites, Donahue says. He sees the revolving loan fund as a “gap filler” for those property owners who can’t get a loan to clean up contamination. However, he warns, the loan program probably doesn’t move as quickly as the private sector would like it to.
Usually, it takes about a year for a loan to materialize. The private sector especially has some fear of working with public agencies because the length of time can be overwhelming for some people, Kophs says.
“Time is money and I think everybody knows that these projects do take a long time,” says Karen Homolac, brownfields program manager for the Oregon Economic and Community Development Department. The Oregon coalition, consisting of the state, city of Coos Bay, Tri-County Metro Transit District and Portland, has $2 million available to loan. It currently is reviewing a loan for $750,000 in Portland.
This funding source doesn’t work with every project, Homolac warns. If a developer calls her and tells her cleanup is scheduled to begin in a week, she tells him a loan from the revolving loan fund probably won’t work for that project. However, this is a good source of money for the developer who’s still a year out from the cleanup stage and is working with a lender who can’t finance that stage, Homolac says.
“I think if I was a lender and I saw that I had DEQ and EPA at the table from the get-go, I’d be confident that the risks were lower and the likelihood of success higher,” Homolac says.
For more information about the revolving loan fund in your state, contact:
- In Idaho, the Reuse Idaho Brownfields Coalition at 208-322-7033,
ext. 234
- In Washington, Sharon Kophs at sharonk@cted.wa.gov
- In Oregon, Karen Homolac at karen.homolac@state.or.us
- In Alaska, the Kenai Peninsula Economic Development District
at 907-283-3335
Events
Feb: Alaska Forum on the Environment.
More information at www.akforum.com.
March 2: Law Seminar International in Anchorage.
More information at www.lawseminars.com.
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