1. NR&E Fall 2014 1
Published in Natural Resources & Environment Volume 29, Number 2, Fall 2014. © 2014 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion
thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
Using Environmental Insurance as a
Tool to Close Transactions
Christopher Alviggi and Dennis M. Toft
T
ransactions involving known or potentially contami-
nated sites often fail to close because both known and
unknown environmental risks cannot be addressed
to the satisfaction of all parties. Sellers of contami-
nated real properties seeking to walk away from perpetual
liability by transferring risk to a buyer may be concerned about
the liability recurring if the buyer defaults. Buyers may be con-
cerned about the known and unknown risks of a contaminated
property, including funding cleanup expenses and potential
third-party claims. Investors brought into a transaction may
seek to limit their exposure to environmental claims. Similarly,
lenders often want to implement certain measures to ensure
that their collateral is not impaired by known or unknown
environmental liability. Add to this mix a team of consultants
or cleanup contractors or other responsible parties who may
have potential liability for cleanup costs at a particular site.
Adding again to that mix, consider the various contractual
terms and liabilities that may be at issue for a particular prop-
erty. Contaminated-property transactions can become more
and more complicated when there is an increase in both the
number of the parties and the extent of the risks involved.
Environmental insurance is one method of managing cer-
tain environmental risks. Although today’s comprehensive
general liability insurance policies have absolute pollu-
tion exclusions, a number of insurance carriers are providing
specific forms of environmental coverage to address pollu-
tion-related concerns. These policies provide a mechanism to
address many of the specific environmental risks that may be
the key to getting a transaction closed. This article will discuss
the types of risks that concern parties involved in a contami-
nated-property transaction and the types of coverage available
to address those risks. It also will discuss critical coverage terms
and conditions to which parties should pay particular atten-
tion. We will provide examples to illustrate how the available
insurance products have been successfully used to close diffi-
cult real estate deals.
Types of Risk
In any transaction involving a known or potentially contami-
nated property, one of the first tasks is to identify the known
environmental condition. Identifying and understanding the
breadth of information available about the contamination
of a site is paramount to all parties involved in a transaction
because of its impact on the extent of the liabilities that are
transferred or held in the transaction. For some sites, an abun-
dance of information exists, including the results of extensive
investigations and remedial work plans. These studies may
include information about potential third-party claims such
as whether a known groundwater plume has migrated off-site
and to what extent it has migrated. There may be a detailed
cleanup plan with a well-defined remedy. The owner also may
be able to identify the locations where waste material gener-
ated at the property was disposed of. For other sites, the extent
of available information may be the findings from a Phase I
Environmental Site Assessment or similar document identify-
ing potential issues with a lack of detailed information.
Even on properties for which extensive information exists,
there remains the potential for unknown environmental risks.
Parties often are concerned about undiscovered contamina-
tion on-site and off-site, and their concerns include the type,
location, and extent of the contamination. In this scenario,
there is a potential unknown for off-site third-party claims for
bodily injury and property damage, including natural resource
damages. Furthermore, claims may be brought that recover
unanticipated off-site disposal costs incurred as part of the
cleanup. At former operating sites, owners may have exposure
to tort liability resulting from occupational exposures to former
workers.
As remediation is being performed at a contaminated site,
other risks may arise. Parties at these sites rely on consul-
tants to do an adequate job of investigation and to design a
protective remedy. Contractors performing the work at a con-
taminated site could exacerbate an existing condition, or there
could be an issue related to the transportation and disposal of
contaminated material. After a remedy is implemented, there
are risks related to remedy failure or to long-term stewardship
exposure. Future uses (including beneficial reuse) of a closed
contaminated site also raise risk issues.
The Environmental Insurance Market
The environmental insurance market has undergone a trans-
formation in recent years as carriers have developed products
that better reflect the changing risks they are undertaking. In
recent history, many carriers would underwrite known cleanup
risks at a site by issuing “cost-cap” (also known as “stop-loss”)
policies. The purpose of these policies was to limit the cleanup
cost exposure of the party remediating a contaminated site. A
typical policy provided that the carrier would pay the excess
remediation costs, including change orders, at the covered site
over the amount of a specified self-insured retention. Often,
these policies were written in conjunction with a guaranteed
fixed-price cleanup agreement with an environmental consult-
ing firm. In these circumstances, the insurer was comfortable
Mr. Alviggi is vice president with Alliant Insurance Services, Inc. and
may be reached at christopher.alviggi@alliant.com. Mr. Toft is a member
of the firm of Wolff & Sampson P.C., who co-chairs the environmental
department. He may be reached at dtoft@wolffsampson.com.

2. 2 NR&E Fall 2014
Published in Natural Resources & Environment Volume 29, Number 2, Fall 2014. © 2014 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion
thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
underwriting the risk because of its relationship with the con-
sultant. These policies provided coverage to the seller, buyer,
investor, or lender, in addition to the consultant.
Unfortunately, the tenure of using a cost cap to address
known pollution risks was limited. Because of adverse claims
experience and a misalignment of interests between the carri-
ers and all other parties, most carriers stopped providing this
type of coverage. Only two insurers now provide very limited
forms of cost-cap insurance, and the underwriting of these risks
is onerous and time consuming.
The environmental insurance market increasingly is using
a policy form referred to as Pollution Legal Liability Policy
(PLL) or as Environmental Impairment Liability Policy (EIL)
to transfer environmental coverage to insurers. This type of
policy is fluid enough to provide coverage for an array of risks,
such as unknown risks at a contaminated site and tort liabil-
ity for known environmental conditions. PLL-type coverage
is available to many types of parties in a transaction—sell-
ers/owners and buyers. Because it is offered by many insurers,
there is significant competition among the carriers regarding
policy terms and pricing for less complicated risks.
In a particular case involving lenders, specific environmen-
tal coverage is available, regardless of where a lender is in the
capital stack. Such a policy can strengthen the lender’s inter-
est in the property by ensuring that the borrower’s financial
resources to repay the loan are maintained if a covered envi-
ronmental incident arises during the term of the loan. PLL
can, and often does, provide a backstop against environmental
indemnification agreements—albeit a partial backstop, since
the obligations of environmental indemnity agreements pro-
tecting a lender or otherwise are often beyond the coverage of
a PLL policy. These policies can be designed for a single site or
for a portfolio of loans at multiple sites. The policies also may
be written to protect the lender if the buyer defaults as a result
of cleanup liabilities.
Other key participants in a contaminated-site transaction
are the consultants and contractors. Several types of policies
are designed to protect the consultants or contractors and their
clients. As noted above, cost-cap coverage may be tied into a
guaranteed fixed-price remediation contract. With these types
of transactions, the cost-cap or stop-loss policy may be written
for the benefit of the consultant. The consultant’s client also
may be an insured under the policy.
It is imperative that the financially responsible parties
of the contaminated site insist that all consultants main-
tain errors-and-omissions insurance. This type of insurance is
designed to protect against claims of professional negligence.
It also is important for a consultant’s client to understand
the scope of the errors-and-omissions coverage held by the
consultant because it could be a key component of the risk-
management package at a particular property. It is equally
important for the consultant to have a clearly defined scope
of work that is acceptable to all parties involved in the
transaction.
Contractors working on contaminated sites are exposed to
two types of environmental risk: (1) creating new pollution
conditions and (2) exacerbating known contamination. For
example, a new pollution condition can be created by a leak-
ing fuel tank that creates an environmental condition on-site
or causes bodily injury to third parties. Exacerbation of known
contamination includes site work that causes harm to an insti-
tution control such as a cap. Pollution liability insurance
typically is required for contractors working on contaminated
sites. This type of insurance provides coverage if a contrac-
tor’s actions (negligence) cause or exacerbate contamination.
Coverage is also extended to include risks associated with haz-
ardous waste disposal and contractual liability protections that
include adding the contracted parties as additional insureds.
Furthermore, contractors’ pollution liability provides a legal
defense expense to all the named insureds and additional
insureds for claims, suits, or losses resulting from environmen-
tal incidents as defined in the scope of work.
Site pollution policies, unlike standard general liability pol-
icies, do not contain blanket contractual liability coverage.
But site pollution policies can be and often are expandable to
include coverage for contractual liability. At times, the parties
to a contract are under the misconception that a contractual
liability provision in a policy is a backstop to a contractual
indemnity. This usually is not the case. The contractual lia-
bility protection can work in conjunction with an indemnity
to provide protection, but it does not fully accept all rights,
duties, and obligations of the indemnitor as required in an
environmental indemnity agreement. In considering this type
of coverage expansion, specific contractual terms will be taken
into account in the underwriting process. It also may benefit
the parties to include contractual liability protection relating
to access agreements, easements, and similar contracts that are
ancillary but necessary to the transaction in an environmental
policy.
Another successful use of environmental insurance comes
into play at a site where the remediation involves engineer-
ing and nonengineering controls (i.e., institutional controls
that rely on legal and administrative tools to minimize the
impacts of the contamination). By modifying a standard PLL,
it can protect against the failure of such controls or third-party
claims related to faulty engineering and institutional controls.
It also may protect against other remedy failure or against risk
associated with regulatory changes. It is a useful policy with a
site that has been remediated with these controls, when the
property is being transferred from one party to another, and
when both the seller and the buyer would like protection.
Key Terms and Conditions
Because the particulars of each site and each transaction are
different, environmental insurance almost always is written to
suit the needs of a particular transaction. This makes the pro-
cess of underwriting and negotiating the policy all the more
Because the particulars of
each site and each transaction
are different, environmental
insurance almost always is
written to suit the needs of a
particular transaction.

3. NR&E Fall 2014 3
Published in Natural Resources & Environment Volume 29, Number 2, Fall 2014. © 2014 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion
thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
important. Several issues and concerns can arise during the
policy placement process.
One of the most important concerns at any site is establish-
ing and defining what the known and unknown conditions
are. The definition of conditions is premised on the extent
of information that is available or known at the time of the
placement process. A failure by the insured to fully disclose all
the information about known conditions at a site may lead to
a disclaimer of coverage at best or, at worst, an action by the
insurer to void the policy. See, e.g., Tech., LLC v. United Nat’l
Ins. Co., No. 04-10047-GAO, 2007 WL 534450 (D. Mass.
Feb. 15, 2007); Goldenberg Dev. Corp. v. Reliance Ins. Co. of
Ill., No. Civ. A.00-CV-3055, 2001 U.S. Dist. LEXIS 12870
(E.D. Pa. May 15, 2001). Most policies now will include a list
of disclosed documents to limit future debates about the issue,
and a smart insured will err on the side of listing and providing
more rather than fewer documents.
Even when the documents are all listed and fully disclosed,
particular care and consideration must be given to the pol-
icy language that is drafted to describe the known conditions.
This is particularly true when there is no cost-cap or stop-loss
coverage and the only coverage provided for cleanup expenses
is for unknown conditions at a site. As a general practice, an
insurer will seek to define known conditions based on the list
of contaminants at a particular site, regardless of the concen-
tration or location of the contaminants. Under such policy
language, no coverage is provided if the same contaminant is
found after the policy is placed at a new, unexpected location
on a site. By negotiation and care in drafting policy language,
an insured often is able to address this issue and obtain cov-
erage based on both the nature of the contamination and its
location on the property.
Clearly identifying the insureds and their status is also a key
element of an environmental insurance policy. As explained
above, because many contaminated-site transactions involve
multiple parties, there may be many who seek to be protected
by the coverage afforded under a policy. The identity of these
parties and their status must be clearly spelled out. Policies
typically will be issued for the benefit of a “named insured.”
This often is the purchaser of the contaminated property that
agrees to undertake the cleanup. Other parties to the transac-
tion, such as sellers, lenders, or other responsible parties who
seek the benefit of the coverage, may be specified as either
“additional insureds” or “additional named insureds.” The dif-
ference in status affects which party or parties will control the
claims process under the policy. At times, additional insureds
may not be able to make direct claims but are forced to do so
through the named insured. There also may be issues if all the
parties covered under a policy are subject to the same lim-
its of coverage, particularly about one party’s ability to erode
coverage limits intended to protect other parties. When mul-
tiple insureds are involved, both the insureds and the carrier
must take care to define the rights and obligations of each
insured under the policy. The insurer can assist in this pro-
cess by establishing sublimits or separate coverage for different
insureds or by breaking the coverage out into separate poli-
cies. The parties also must have a clear agreement about who
the beneficiaries of the coverage are and how the notice and
claims process will be managed. This is another issue that, if
not addressed up front, can lead to litigation. See, e.g., Indian
Harbor Ins. Co. v. NL Envtl. Mgmt. Servs., Inc., No. 13-cv-
1889(JAP), 2014 WL 791821 (D.N.J. Feb. 25, 2014).
Related to the issue of identifying the parties and their
roles at policy inception is whether coverage under an envi-
ronmental policy is assignable. This may become a key for a
brownfields transaction when a buyer intends to remediate and
develop a site and then lease or sell it to others. Having a pol-
icy term that allows the policy to be assigned or allows insureds
to be added may be an important consideration in the mar-
ketability of a contaminated site. Many insurers are willing to
include permission to assign a policy either to a related party
or to a future owner or tenant with appropriate conditions.
Assignment of interests, especially if a policy remains unen-
cumbered at the time of transfer, can be treated as an asset to
the transaction.
The underwriting process hinges on the potential future
uses of the property. At times, an insurer may limit coverage
or provide requirements that an insured site be subject to a use
restriction, usually aligning with any deed restrictions or site
management plans. From an insurer’s standpoint, the future
use of a site may have a significant impact on risk of exposure
to the environmental conditions. A site that is being devel-
oped for residential uses poses a greater risk of bodily injury
and property damage claims than a site that is developed for an
industrial or commercial use. A party seeking coverage should
be mindful of this issue—it is important to think about poten-
tial future uses of sites given the fact that PLL policies can
span a decade.
The process of negotiating policy terms also will establish
the amount of the self-insured’s retention. At times, the terms
“self-insured retention” and “deductible” are used interchange-
ably, but in fact they are not the same. A deductible reduces
the total amount of coverage available under a policy; a self-
insured retention is an amount that must be expended before
coverage applies, and that coverage is then available up to
the full limits of the policy. Hudson Envtl. Servs., Inc. v. N.J.
Prop.-Liab. Ins. Guar. Ass’n., 858 A.2d 39 (N.J. Super. Ct.
Law Div. 2004). Most environmental policies use a self-insured
retention approach rather than a deductible.
The amount of the self-insured retention is subject to nego-
tiation. This amount will impact the policy premium. When
multiple parties are involved in a transaction, the amount (and
satisfaction) of the self-insured retention may be the subject
of intense discussion. A buyer of a site that is responsible for
obtaining and paying for the insurance may agree by contract
to a small self-insured retention only to learn that it makes a
policy prohibitively expensive. This can lead to a renegotia-
tion of the purchase contract. The parties also may agree that
an amount equal to the self-insured retention be placed in
an escrow account so that there is a means to address a claim
before coverage under a policy is triggered. This amount may
be released when a cleanup is completed and the risk reduced
or when the term of the coverage ends. Other parties in the
transaction may seek the right, but not the obligation, to fund
a self-insured retention if the first-named insured fails to do so.
Parties to the transaction should pay particular attention to
severability-of-interests provisions contained in the policy.
The policy length or term also may be the subject of nego-
tiation. Environmental policies are claims-made forms of
coverage. They are triggered by claims made and reported
during the policy period. Once the policy term expires and
depending on the viability of a trail, the policy ceases to exist
at expiration. This is in contrast to the historic-occurrence
type of policy under which coverage could continue almost

4. 4 NR&E Fall 2014
Published in Natural Resources & Environment Volume 29, Number 2, Fall 2014. © 2014 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion
thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
indefinitely for a latent condition that “occurred” during the
policy period. The term of the policy thus becomes critically
important. Most insureds seek a policy for as long a term as
possible, recognizing that a longer term will require a higher
premium. Many carriers are reluctant to write long-term poli-
cies. Typical policies are offered for a five-year term, but some
carriers will seek shorter terms and some are willing to write
policies for as long as ten years. At a minimum, an insured
should want coverage to be in place for at least as long as the
cleanup will take. In fact, once a cleanup is completed, it may
make sense for the insurer and the insured to discuss differ-
ent coverage conditions, terms, and limits because the risk will
have changed. Particular policy language to address long-term
stewardship issues (e.g., cap maintenance or change in use)
may be necessary.
Finally, PLL policies contain a provision that either allows
the insured to select independent counsel or the insurer to
retain the duty to appoint counsel. The continuity-of-deal-
counsel provision stipulates that an insured’s counsel will be
designated by the carrier to defend a claim against the insured.
A key advantage to this provision is that it provides comfort
to the insured that a knowledgeable attorney will represent it,
while at the same time the insurer will not need to learn all
the facts about a site.
Case Examples
The concerns, issues, and key policy terms discussed above
have practicable implications in real deals. These implications
are illustrated below in two recent examples, each with differ-
ent facts, both of which occur all too often.
For example 1, imagine multiple parties involved in an
acquisition, remediation, and redevelopment of a property.
The site was owned by two companies. It had been designated
for redevelopment by the municipality. The primary party
that was responsible for the remediation of the site was bank-
rupt. The bankruptcy process established an escrow account
into which a significant amount of money was deposited that
reflected the bankrupt party’s share of the remediation costs.
The beneficiaries of the escrow account were one of the prop-
erty owners, another potentially responsible party, and the
state environmental agency. Another complicating aspect of
the site development was the need to access the site across a
neighboring parcel that was owned by another party. A prior
developer had the site under contract, but the deal failed to
close, remediate, and redevelop.
The new developer was able to pull the parties together and
acquire the site by agreeing to assume the cleanup obligation
and provide liability protection to both of the owners and to
the nonowner responsible party. In return, the developer was
able to use the escrowed funds to complete the remediation.
Environmental insurance provided a key element in getting
to the closing of the transaction. Although cost-cap coverage
was not available at the time this transaction closed, creative
use of PLL policies enabled the parties to become comfortable
about the transfer of the site so that the transaction could pro-
ceed. Separate policies were written to address the respective
liability concerns of the seller parties and the nonseller respon-
sible party. The developer was a named insured under each
policy, but the use of separate policies alleviated concerns over
the erosion of limits. In negotiating the policies, it was impor-
tant to define carefully the known risks at the site. The insurer
originally offered a policy that defined known risks based solely
on all the contaminants known to exist anywhere on the site.
After negotiation, this was revised to make it clear that newly
discovered contamination on the site would be considered
an unknown, even if it was of the same constituents known
to exist elsewhere on the site. Coverage also was provided for
the benefit of the party allowing the access easement because
of the need to do work on an area of that property. There was
additional coverage for natural resource damages, which was
important to the investors in the transaction. All these ele-
ments were critical to close the deal because they brought the
comfort needed to all involved parties that the risks at the site
were properly managed. The remediation of the site is now
almost complete. Contamination was found in unexpected
locations on the site, leading to a notice to the carrier. The
developer now is considering adding purchasers or end users to
the policy.
In example 2, the seller owns a piece of property that is
located in a very desirable area undergoing gentrification.
The seller is one owner in a chain of many, and the property
formerly was used for industrial purposes. The extent of the
known environmental contamination is limited to the infor-
mation contained in a Phase 1 Environmental Site Assessment
that was recently completed and an outdated Phase 2 that evi-
denced some levels of contamination above actionable levels.
The conditions that the seller required in a deal were difficult
to meet by many buyers. For example, the seller was uncer-
tain about subsurface environmental risks and therefore would
not allow potential buyers to perform subsurface testing as
part of their due diligence. The seller would allow the poten-
tial buyers to perform the less-intrusive Ground Penetrating
Radar studies, however. Furthermore, the seller required the
buyer to provide full environmental indemnification for leg-
acy pollution conditions discovered during closing. In this,
the successful buyer agreed to the seller’s stringent conditions,
including a broad environmental indemnity. The buyer, work-
ing with the insurer’s representatives and counsel, structured
a PLL policy that included the following key terms: (1) nam-
ing the seller as an additional named insured; (2) containing
manuscript severability-of-interest language ensuring that the
interests of buyers and sellers are not impaired by the actions
of the other; (3) listing all documents as disclosed documents
that delineate known conditions at the site; (4) precluding
coverage for cleanup costs until an agency issues a no further
action determination, or its equivalent, but affirmatively pro-
viding coverage for active remediation because of the insured’s
ability to use historic fill because it contains hazardous waste
and a groundwater pollution incident cannot achieve regula-
tory closure using previously prescribed closure techniques; and
(5) adding the deal attorneys as preapproved panel counsel.
As these cases illustrate, environmental insurance may be a
key tool in closing contaminated-site transactions. Parties con-
sidering environmental insurance should consider how best to
craft policies to cover the risks involved in a particular deal. In
almost any transaction, it is worth considering whether insur-
ance is a valuable risk-management tool.