“An ounce of prevention is worth a pound of cure.” We’ve all heard that proverb before, and it’s true – it’s generally easier to stop something from happening than to repair the damage after it has happened.
This is almost always the case when it comes to environmental incidents – it is cheaper to prevent the incident from occurring than paying for the cleanup and impacts the incident caused. Many of SCS’s service areas are specifically focused on prevention and optimization – doing the job in ways that are better, safer, and more protective of human health and the environment.
Environmental insurance is a product that most SCS clients likely have in place in some form to protect their facilities, employees, and neighbors from the harmful impacts of incidents that can introduce contamination into the air, soil, groundwater, or surface water. The types of coverage provided by environmental insurance policies vary in both extent and cost, and many factors, one of which being risk, drive those costs. When an insurance company is underwriting coverage for a new or existing client, the risk associated with that coverage is carefully evaluated. What the client (insured) does, how they do it, their safety record, their history of previous environmental issues, and other factors are all taken into consideration when writing an environmental insurance policy and the associated premium and deductible are determined.
To reduce the up-front costs (the premium) associated with carrying the necessary and appropriate amount of environmental insurance, the insured can do several things. One is to increase their deductible, but in the event of an incident, that could end up costing the insured more on the back end (i.e., costs expended to investigate and remediate an incident). Insureds, their brokers, and the insurers will work closely to balance premium costs and deductibles so that the costs associated with addressing an incident are not detrimental.
An insured shouldn’t reduce the type and amount of coverage – that could put them in a bad financial (and legal!) position. A more prudent choice, one that has many potential positive aspects and makes sound business sense, is reducing risk and therefore the costs associated with an environmental insurance policy that is based on coverage and risk.
SCS Engineers develops proprietary remote monitoring and control software for landfills, manufacturing, and industrial facilities called SCS RMC®. The software provides remote real-time viewing, analysis, and control of equipment and systems critical to safe operations and production. A network of sensors and Machine-to-Machine (M2M) applications enable operations teams to be alerted immediately (via cell phones, computers, tablets) of any operational issues that could potentially result in an environmental incident.
The application reduces reaction time, labor costs, and potential associated impacts. In this case, SCS RMC® puts the client’s decision-making in front of a problem rather than reacting to potential aftermaths, proactively reducing the potential environmental risks of their operations.
SCS’s service areas, including those listed here, are particularly focused on providing our clients with assistance in designing, building, and maintaining sustainable solutions, reducing risk, and helping to foresee and adapt to environmental, social, and regulatory changes:
SCS’s professionals are available to assist our clients in their discussions with brokers and insurers regarding how our environmental services and technologies can potentially reduce risks associated with their operations. We do this by providing creative and cost-effective solutions and guidance that can prevent environmental incidents from occurring and reducing the nature and extent of associated impacts.
We can help you select and implement the “ounce of prevention” so that you won’t have to face the “pound of cure.” This will proactively reduce operational risks, which can, in turn, help facilitate the positive brokering of more favorable environmental insurance coverage, premiums, and deductibles.
About the Author: Michael Schmidt is an accomplished leader with nearly 30 years of progressively-responsible experience in the environmental consulting and environmental insurance industries, with specific experience focusing on the evaluation of environmental risks and liabilities associated with insurance claims and underwriting, site investigation and remediation, due diligence, and project management.
Blighted properties are common in many urban areas, and with due diligence often present cost-effective and profitable redevelopment opportunities. Redevelopment of these types of projects is often referred to as Brownfield projects if considering the presence or potential presence of contaminants in the subsurface. Brownfields redevelopments can present great benefits and advantages to the surrounding community.
Advantages of the redevelopment of these properties include: revitalizing a property and surrounding properties, creating jobs, rejuvenating businesses, adding much-needed housing, increasing tax revenue, reducing crime, and increasing the efficiencies and quality of life for residents and workers.
Redevelopment of blighted properties does come with challenges, such as density, parking, financing, city approvals, and more. Blighted properties can have environmental issues that are best addressed proactively to reduce the risk of cost and schedule overruns as future liability issues during redevelopment.
These issues should start to be addressed during due diligence and before construction activities commence to reduce the uncertainty on potential project costs and timeline implications. Environmental issues can sidetrack the development process of some properties but most sites, if handled correctly, can present significant upside if these issues are identified during the due diligence and integrated into the development processes.
Common environmental concerns include:
Identifying environmental risks before the acquisition of properties is critical, as is assigning potential costs to these risks. Depending on the nature of the transaction, these items are often useful as leverage during negotiations.
A Phase I Environmental Site Assessment is a good starting place for identifying whether environmental issues may exist at a property. If a Phase I identifies potential risks, these reports may recommend additional investigation (Phase II) in the form of soil, soil vapor, and groundwater sampling. Phase II is used to identify whether contamination is present (i.e., from fuels, solvents, pesticides, toxic metals), and with enough sampling can determine the extent and magnitude of contamination.
Resolving these impacts can include leaving and managing impacted soil in place as much as possible since the significant cost from impacted soil is digging it up and paying to dispose of it. Regulatory agencies such as the local health departments, if approached under voluntary cleanup assistance programs, can accommodate leaving all or a good portion of impacted soil in place if the risks to human health and the environment are identified and resolved in a mitigation plan.
For more significant contamination issues, such as extensive soil and groundwater contamination from a gas station or dry cleaner releases, funding in the form of State or Federal grants can be available. Obtaining a grant with the help of a qualified environmental consultant can be the difference-maker in acquiring, cleaning up, and redeveloping a blighted property. These grants don’t typically cover all the costs associated with these cleanups but can cover the majority of these costs with some additional time required to do a cleanup.
Developers can also take out an environmental insurance policy to console a nervous lender or investor. Environmental insurance can cover clean-up requirements, third-party claims for bodily injury and property damage, and associated legal expenses resulting from pollution or contamination. Policies with various term lengths and deductible amounts are available to satisfy the concerns of lenders or equity investors.
The redevelopment of blighted urban properties is a necessary part of the life cycle of a property and a community. It’s critical to identify potential environmental risks during the due diligence process – before you choose to purchase the site. With proper planning, the mitigation or remediation of these impacts can be incorporated into the development process and result in a vibrant, profitable project that protects human health and the environment, and help owners, lenders, investors, and users of these properties sleep well at night.
Luke Montague is a professional geologist (PG) and licensed contractor with 19 years of experience primarily in environmental consulting, as well as in the areas of geotechnical engineering, general contracting, commercial and residential development, and property and asset management.
An environmental insurance claim is simply the response and mitigation of an environmental issue or event paid for by an environmental insurance policy. Similar to an auto or home insurance claim, a company or individual purchases this type of policy to protect them in case a matter arises about their facility, operations, or property resulting in a regulatory requirement for investigation and remediation; forming the basis for a submitted claim. Such responses cost money, often a lot of it, and the environmental insurance policy is there to pay for the costs associated with the investigation and remediation of any environmental issues.
Any environmental issue can result in an environmental claim, so it is essential that you have the right policy in place to cover a particular claim. Typical issues or events include:
Insurance clients submit notice to the insurance company that an environmental issue occurred or was discovered which requires investigation and corrective action. The onus is on the client to provide sufficient information to substantiate a claim submittal. The insurance company reviews this information in their evaluation of coverage for the issue under the policy.
When a new claim is submitted to the insurance company, the client must provide information that substantiates that an issue exists and that further investigation and corrective action is required. Often their substantiation consists of the initial technical details about the nature and extent of the environmental problem. Claims analysts generally have a strong legal background but may lack technical environmental expertise; this is when insurance support services become valuable. The following paragraphs summarize each step in the process and how SCS insurance support assists claims analysts through the process.
Once the insurance company receives a notice of claim, they determine whether the client’s policy provides coverage for the specific issue or event that constitutes the claim. A claims analyst evaluates the specifics of the claim to determine if the associated details and circumstances fall within the specifics of the client’s policy. If so, coverage is usually accepted. If not, coverage is generally denied.
SCS’s role is to provide an evaluation of the technical aspects of the claim so that the claims analyst can take the distilled facts and compare them against the specifics of the policy; often called a “Source and Timing” evaluation. Take, for example, an underground storage tank (UST) release at a gasoline station. In this example, free product (gasoline) is observed in an on-site monitoring well where no free product has previously or recently been identified.
The station owner or their environmental consultant reports the apparent new release to the regulator, and a confirmed discharge is recorded. The property owner than notifies the insurance company of a gasoline release to the environment.
As part of the “Source and Timing” evaluation, SCS’s insurance support reviews tank system leak detection and inventory records, tank system tightness testing records, previous groundwater monitoring data, reports of any earlier releases at the facility, and any other information or data about the facility and the subject release. The goal is to identify:
If enough information is available to make these determinations, then the claims analyst compares the SCS report to the coverage specifics and exclusions included in the policy; determining if the event is covered. The claims analyst will usually try to make a coverage determination on their own if the facts are relatively straightforward, but often that is not the case, and the assistance of insurance support services is necessary.
This process can be straightforward, such as in the case of a tanker truck rollover or industrial facility chemical spill, but is often more complicated when insufficient information is available to make a source and timing determination. In the latter case, the claims analyst issues a Reservation of Rights letter, stating that the insurer is not accepting or denying coverage at this time as the circumstances of the claim are still under evaluation and investigation.
Claims can be denied if the incident occurs before or after the policy period; if the source or type of incident are not included or are specifically excluded under the policy; or if the incident occurred because of the client’s negligence. If coverage is denied no further actions are generally necessary on the part of the insurance company. Whether a claim is accepted or denied is often more complicated than what we’ve discussed here.
The claim is accepted; undoubtedly good news for the client. What happens now is that the claim becomes “Active,” requiring among other things for the claims analyst to set reserves. A reserve is an estimate of what the claim is going to cost the insurance company. Your insurance support consultant can provide a rough approximation of the estimated costs to achieve regulatory closure, which includes all expenses incurred from investigation through remediation, post-remediation monitoring and reporting.
Early in the life of a claim, these are preliminary estimates that are refined as a project progresses, often requiring the claims analyst to adjust their reserves; important to the insurance company as future reserves impact financial forecasts. Insurance support services will develop the cost-to-closure estimate based on all available information and data, as well as their professional experience on similar projects. The insurer wants the most experienced environmental consultants and engineers on the case because their estimates are more likely to be on target and identify potential regulatory issues or risks.
From the insurer’s standpoint, the primary goal is to maintain a high level of responsiveness to their clients and process requests for reimbursement against the claim. The role of your insurance support team can continue by managing quality control and evaluation of site-specific activities; ensuring that the investigation and cleanup are reasonable and appropriate given the environmental conditions at the site, all applicable regulatory requirements, and costs consistent with industry standards for recovery. The client and their environmental consultant are required to provide the insurer and the insurance support consultant documentation of the work as follows:
Over the life of a claim, insurance support may correspond with the project consultant on behalf of the insurer, conduct site visits, and be asked to participate in meetings, conference calls, and mediations. The overall goal of your insurance support consultant is to assist claims analysts in closing a claim in the most time-efficient, cost-effective manner possible within all regulatory rules and guidelines.
Once an active claim−environmental project has achieved regulatory closure, the claims analyst begins the administrative process of closing the claim. From SCS’s insurance support standpoint, all that remains is to obtain the appropriate documentation from the regulator confirming that the subject project is approved for closure and that no further actions are required.
There are other circumstances which may result in closing a claim, such as exceeding the maximum total cost that can be paid out by the policy, non-compliance with policy requirements, or new information coming to light which results in a change in coverage position by the insurer. In some cases, such as when there is a change in coverage position or the cause of the issue can be attributed to a third party equipment failure, the insurer may seek to recover costs expended from the client and third-party policies. That process, called subrogation, may require the expertise of your insurance support specialist and at times their testimony as an expert witness.
There are several ways that SCS helps our insurance clients and other clients. The involvement of insurance companies is becoming more pervasive throughout environmental consulting and engineering in all business sectors. The combination of SCS’s industry expertise, contacts associated with our insurance support services, and our Federal, State, and local level regulatory expertise brings more knowledge and efficiency to each project. SCS offers a wide range of engineering and environmental services, a national presence, and a positive established industry reputation.
Our clients appreciate being able to draw upon our insurance-related expertise to assist them with their submittals, interpreting insurance requirements, and liaising with insurance companies as part of our core capabilities.
Mr. Michael Schmidt is an accomplished industry leader with nearly 30 years of progressively responsible experience in the environmental consulting and environmental insurance industries. He has specific expertise focusing on the evaluation of environmental risks and liabilities associated with insurance claims and underwriting, site investigation and remediation, due diligence, and project management.
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