Is an Environmental Site Assessment Required to Apply for Site Pollution Insurance?

By R. Ivy Riggs, CPCU, ASLI, AIS
Executive Underwriter, PartnerOne Environmental

If you look closely at the top of most applications for Site Specific Pollution liability insurance, you will find some version of a request to include a copy of any Environmental Site Assessment (ESA) performed at the subject property. This request might lead an applicant to think they must obtain such an assessment if they don’t already have one in hand, but this conclusion would be incorrect.  Even so, there are clear benefits—both to the insured and to the carrier—in having certain types of environmental evaluations completed. This article surveys the types of studies available, as well as some of the benefits and drawbacks associated with each of them.

Environmental Transaction Screen (ETS)

What is an Environmental Transaction Screen (ETS)?

Intended as a screening tool for those interested in discovering if there are any potential environmental concerns associated with commercial real estate, an ETS includes only a limited scope of work. This might include a site visit, a review of publicly available environmental databases, a review of limited historical information, and an interview with the site owner or occupant.

Additionally, this scope of work need not be completed by an environmental professional but may be performed by the current or future user of the property. Because of these features, usually an ETS is only recommended for very low risk property types with readily available historical information.

Advantages of ETS:

  • Low cost, quick turnaround
  • Unnecessary to hire a consultant to complete one

Disadvantages of ETS:

  • May miss important environmental hazards associated with a site
  • Confers no Landowner Liability Protections under federal environmental law

Phase I Environmental Site Assessment

What is a Phase I Environmental Site Assessment?

For those parties wishing to demonstrate that they completed adequate due diligence before acquiring commercial real estate, a Phase I ESA is the default approach. In part this is because the American Society for Testing & Materials (ASTM) adopted standards in 1993 to meet the “All Appropriate Inquiry” requirements under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA).

Most recently updated in 2013, the standard practices detailed in ASTM E1527 include all those required by ETS, but they must be completed in greater depth by an environmental professional. A key goal in this approach is to identify past releases or potential releases of hazardous substances at the subject property, as well as other recognized environmental concerns (REC’s). Because a Phase I ESA is non-invasive, requiring no onsite sampling of any kind, the identification of REC’s will often result in a recommendation for obtaining a Phase II ESA.

Advantages of Phase I ESAs:

  • Meets All Appropriate Inquiry standards
  • Can enhance turnaround time of underwriters

Disadvantages of Phase I ESAs:

  • More expensive than ETS
  • Non-invasive so may miss or underestimate hazards present

Phase II Environmental Site Assessment

When a Phase I ESA identifies REC’s at a property, stakeholders will often opt for a Phase II ESA to be completed.

What is the difference between Phase I and Phase II Environmental Site Assessments?

By its very nature, Phase II is more invasive than Phase I. It may include subsurface borings, soil and groundwater sampling, geophysical testing for underground tanks or buried drums, installation and testing of groundwater monitoring wells, sampling of dry wells or floor drains, etc. If the initial scope of a Phase II finds contamination above allowable parameters, an expanded study may be required to delineate the full extent of the impacts, both vertically and horizontally.

Advantages of Phase II ESAs:

  • Enhances certainty in determining sources and extent of contamination, which can help improve estimates of fair property value as well as how to best structure pollution insurance coverage

Disadvantages of Phase II ESAs:

  • May entail significant cost & time
  • May necessitate involvement of regulatory agencies

Although a site-specific environmental investigation is not a pre-requisite to applying for or obtaining pollution liability insurance, it can provide unique benefits to both the insured and the insurer. These benefits vary according to the type of report completed, as do the associated shortcomings. Should you have any questions about Environmental Site Assessments and how they can impact the successful placement of Site Specific Pollution liability insurance, please feel free to contact us to discuss.