By Tim Morgan, Senior Account Executive, Rocky Mountain Regional Manager
An Environmental Site Assessment (ESA) is a comprehensive review of the environmental conditions at a specified property. ESAs are a valuable resource for property owners, lenders, real estate attorneys, land developers, and insurance companies that are used to identify and evaluate potential contaminants on the site. The Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) imposes strict liability on the landowner for the clean up of hazardous materials on their property, regardless of fault. The ESA process identifies potential environmental concerns that could lead to costly cleanups and is a critical piece of due diligence for anyone with a vested interest in the land as well as insurance underwriters. This article will explore the key components of Phase I and II ESAs and the insurance considerations that arise when contaminants are identified.
Why Conduct Environmental Site Assessments?
ESAs are typically conducted at properties with a history of commercial or industrial use. They are performed by an Environmental Professional in accordance with the standards established by the American Society for Testing and Materials (ASTM). CERCLA’s “all appropriate inquiries” process requires that landowners evaluate the property’s environmental conditions and assess the likelihood of any contamination. An ESA satisfies this requirement by evaluating both the land and physical improvements that have been made to the property. These reports are typically ordered by a new purchaser of the property, a landowner that wants to better understand the environmental condition of their holding, a lender considering extending a property loan, or a regulatory agency that suspects on site contamination.
Elements of a Phase I ESA
Phase I analysis consists of a thorough review of the historical use of the site and any adjoining properties. At this stage there is typically no physical testing performed on soil or water. The primary components of the review include:
– A visible inspection of the site including any potential pollutants
– A review of neighboring properties and their historical uses
– Interviews with former property owners and other individuals with knowledge of the site’s historical use
– A review of various local, state, and federal filings to better understand prior usage
– A review of the topography of the location to analyze any potential drainage issues that may have brought contaminants on site from adjoining properties.
If the Phase I identifies potential contaminants, then a Phase II may be recommended to further investigate the environmental condition of the property.
Elements of a Phase II ESA
The Phase II ESA is a more comprehensive study which may include a physical sampling of soil, water, building materials, and other potential sources of contaminants on the site. This stage will provide a thorough review of any recognized environmental conditions that were discovered during the Phase I assessment. The primary pollutants identified in this stage can include asbestos, mold, lead, petroleum hydrocarbons, pesticides, heavy metals, and industrial solvents. The assessment can review the level of contamination and determine whether these are deemed “actionable” and require remediation under CERCLA.
Insurance Implications of Environmental Site Assessments
Since liability under CERCLA is strict, insurance carriers will closely examine the findings of the ESA when crafting Premises Pollution Liability (EIL or Site) policies in order to limit their exposure to known conditions. If contaminants are identified during the site assessment, there are several ways to address them. Insurance carriers will typically choose to exclude coverage for the known conditions identified in the ESA. For example, if a Phase II ESA identifies minor mold contamination in a commercial property, the insurance carrier will most likely exclude known conditions found in the ESA. In this case a carrier would also typically apply a mold exclusion. However, if the insured fully remediates the mold and takes steps to prevent future occurrences, the carrier may be willing to remove the exclusion once a no further action determination is issued and the cleanup is documented. If an ESA finds contaminants below an “actionable level,” the insurance carrier may be willing to include coverage for the known conditions found in the ESA.
Beacon Hill can assist with negotiating these terms and conditions following the identification of contaminants during the environmental site assessment process. Our unique environmental specialization and longstanding carrier relationships allow us to work with underwriters to find comprehensive coverage solutions for your clients. Please contact us directly if you have any questions about the insurance implications of Phase I & II environmental site assessments.