Should a business owner purchase environmental insurance for any transaction dealing with contaminated or potentially contaminated property?
Business owners should look at it in all cases and at least evaluate the use of it, but it shouldn’t be purchased in every situation. It is a matter of looking at someone’s risk appetite, as well as the amount of the premium for the overall coverage being offered. It just doesn’t make sense in some transactions. The premium shouldn’t be compared to the purchase price or selling price of the property, but it should be determined if it makes sense for the individual deal.
Environmental liability policies can be purchased for up to 10 years of coverage, so if the buyer or seller is risk-averse, he or she needs to look at the premium being charged to determine if the insurance would make sense.
What are the benefits of preparing for issues related to contaminated property?
Environmental insurance has become a fairly practical tool for contaminated properties over the last 15 years. There has been an increase in frequency with real estate firms using the tool, and lawyers are becoming well versed in how to use this insurance to mitigate risks.
It helps bring certainty where there is often a great deal of uncertainty and mitigates some of those uncertainties for the buyer or seller. It could also bring certainty regarding financing or equity, or help answer some questions upfront. Environmental insurance can also help strengthen the sale price of a piece of property.
In addition, a lot of the timing with the transaction can be expedited by preparing for these issues. The process used to be very drawn out, and a lot of time was spent on negotiating environmental indemnities and buy/sell agreements in the transaction.
Today, business owners can expedite the process by employing legal counsel to make sure that those contracts are well negotiated and identifying some of the risks that are readily insurable and removing them from the table.
Kenn Anderson is director of Aon Environmental Services Group, a division of Aon Risk Services Central, Inc. Reach him at (312) 381-4226 or [email protected].
