Case Studies

Case Study No. 1 – Former Steel Mill to Retail Superstore

A former steel mill site consisting of approximately 80 acres has been remediated to remove identified contamination.  All buildings have been demolished and the property is being sold to a developer that is planning to construct a retail superstore on the thirty-acre property.  Since the characterization of contamination at the site found more than seventy-five “hot spots”, the purchaser is concerned about the possible discovery of additional areas of pollution as trenches are dug for building foundations and utility lines.  Any contaminated soil excavated from the site must be disposed of as hazardous material under state environmental laws.  The buyer is also concerned about any delays in the construction due to the discovery of contamination and its removal since its budget anticipates that the store will be in operation within twenty-four months of the purchase of the land.  The seller is unwilling to provide any environmental indemnity for the costs associated with these pollution risks.

Insurance Solution for Case Study No. 1

Insurance is purchased to provide protection to the buyer and seller against the environmental risks associated with this real estate transaction.  The policy is written for a three-year term that will cover the construction period and a reasonable period thereafter to allow for the subsequent discovery of any problems arising from the site development.  A $5 million per occurrence limit is written to pay the costs of remediation of all contaminants that are discovered at the site as well as all liability claims for third party bodily injury, property damage and cleanup costs.  The policy will also pay for the disposal of contaminated soils excavated from the site.  Costs associated with a delay in the opening of the store are also covered if they are caused by the discovery of contamination that must be remediated. 

The premium for the three-year term is $73,000.  The policy has an aggregate deductible of $25,000 to assure that the seller will not pay more than the cost of the premium plus $25,000 for all claims arising from pollution conditions at this site.