Private Risk Financing for Environmental


Expert Insight Panel:
April 19, 2018 1:30 pm

Bloomberg Environment


Brad Maurer
J.D., CPCU, American Risk Management Resources Network,
Philadelphia, PA

Brownfield Initiative Programs have three common elements:

  • Statutory liability relief for successfulremediation,
  • Use of voluntary cleanup programs and expedited governmental approvals for
    remedial actions to shorten remediation periods, and
  • Funding to identify brownfield sites and bridge the financing gap between cleanup costs and property market value.


Superfund Site Redevelopment: A Brownfield Approach to Financing Environmental Remediation Costs for Site Reuse

The Environmental Protection Agency, through its Superfund Task Force, has indicated that the agency will be focusing on streamlining and expediting cleanup and reuse of contaminated sites, with a major emphasis on involving private parties and encouraging private investment.
This session will explore the costs and benefits of several private risk funding approaches for site cleanups, such as: litigating old general liability insurance policies, purchasing pollution legal liability and cost cap insurance, and
incorporating environmental liability transfer and guaranteed fixed priced remediation strategies at sites. The session will provide an overview of common terms and conditions associated with the various options, the market
and providers for each of these options, and their potential role in transactions through real-life case studies.

Download The Article HERE


Why do Businesses Self-Insure Their Pollution Liability?

It’s Irresponsible.

By: Brad Maurer October 2017

Businesses purchase insurance so that they can afford to compensate others for the harm they accidentally cause while in the pursuit of their enterprise.  Insuring against injury is good business and is also good corporate citizenship.  Commercial enterprises have a social responsibility to fund the correction of their mishaps.  They certainly have legal responsibility to do so, but in today’s social media environment, goodwill and reputation are threatened almost instantaneously by publicized acts of social irresponsibility.  It’s good business to do right.  It’s also good business to be able to afford to do right. 

Business relationships predominantly dictate what liability is insured and for how much – so much so that businesses focus on the insurance they are required to have and lose sight of the remaining exposures they may not have insured. If a customer didn’t ask for a certificate of insurance for it, it is often uninsured. Unless a business is a waste facility or environmental services firm, their customers rarely ask for evidence of pollution insurance. That doesn’t mean that a company doesn’t have the exposure. We know the obvious examples (e.g. the refinery oil spill, the chemical manufacturer air release and the waste treatment facility sewerage release, etc.), but decades of cases argued over “what is a pollutant” have documented hundreds of scenarios of uninsured pollution losses for more innocuous events. Although some courts rule that the pollution exclusion applies only to “traditional pollutants” to which environmental laws apply, many allow a broader interpretation of what is a “pollutant”.

…These are just a few examples of hundreds of cases where the “pollutant” arose from everyday accidents that we do not normally associate with traditional pollution releases. While we can debate ad-nauseum whether the absolute pollution exclusion is abused, we must note that there is a likelihood that insurers will apply it and businesses will spend time and money to litigate it.

Download the Full Article HERE


Environmental Risk Transfer Solutions for Mergers and Acquisitions

By: Brad Maurer JD, CPCU

In every business transaction, buyers want to be assured of what they are buying.  In the context of mergers and acquisitions, environmental liability is an elusive issue to evaluate and quantify.  The strict, joint, several and retroactive nature of environmental liability for releases of hazardous substances creates uncertainty because it attaches not only to current but also past operations of a business. Environmental due diligence, although pervasively performed is notoriously inaccurate.  Most environmental due diligence studies performed by technical experts are too focused on known issues and pay just cursory attention to potential issues.  These studies often fail to evaluate current operational and product-based environmental risks.  Undefined and unmanaged environmental risk makes it difficult to successfully purchase or sell an enterprise.  Defining what potential financial loss environmental liability poses is essential to properly value and structure a transaction.  American Risk Management Resources, LLC (ARMR) is an expert at environmental risk identification, evaluation, and treatment.  We assist in defining environmental risk to aid in the successful transfer of equity and assets.

Benefits of Effective Environmental Risk Management

  • Defines the known risks and their cost of treatment so that true deal valuation can occur
  • Protects directors and officers from liability
  • Protects shareholder value from unexpected costs
  • Simplifies the transaction by transferring risk to a well-capitalized insurer
  • Reduces post-transaction representations and warranties litigation
  • Increases the success rate of transactions with significant environmental issues

The most cost-effective means of risk transfer is the purchase of liability insurance for unknown
occurrences. There is a very active market for both pollution liability and products liability

An analytic approach to defining and treating environmental liability risk inherent in a merger or acquisition
will ultimately save time and costs. By effectively identifying risks and converting them into concrete costs of
either mitigation efforts or transfer, a company can be more accurately valued. Besides monetizing the risks, the
cost-savings in avoiding litigation and increasing the success rate of any transaction reduces the friction costs of
conducting the deal.

Read the Full Article HERE

Lenders Guide to Environmental Insurance to Pollution Exclusions

By: David Dybdahl

Farms need real environmental insurance to fill the coverage gaps created by pollution exclusions in both property and liability insurance policies.
This fact became readily apparent on December 30th, 2014 when the Wisconsin Supreme Court in Wilson Mutual v. Falk determined that bacterial contamination in drinking water wells, as a result of spreading manure on fields, is an excluded cause of loss due to the pollution exclusion in the liability insurance policies commonly sold to farms. On the same date, the Wisconsin Supreme Court determined in a separate pollution exclusion case, that nitrate contamination in groundwater is also an excluded pollution loss in liability insurance policies. These groundbreaking decisions at a state Supreme Court level determined that pollution exclusions in insurance policies are in effect “contamination” exclusions.
With bacteria as an excluded “pollutant” in property and liability insurance policies, the need for environmental insurance in loan covenants has clearly been driven into main street businesses and the family farm.
The overall significance of these two Wisconsin Supreme Court decisions on how pollution exclusions operate cannot be overestimated:
1. The decisions make it perfectly clear that pollution exclusions exclude losses arising from operations which are unavoidable risks in farming operations.
2. Bacteria and nitrates are very common contaminates in farming.
3. Farm liability insurance policies offering what may appear to have some limited pollution coverage can be “useless” insurance in the opinion of a Supreme Court Justice.
4. These well thought out and rational decisions on how pollution exclusions operate coming from the Wisconsin Supreme Court will have a national impact on how insurance claims involving contamination in other states will be adjusted in the future

Now with the Wisconsin Supreme Court deciding that pollution exclusions actually apply to contamination as the operative word in a pollution exclusion, the need to require environmental insurance on farm loans to fill the insurance coverage gaps created by pollution exclusions should be clear to everyone.

Download the Full article HERE

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Expanding Environmental Risks in Credit Positions

By: David Dybdahl Decemeber1st, 2015

Through a convergence of risk factors, more commercial borrowers are exposed to uninsured environmental loss exposures than at any time in history. The emerging environmental risks discussed below are affecting main street business, public entities and farms for the first time.

Bankers as a result of the Environmental Risk Mega Trends detailed below are unsecured with insurance in their credit positions on many more small business borrowers than they have been in the past. The good news is the genuine environmental insurance products needed to address these emerging mega trend risks are readily available in the insurance market place at affordable prices; and have been for many years.

The most significant constraint preventing the wide spread use of environmental insurance is in the insurance distribution system. Insurance agents and brokers receive no training on environmental risks and insurance topics. Therefore, the vast majority of insurance agents and brokers are not educationally equipped to competently advise their customers on these relatively complex insurance topics. The result is lenders and their borrowers alike have a lot of uninsured environmental risks that almost all parties are completely are unaware of.

The Society of Environmental Insurance Professionals (SEIP) is a 501, C,3. not for profit organization dedicated to expanding the knowledge and utilization of environmental insurance. Interested parties are encouraged to visit the SEIP website and join to the organization.

To manage environmental risks in a loan portfolio all a lender needs to do is;

  1. Identify the loss exposures of their borrowers; (There are a lot more uninsured environmental loss exposures in loan portfolios today than there have been in the past 40 years.)
  2. Implement credit policies to avoid uninsured credit positions on loans.

This is easier said than done however.

Read More HERE

Expanding Environmental Risks In Credit PositionsI_test (3)



David Dybdahl, February 4, 2011

All lenders have standard insurance requirements and compliance procedures. For all but the largest most profitable borrowers insurance is essential to ensure they remain financially viable and able to satisfy their obligation to lenders. Tangible collateral is subject to total losses due to a myriad of hazards and every enterprise has activities that may result in litigation that takes up management’s time, incurs significant defense costs, may result in a large award to the plaintiff and may damage the enterprises reputation. Insurance is a cost effective way of protecting collateral and the balance sheet from fortuitous loss thus giving a lender greater confidence in loan repayment and in protection for the banks vicarious liability. Confidence in loan underwriting translates into lower frictional costs and greater flexibility in terms benefiting both parties.

The reality of lender insurance requirements and compliance.
Much has been written about insurance requirements and the challenge of verifying that insurance is in place and remains so during the term of the financial obligation. The reality is that many lenders have outdated requirements and ineffective compliance mechanisms. The compliance responsibility is often delegated to a credit department independent of the banks Risk Manager. Too often it is determined that the cost of viable compliance is greater than the benefit. The same standards may be used for every loan and the person responsible for ensuring compliance may not have any experience with insurance. As recent as last month a major bank used an insurance requirement document dated 1983. The terminology on the requirement has not been used in the insurance industry for more than 25 years. Insurance is not a commodity it is a highly complex contract that must conform to specific activities. Forms change every year and for every different category of insured.

Download the full article HERE

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On the Lookout for Mold Insurance Exclusions

By: David Dybdahl in

With green building on the rise, risks from mold exclusions to insurance coverage may also increase!

Lending on green buildings creates an opportunity for brokers and lenders to enhance their corporate image as sustainable businesses. Other benefits of participating in the environmental movement include creating greater shareholder value, improving recruitment success, enhancing employee morale and having a competitive advantage in lending practices.

Like any sea change in the global economy, however, the green movement introduces new risks for the commercial mortgage industry. Informed brokers and lenders that do not manage the new risks may face an increasing number of nonperforming loans on uninsured properties. Traditional lender risk-management protocols, including the insurance requirements in loan covenants, will not be enough to address the green movement’s new risks.

One primary challenge is the future obsolescence of older buildings that physically cannot be upgraded to green standards in the face of new demand for green office space. To address this new default risk, lenders must add it to their long-term financing underwriting guidelines.A more-immediate and widespread risk that affects all loans — but that may affect green buildings disproportionately — is the impact of universal mold and bacteria exclusions in insurance policies. Green buildings are energy-efficient and use more-sustainable recycled building materials. Therefore, they inherently have a greater chance of developing mold growth and interior air-quality problems than older buildings that used raw wood.

….Universal exclusions are now in place on commercial insurance policies. Mold and bacteria exclusions have even found their way into mortgage-impairment and bankers’ professional-liability policies, which are traditionally lenders’ last line of defense on their secured loans.

Lenders with insurance-sales operations also face new professional-liability risks for the insurance agents who fail to advise their customers about the far-reaching implications of universal exclusions. Because appropriate insurance for these damages is available at economical premiums, agents who leave a customer unintentionally uninsured are relatively easy targets for a professional-liability claim. To eliminate their professional-liability loss exposure, agents should offer appropriate mold coverage.

Read the Full Article HERE


How Lenders Were Left Unsecured For Mold-Relater Losses On Commercial Loans And How to Fix the Problem

By: Paul Duggan & David Dybdahl Vol. 20, No. 3 Fall 2006

Insurers implemented a drastic mold-risk management strategy after the explosion in “toxic mold” losses at the turn of the century. Lenders should specifically address mold coverage in their insurance coverage. There are environmental insurance options like Real Estate Environmental Policies that can cover the gaps created by exclusions in general liability policies.



The Superfund Reform Sweepstakes

By: David J. Dybdahl & Rodney J. Taylor

When Superfund legislation was passed by congress, it was thought there might be a few hundred abandoned waste disposal site that would require significant remefiation. The total number of sites that contained dangerous contaminnats was believed to be less that five thousand. Estimates of clean up costs at National Priority List (NPL) sites ranged from $3 million to $5 million per site, and the cost of the entire program was expected to be less than $7 billion. Funds were derived from a tax on petrolrum processors and chemical manufacturers. The concept of having polluters pay was worked…….

The Superfund law has been reacuthorizedtwice since its initial enactiment in 1986 and again in 1990. It is scheduled to be reauthorized by congress in September 1994. These first two reauthorizations substaintially increased the amount of tax support contributed by industry to pay for the fund. In spite of the efforts of the EPA to recover response parties (PRPs), the amount of cleanup costs derived from this source has been less than $7 billion. 

Read More HERE