INSURANCE: Arming for the Redevelopment Battles

The town of Southampton on New York's Long Island recently adopted new plans for the North Sea Landfill, which closed in 1995. A portion of the 122-acre landfill site recently was dedicated as a recreation area. In a few years, Southampton area residents plan to establish a 14-acre recreation facility including a hiking trail that will offer scenic views of the seaside.

Southampton is not an anomaly. Across the country, closed landfills are successfully being converted into golf courses and parks, with various businesses, including waste management companies, showing an increased interest in redevelopment opportunities. However, redevelopment poses a number of liability risks that are not typically encountered in traditional real estate development.

Successful redevelopment, however, provides numerous benefits, including a cleaner environment, a larger tax base for cities, more jobs and a more stable community. Companies involved in reclaiming formerly used land also are perceived to have a strong sense of corporate environmental stewardship.

Realizing the unique liability concerns of participants in this type of real estate redevelopment, insurers have created custom packages to insure every party and every aspect of a project.

For example, environmental insurance covers all of a redevelopment project's potential liabilities, including environmental risks borne by contractors, developers, subcontractors, financial institutions and even future buyers associated with a redevelopment project. Coverages offer protection against third-party bodily injury or property damage claims arising from onsite pollution conditions; onsite contamination discovered during the policy period; and additional onsite contamination discovered in excess of quantities or characteristics previously known by the insured company.

Generally, an environmental insurance program will cover potential environmental exposures during the cleanup and transfer of property, as well as provide protection for both the company acquiring the liability and the site's owner or former owner. Insurance also can cover unplanned cleanup costs.

For instance, if an estimated decontamination expense is $600,000 but the actual expenses eventually top $2 million, that unexpected cost - which could drive a project under - can be covered by insurance.

Today, it's more feasible to acquire such insurance. In the past, insurance costs for risky redevelopment projects could cost between $600,000 and $700,000 or more. However, the insurance premium today, on average, is between $15,000 and $20,000 -hands-on experience has taught insurers how to evaluate a site and realistically assess the risks, while expertly managing them to prevent liabilities.

This is in marked contrast to what existed a little more than a decade ago, when environmental risks were insured virtually "in the dark."

Increasingly, environmental insurance and other innovative risk transfer mechanisms are playing a key role in returning land to productive community use. Through the integration of insurance, risk control and claims management services, there is greater assurance that potential environmental risks will be reduced and controlled.

In an age where much of the environmental news focuses on the rapid erosion or contamination of resources, redeveloping used real estate rebuilds land and preserves our nation's "greenfields" for another day.