Brownfields Update for the Pacific Northwest

Think those old insurance documents are useless pieces of paper? Think again. The world of environmental insurance is an evolving one, and the better your paper trail, the better off you might be if insurance becomes a factor in cleanup.

Thirty years ago, property owners faced with contamination relied on comprehensive general liability (CGL) insurance to cover cleanup costs when the pollution affected third parties. But CGL eventually became more restrictive.

After 1973, insurance companies put pollution exclusions into their liability policies. Policies restricted coverage to “sudden and accidental pollution” before liability insurance would pay for cleanup. The insurance companies took the term “sudden” to mean a “boom” event, explains Frank V. Langfitt, chairman of the litigation department at Ater Wynne LLP in Portland, which represents both policyholders and insurers.

However, courts later interpreted “sudden” to mean accidental or unexpected. (Not until 1996 did Oregon courts agree with this, Langfitt says.) In most cases since 1985, it’s been difficult to get liability coverage for possible contamination.

Finally, in the 1990s, insurance companies loosened up some and started to write environmental insurance policies. In fact, more options are being developed all the time, says Doug MacCourt, a partner at Ater Wynne.

Over the years, arguments over whether an insurance company will pay for liability damages have become more technical than ever, Langfitt says. Key to determining if a policy covers damages is whether a third party’s property was affected by the contamination on your property.

“Most of these cases involve businesses who were just handling their products or wastes the way everyone did,” he points out.

When looking into environmental insurance, the first step is to have a thorough understanding of your site’s condition and its potential risks, MacCourt says. (You can bet any lender is doing the same thing, he adds.) Property owners must decide if they’re willing to pay for an expensive policy upfront or pay later for any problems that may arise. Premiums a couple of years ago cost about 10 percent of the covered amount. So, $1 million in coverage cost $100,000 a year.

“By and large what I’m seeing is most people are choosing to put the money into the ground rather than buy insurance,” MacCourt says.

The most common types of environmental insurance policies available include:

There are ways to convince a court to show that a pollution exclusion doesn’t apply, Langfitt says. In the past, Oregon and Washington courts have been favorable to policyholders. For example, some courts are ruling contamination at a gas station is a basic risk of running the business, so it can’t be excluded when a third party isn’t affected, he explains.

Brownfields add an interesting twist to insurance issues because contamination on these properties often happened before 1985. An insurance archeologist is another tool property owners can use when filing a claim.

Insurance archeologist Jeff Berebitsky of Restorical Research in Portland has seen his business steadily grow over the past three years. In many of his cases, a property owner wants to sell his land, but he must clean up the contamination on it first. It’s Berebitsky’s job to investigate which past insurance policies may have covered contamination that occurred decades ago.

“All we’re really doing is looking for clues,” Berebitsky says.

Property owners can make historical claims up until 1985. If a property owner can demonstrate contamination occurred prior to 1985, then there may be a potential claim.

“Most people view insurance archeology as too good to be true,” Berebitsky says.

Still, insurance archeology is nothing new; it’s been around for 30 years. Large corporations caught onto it first, and now it’s the small businesses that are taking advantage of it, Berebitsky says.

You will pay from $75 to $300 an hour for an insurance archeologist. It can take Berebitsky from 20 to 80 hours to find what he’s looking for and develop a case for the policyholder. Typically, a property owner or a law firm hires him to do the work.

The message experts such as Berebitsky and Ater Wynne send is this: Never throw away old insurance records because it’s the insured’s obligation to prove what is covered. Keeping those insurance records around may save you time and money.

“(People) should treat their insurance policies as if they’re assets,” Langfitt says.

Some of the leading insurance underwriters providing environmental products include: