Insurance Policy Protects Lenders from Environmental Liability of Property Transactions

Before funding individual loans, real estate lenders are seeing more advantages in using environmental insurance to protect themselves from the environmental liability associated with some properties, according to ECS Underwriting, one of the nation's leading providers of environmental insurance.

"Undoubtedly, real estate can be both an asset and a latent liability," said Richard Humphreys, vice president of ECS' real estate services business unit. "Just as they would require the purchase of property insurance, title insurance and flood insurance on specific properties, lenders are seeing the benefits in requiring borrowers to purchase environmental protection as well."

"The affordability and flexibility of pollution insurance for the real estate market is making it a reasonable loan requirement, and a wise risk management practice for lenders," said Humphreys.

ECS' Real Estate Lenders Policy (RELP), for instance, provides first and third party pollution coverage and mortgage impairment coverage for secured creditors, banks and financial institutions involved in commercial mortgage lending for properties where possible contamination could adversely impact their investment.

According to Humphreys, "the ability to transfer some of the environmental risk associated with properties is helping lenders obtain a cushion against the possibility of unforeseen cleanup expenses and offers some assurance about a property's value at the time of a default."

ECS' RELP policy is a claims-made policy and pays on behalf of named lenders under a variety of scenarios including mortgage impairment protection for the loss of all or a portion of the outstanding principal balance as a result of a pollution condition. Coverage is also provided for third party legal liability claims including on-site and off-site bodily injury and property damage, remediation expense from pollution conditions on, at, under or emanating from covered location(s) as well as legal defense expenses arising from on-site and off-site loss or in connection with remediation expense.

Administered through Reliance National of New York, the RELP policy is available with liability limits of up to $75 million and a policy period of up to 10 years. Available in all 50 states and Canada, the policy is offered on a non-admitted basis, with minimum premiums of $10,000.

"For individuals purchasing property, there are also specialized insurance programs that can protect them, as well as name their lender and other parties that may be involved in the development or use of the property, all under one policy," said Humphreys. "All in all, environmental insurance is enabling developers and lending institutions to take advantage of lucrative opportunities that may have been passed up in the past."

The issuance of an environmental insurance policy is subject to an environmental risk assessment survey of the financed property. Additional risk control services and claims management are also available.

ECS Underwriting, an ECS Company and an underwriting manager for Reliance National of New York, is a leading provider of environmental insurance combining underwriting, consulting and claims management. N/A, headquartered in Exton, PA, are leading providers of integrated environmental risk management solutions to business and industry worldwide. ECS is the 1998 recipient of the Arthur Quern Quality Award, sponsored by the Risk & Insurance Management Society (RIMS) and the Quality Insurance Congress (QIC), in recognition of achieving quality in its risk management services and products.