Wednesday, September 21, 2016

ways in which environmental insurance can be used as a tool to help ease a developer’s concerns and provide protection for all parties involved during building renovation

As urban revitalization proceeds at a steady pace and construction prices continue to escalate in cities where vacant parcels are all but nonexistent, many property owners and developers are finding that substantial profits can be made through major renovations of existing buildings.

Renovation starts in some cities are at an all-time high and it has become commonplace for buildings originally built 100 or more years ago to now house luxury condos, Class-A offices, five-star hotels and even institutions such as universities and hospitals.

Often, these major renovation projects take place in stages; one floor or area of a building at a time, while the rest of the building remains tenanted and profitable. With the renovation and operation of these older buildings, there comes with it an additional and sometimes heavy responsibility to assure clean, healthy indoor air is provided to tenants and occupants.

The general public, legal community, state and local regulators and healthcare providers have become much more educated and aware of potential indoor air quality exposures, and we have even seen states, such as New York for example, recently pass legislation specific to protecting public health against indoor air exposures. Fortunately, there are ways in which environmental insurance can be used as a tool to help ease a developer’s concerns and provide protection for all parties involved.

Savvy developers understand that deals are to be had on existing buildings that although may still be well-tenanted, may not have been updated or improved in decades. Secondly, by renovating these buildings, developers will attract tenants willing to pay a premium for location and luxury.

However, along with the architectural appeal and potential financial profits, the developer also inherits a dilapidated and often-ignored infrastructure that is extremely conducive to indoor air quality issues that could prove disastrous not only to the bottom line, but also to people’s lives.

There are some relatively straightforward and cost-effective insurance solutions available in the marketplace that can help a developer become comfortable with this risk. However, the majority of property/general liability insurance policies do not provide adequate coverage related to indoor air quality (IAQ) losses.

To fill this coverage gap, standard site pollution liability policies may be placed that could provide substantial coverage for IAQ issues at a relatively small price when compared to the overall development costs involved. A policy term as long as 10 years may be available and the policy would generally cover cleanup costs, claims for third party property damage or bodily injury, diminished property value and business interruption resulting from these pollution conditions at the covered site. The policy would respond to pay on behalf of the developer for such coverage grants, in addition to the legal expenses and associated costs resulting from a pollution condition at the covered location.

Some developers desire an element of risk transfer for prospective buyers (and even their lenders) as well. In most instances, policies can be structured such that there is protection for both the developer as well as future purchasers. This approach provides more robust protection for the developer while increasing the allure of the property to prospective investors as well as lenders.

Underwriting these policies requires copies of recent environmental due diligence or assessment reports, details regarding the type of renovations to be undertaken, as well as the general qualifications and financial information relating to the developer. Upon receipt of this information, the deal can usually be underwritten in a very timely fashion and in order to conform to tight project deadlines.

Source:, August 2016
By: Kasey Jones