Background

An existing manufacturing client of Specialist Risk Insurance Solutions (SRIS) was buying out the freeholder of their business premise and as part of the due diligence, they carried out a phase 1 environmental report.

Challenge

The findings of the report raised concerns about historic contamination due to previous industrial usage, so the client was worried about the legal liabilities but also the potential financial losses should an issue arise.

Solution

The client sent our specialist, Michael Grimwood, a copy of the phase 1 report which allowed him to approach underwriters who specialise in environmental risk, and he was able to provide the client with terms from three different A-rated insurers. As the client was looking for a long-term solution, he approached insurers that were capable of providing 10 or more years of cover to protect the long term asset value.

In addition, the client received terms from their solicitor’s broker which was 25 times cheaper than the most competitive quote provided by SRIS. After Michael reviewed the coverage they were being offered, it was clear that the policy was not fit for purpose and did not meet the needs of our client, and he informed them so.

Some examples that the other policy did not cover in comparison to the quotes provided by SRIS include:

• Third party property damage
• Third party injury
• New contamination events
• Enforcement undertakings
• Emergency costs
• The coverage only covered Part 2a and did not respond to all environmental laws. A few examples: Water resources, waste, permitting, biodiversity, and environmental liability directives
• Contractual obligations
• Environmental damage
• Social communication costs
• Restoration of environmental damage
• Diminution of property value
• 1st party business interruption

The trigger for loss was also different, the cheaper policy would only trigger in the event of a remediation notice or an official threat. The policy we provided the client covered the insured from the moment there is a suspected incident which may cause injury or damage at a later stage.

Outcome

After realising the huge losses they could be exposed to with the cheaper quote, they went with a competitive quote that included extensive coverage sourced by SRIS. This case study highlights the importance of working with an insurance broker that understands your requirements, the insurance market, the industry you operate in, and the importance of environmental insurance within a property transaction.

Protecting Real Estate assets from contamination events is an area of insurance which many do not understand and therefore do not recommend the appropriate cover for. As a result, many businesses can find themselves underinsured in the event of a claim or not insured at all.

As a nation, the UK has seen significant industrial usage within the last 100 years, and this increases the financial exposure when buying a property. For many years banks, lenders, and other financial institutions have made structural warranties/Latent Defects insurance mandatory however the focus on the ground in which the property has been built has been ignored. Given that Environmental, Social and Governance (ESG) and biodiversity are now core components of real estate and development, these risks should be considered as a matter of course, especially as ESG has become and external factor within business decisions.

As a specialist insurance broker, we have outstanding relationships with insurers that specialise in real estate and environmental risks. We are able to arrange robust cover for the following environmental risks:

• Contractors Pollution Liability – contamination caused during development
• Land Legacy Protection – historic and new contamination
• Energy Efficiency Upgrade insurance – ensuring you get the cost savings you expect and insures the long term performance of your upgrades
• Real Estate Portfolio environmental protection

For advice on any of the above, please contact our specialist, Michael Grimwood.