Businesses operating at a shared location — whether it’s a building with suites, a strip mall, or other multi-tenant facility – may have environmental concerns in common because of their close proximity. Not only do exposures of a current business impact a neighboring company, the environmental effects of previous tenants and their operations may linger for years. Most environmental consultants will tell you, this isn’t surprising. It’s likely the result of vapor intrusion. For the owners of multi-tenant properties, vapor intrusion poses significant legal, health, and insurance challenges.
Understanding vapor intrusion
When chemicals seep into the cracks of foundations, utility lines, floor drains, or indoor air circulation systems or vents, this is called vapor intrusion. Among the most common chemicals involved in vapor intrusion are volatile organic compounds (VOCs) such as petroleum chemicals and chlorinated solvents (i.e. PCE and TCE). Auto shops, printing companies, industrial, and manufacturing businesses may use these solvents.
At a certain level, these chemicals (and others) can result in health risks such as:
- Headaches
- Respiratory problems
- Nausea
- Cancer
Unique risks for multi-tenant retail buildings
There is a greater risk of vapor intrusion in multi-tenant buildings because tenants share basements, crawlspaces, walls, and HVAC systems, which means chemical vapors may be dispersed and spread. The effects of the chemical vapors may persist for many years, exposing subsequent tenants. However, the legal liability is often unclear. Is the owner of the building, the current tenant, or the former tenant responsible for the vapor intrusion?
Landlords might assume their Commercial General Liability (CGL) will protect them in the event of a vapor intrusion claim. Many carriers include vapor in the definition of a pollutant, meaning that a CGL policy would deny a vapor intrusion claim due to the pollution exclusion. Landlords who face lawsuits, lost income, and cleanup or monitoring costs will be left financially exposed.
Insureds who secure Premises Pollution Liability may have protection from vapor intrusion claims. These policies can provide coverage for:
- Investigation and remediation costs
- Legal defense fees
Third-party bodily injury (including medical) - Property damage claims (including lost revenue)
- Business interruption and relocation of tenants affected by the pollution exposure
It’s important to confirm whether a policy covers known and unknown historical pollution events.
Proactive risk management includes understanding all the potential pollution issues that can occur at a multi-unit retail property and securing comprehensive environmental insurance.