Environmental Insurance can play a pivotal role in private equity backed transactions, helping to facilitate the transfer of environmental risk. The due diligence process often uncovers historic environmental concerns associated with a prospect, whether through suspected contamination at a physical property, potential exposures related to products sold or work performed, or the ramifications of going forward operations. Every transaction is different with regard to the willingness of parties to retain or transfer risk, but regardless of the preferred structure, a well-crafted environmental program working in conjunction with other aspects of the PSA can place the environmental risk in a well-funded bucket preventing it from otherwise impacting the deal. Environmental policies have a great deal of flexibility in how they provide coverage for a risk.
Private equity clients can consider transferring some, all, or none of the following risks:
- Unknown pre-existing contamination at a site, for offsite bodily injury and cleanup
- Unknown pre-existing contamination at a site, for onsite cleanup
- Exacerbation of known conditions for onsite cleanup, or offsite bodily injury and property
- Reopener coverage of otherwise closed historic
- Environmental loss from discontinued products of
- And many more combinations of coverages, limits and
In today’s heightened environment, companies are not only being held accountable for the cleanup and related bodily injury from their pollution issues but also face significant reputational risk as well. There are several trends that indicate this coverage is more important today than ever before:
- Historic exposure to contaminants at the site might create a future This is more significant today than in the past due to heightened regulatory standards in many communities as well as community engagement.
- Reopening of closed environmental A previously closed pollution clean up can be re-opened by the regulatory agencies if the standard of acceptable levels for that pollutant is reduced. What was once closed can become newly actionable.
- Exposure to per-and polyfluoroalkyl These forever chemicals are being discovered in many otherwise benign environments. Getting coverage for this exposure is not easy but it is important to pursue wherever possible.
- Contamination of neighboring ground water discovered via increased testing of water systems
While the ability to leave environmental responsibility with a seller is certainly tempting, it runs the risk of failing when needed most. Inadequate funding, exhausted limits of seller’s coverage, bankruptcy of guarantor to name just a few. By purchasing an insurance policy to take on that risk, the private equity team is able to place what could be a very significant exposure with a well-funded, well rated insurance carrier. Typically, the cost of doing this is negligible when compared to the overall value of the deal and is certainly a path that should be explored in most if not all situations. For more information or to discuss an account, contact us today.