Insurance policies as a source of brownfield funding
Billions of dollars in unclaimed insurance coverage are available to brownfield owners. In many cases, insureds do not even know about the existence of old policies. Once uncovered, however, these policies can contribute significant funds toward the revitalization of brownfield properties.
Risk International (RI), Houston, locates and reconstructs lost insurance policies, a specialty known as "insurance archaeology." First, coverage is identified. Then, recovery on the reconstructed policies is pursued. Coverage usually includes indemnification, as well as costs associated with legally defending the insured if he or she is sued in connection with the real property. This is significant because defense costs are usually expensive, often exceeding remediation costs.
Terrell Hunt, RI president, points out that an insurer's duty to defend arises more quickly than its duty to indemnify. Insurers have an obligation to provide a defense where there is a possibility that liability will exist under a policy.
Even large, sophisticated companies are often not aware of the existence of coverage. While a firm will often have thoroughly inventoried coverage for its parent company, coverage at subsidiaries acquired over the years may not have been as carefully documented. Often, this leaves companies holding the bag for liability that is properly the responsibility of the insurer.
Hunt shares information that insurers will need to settle with his clients. He doesn't expect to collect one hundred cents on the dollar. Insurers often have valid defenses, which his staff explain to clients. This helps clients understand the appropriate reduction in a policy's stated coverage.
Clients also learn from Hunt why settling for a fair amount is better than going through a time-consuming and expensive trial. The goal is to arrive at a fair settlement without having to resort to litigation. Hunt pointed out that litigation can "cost you the farm." A negotiated settlement doesn't subject you to this risk.
The firm represents insureds exclusively, but maintains good working relationships with many large insurers. This allows RI to pursue negotiated settlements directly with insurers. If settlement discussions are not progressing satisfactorily, litigation is initiated.
Can you really obtain a fair settlement without litigating?
To answer this question, we spoke with someone who knows the harm litigation can cause: Jan Schlictmann. Schlictmann is the lawyer portrayed by John Travolta in the movie A Civil Action. His work on that case - Anderson vs. W.R. Grace & Co. 628F. Supp. 1219 (D. Mass. 1986) - convinced him that there must be a better way.
Schlictmann is vitally interested in the environment and continues to represent communities suffering from environmental problems. He has adopted a different approach to settling these disputes, however - one of cooperation, not confrontation. "Our whole legal system is based on a false premise, that disputes resolve disputes. Litigation should be used as a last resort," he said. Schlictmann believes that this approach can help resolve insurance coverage disputes.
"Make a phone call before taking action. This approach can save people a lot of time, money and energy. In today's litigious environment there is often no honest discussion until after it's too late; relationships have been poisoned by destructive behavior," Schlictmann said.
"Don't look at how to embarrass or harass those responsible for the problem. Instead, try to figure out how can we bring people together to solve the problem. This is difficult because people love to fight. We may feel more secure when we try to impose our will on others. Litigation glorifies a darker past," he said.
According to Schlictmann, "Clients often come in with a certain delusion, which some lawyers then exacerbate. They take facts and try to make them fit into an artificial legal reality. Lawyers take the position that their client is right - and the other side is wrong. Litigators and their clients often see an advantage in fighting: It may allow us to impose our reality on the other side. We hope that the other side will be gone, and the world will be the way we want it to be."
Parties often deny a problem's existence. To ascertain the truth, the first order of business at a contaminated site is to find out what actually happened. This provides the foundation for dividing up remediation expenses fairly.
If there is contamination, an insurer may deny the problem is its responsibility. It may argue that the problem came into existence after the policy lapsed or that the problem is not covered.
When there is a problem, all of the parties are partners in solving the problem. Parties should find out about a problem together without embarrassing each other, recognizing that companies are made up of real people who sometimes make mistakes.
This philosophy and business attitude can be used very effectively to provide financing for your brownfield projects, particularly when pursuing the funding that may be discovered in one of many layered financing tools - old insurance policies.
This article originally appeared in the 08/01/1999 issue of Environmental Protection.