Blight to Bright

Insurance companies are helping turn contaminated sites turn into solar energy producers

Over the past 10 years, the federal and many state governments have passed myriad acts to encourage the redevelopment of "brownfields." A brownfield is generally defined as any commercial or industrial site that is known or thought to be contaminated with pollutants. With the decreasing availability of large parcels of undeveloped, unpolluted land -- or "greenfields" -- the focus is turning more and more to contaminated sites that have significant redevelopment potential.

In conjunction with the desire to turn blighted properties into areas of beneficial use, both federal and local governments have established a goal to develop renewable energy sources. Enter the "brightfield."

The National Brightfields program was started by the U.S. Department of Energy (DOE) in the late 1990s. The basic premise was to identify contaminated sites that could be developed into solar energy farms by installing solar photovoltaic (PV) arrays on top of the soil. Since installation of the solar cells does not require any soil excavation, residual contamination may be left in place, if federal and local regulations permit. While DOE has ceased direct funding for the program, the department continues to promote the concept.

Often, brightfield projects are made economically feasible because of the combination of funding and credits available, including renewable energy certificates, tax incentives, clean air credits, and brownfield incentives. A few brightfield projects have already been developed, most notably the Midwest Center for Green Technology in Chicago and the Brockton, MA project. The Brockton 500 kW (kilowatt) project is being developed on a former gas works plant and is expected to eventually produce 1 MV (megavolt, or, 1 million volts) of power.

Risk Factors
The challenge in selecting brightfield sites is that, while some potential liabilities may be mitigated by government legislation, there are often several other significant risks.

Chief among environmental risks is the chance that the anticipated remediation expense is not well defined. While some contamination may be left in place, often the site will require some remediation before it can be used as an energy farm.

Additional, unanticipated problems brought about by any of the following events can make the brightfield site undesirable:

  • Discovery of a greater spread of contamination than originally determined during initial site evaluations;
  • Discovery of additional constituents;
  • Change in regulatory remediation standards;
  • Failure of the proposed technology; and
  • Schedule delays stemming from additional remediation work.

Even after any necessary remediation of the site is completed, the location may still pose significant risk to the owner. These risks include:

  • Reopeners: A future action by the regulatory agency, initiated after a change in remediation standards;
  • The threat of third-party litigation from future tenants or customers at the location or from owners of adjacent properties; and
  • The risk that additional contamination may be found in the future that had not been contemplated during the remediation of the known contamination.

Risk Management Rises to the Challenge
The insurance industry is addressing these risks head-on and has designed an array of products specifically to facilitate brownfield and brightfield redevelopment. These products can be used to assist in the development of a brightfield project by removing the uncertainty associated with the environmental conditions at the site. If the pollution can be "capped," and the threat of other contamination removed, then these sites pose tremendous value and opportunity. A blighted property can become a beneficial renewable energy source.

Unlike most other lines of insurance coverage, there is no "standard" environmental insurance policy. Each carrier offers its own proprietary policy on a claims-made basis. Since each policy form is separate, great care must be taken in the drafting of policy language to ensure that the coverages offered by the insurance carrier are representative of the exposures at the site as well as the plans for future use of the property.

Capacity is generally readily available. The available policy limits differ depending on the carrier, but it is possible to write as much as $250 million of coverage for any one project. A typical limit for a brownfield project runs from $10 million to $25 million.

Policy terms can generally accommodate the redevelopment of the site to allow the policy to be transferred to a subsequent buyer. While policy terms up to 10 years are still fairly commonplace, terms as long as 30 years are available in select situations.

Coverage Options
Environmental insurance coverages fall into two broad categories. The first, and by far the most frequently used, is a Fixed-Site Pollution Liability Policy. Though the name of the policy varies from carrier to carrier, each essentially offers coverage for:

  • Remediation of any new conditions discovered on-site;
  • Remediation of any unknown, pre-existing environmental conditions;
  • Liability coverage for any bodily injury claims alleged to result from exposure to environmental conditions onsite or migrating from the site;
  • Liability coverage for any property damage claims to a third party stemming from environmental conditions at the covered location; and
  • Defense coverage.

The second coverage is Remediation Cost Cap coverage. This policy is typically bound separate from the first policy and carries a distinct limit of liability and retention. The coverage is afforded for most cost overruns stemming from a planned remediation at the site, and underwriters typically require a copy of the proposed "Scope of Work" along with confirmation that the proposed remediation has been approved by the governing regulatory agency.

Brightfield Opportunities Abound
The redevelopment of brownfield sites provides unlimited opportunities for economic gain. Environmental insurance carriers are offering a growing number of solutions, thereby allowing the risks associated with known and unknown environmental conditions to be effectively and efficiently managed. By using insurance to mitigate the environmental risks, developers can take a blighted, non-performing asset and turn it into a revenue-generating piece of land. Future development possibilities for brightfield projects will require the collaboration of private business, regulatory agencies, and community organizations. The projects must make economic sense for both the developer and the community. Given the overwhelming national need for "green" energy, brightfield projects can play an important role in providing sustainable, renewable energy.

This article originally appeared in the 07/01/2006 issue of Environmental Protection.

About the Author

Jeffrey Hanneman, Esq., is a consultant within Aon's Environmental Group. He has more than nine years of experience in the insurance industry. Before joining Aon, Hanneman spent three years in the Special Liability Group for a major property and casualty insurer where he worked as coverage counsel on a wide range of environmental claims involving asbestos, silicosis, maritime, toxic tort, product liability, and environmental property damage suits. He received his BS in economics from Texas Christian University in 1991 and then earned his JD in 1994 from the University of Houston Law Center. Hanneman serves on environmental committees of the Associated General Contractors of America, the American Bar Association, and the State Bar of Texas. Jeffrey has also completed the professional designation of Associate in Risk Management. He can be contacted at (832) 476-6853.

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