Law Times

Law TiMes • March 29, 2010 FOCUS PAGE 9 Pros and cons of environmental insurance A basic understanding of coverage necessary to provide 'high-level advice' BY DARYL-LYNN CARLSON For Law Times I t may not be on everyone's radar, but environmental insurance is something people need to be thinking about, lawyers say. "Environmental insurance is an area that doesn't get a lot of attention, although it can be very important," says Barry Weintraub, a partner at litiga- tion boutique Rueter Scargall Bennett LLP. The issue was on the agenda at a continuing education session hosted this month by the Ontario Bar Association to provide law- yers with an overview and update on issues related to environmental insurance. The event drew more than 80 lawyers from private law firms, government, and cor- porate counsel, which is a great turnout, says Weintraub, who is also chairman of the OBA's envi- ronmental law section. The speakers included insur- ance professionals and a lawyer from the Ontario Ministry of the Environment. They reviewed the various types of coverage, case law, provincial requirements, and the language in policies to enable lawyers to ensure their cli- ents or employers have adequate protection. "An environmental law practitioner should have a basic understanding of insurance to be able to provide high-level advice," says Weintraub. He points out that insurance has a wide range of business ap- plications for companies contem- plating a variety of transactions. At the session, Carl Spensieri of XL Insurance Co. Ltd. delivered a presentation with risk specialist Sharon Ferrari of Scott's REIT en- titled "Environmental Insurance: Is it Worth the Paper it's Written on?" The presentation essential- ly summarized the advantages and disadvantages of environmental insurance. Under the pros, they listed the following: • Insurance can cover all ex- posed parties, legal defence costs, any diminished share value, and cleanup costs. • Makes lenders happy. • Includes coverage for direc- tors and officers. • Backstops environmental in- demnities and undertakings. • Gives third parties, purchas- ers, and lenders comfort that the vendor has the financial means to clean up a covered property. • Policy will clean up to new and more stringent standards as long as the property met the old standards at incep- tion of the policy. Under the cons, they noted: • The environmental insurer will subrogate or pursue the very party that may have paid the policy premiums, such as the tenants. • Underground storage tanks are covered only if they are listed in writing on the policy. • Typically, pre-existing con- tamination is not covered. Untitled-2 1 www.lawtimesnews.com 3/24/10 11:05:33 AM International Bar Association 10th Floor, 1 Stephen Street London W1T 1AT, United Kingdom Tel: +44 (0)20 7691 6868 Fax: +44 (0)20 7691 6544 E-mail: confs@int-bar.org Website: www.ibanet.org Headline sponsors • Environmental policies are "claims-made" policies, not "occurrence-based" policies. • Environmental claims brought after the sale of a property will be an issue. "Oftentimes, insurance is an afterthought," Spensieri said. "But insurance companies need to be involved as early as possible in the process because, after the fact, it's very difficult" to resolve any liability costs or even be able to get a compre- hensive policy in the future. Spensieri pointed out that, with the increasing risk expo- sure for officers and directors on the boards of public companies, insurance is integral. He noted as well that com- panies should regularly review their corporate environmental insurance policies in keeping with their activities. A lawyer should also be involved to ensure the wording of the policy is ap- propriate and thereby minimize 'Environmental insurance is an area that doesn't get a lot of attention, although it can be very important,' says Barry Weintraub. the client's risk exposure. Yet, as Spensieri and Fer- rari noted in their presentation, policies for directors and officers typically only cover derivative claims. They don't include clean- up coverage or legal defence ex- penses for damage claims against officers and directors, with the exception of a dip in the share price as a direct result of an en- vironmental incident. He also suggested there is room to negotiate the wording in poli- cies dealing with standards for a cleanup in the event the company experiences a problem. In terms of obtaining fi- nancing, many lenders now require companies to have en- vironmental insurance to dem- onstrate they have the financial ability to initiate a cleanup. As a result, Spensieri and Fer- rari wrapped up their presenta- tion with the declaration that "environmental insurance is worth the paper it is written on," particularly since it can facilitate a real estate transaction, protect a company's value, serve as a cap- ping mechanism in any cleanup costs related to an incident, Biennial Conference of the Section on Energy, Environment, Natural Resources and Infrastructure Law Challenges for Resources in a Changing World 25–28 April 2010 Toronto, Canada A conference presented by the IBA Section on Energy, Environment, Natural Resources and Infrastructure Law (SEERIL), supported by the IBA North American Regional Forum. Topics will be drawn from a wide range of issues affecting the industries represented by the section. The topics will be around the general theme of empowering the planet in a challenging environment, including access to resources, energy and land, reduction of emissions and the associated legal framework. Who should attend? Private practitioners and in-house counsel at all levels of experience involved in environmental, international construction, mining, oil and gas, power or water law. and cover the company's direc- tors and officers. Marc McAree of Willms & Shier Environmental Lawyers LLP chaired the event. He says the session was insightful and a welcome overview for lawyers wanting to know about the type of environmental insurance policy that would be appropri- ate for their company or client. Equally important is recogniz- ing how insurance can support other types of business transac- tions beyond simply making a claim should the company find itself dealing with an incident. "What we often find is there are insurance products on the market that will assist clients in doing many deals," says McAree. "Environmental insurance can often provide comfort for lenders or be the backstop in ad- dressing any environmental con- cerns, particularly in a land trans- action deal. So it's important for all lawyers to know this." LT

• Cover
• Gearing Up
• Cutting Red Tape
• Focus On Energy/Environmental Law