Developers of brownfield sites face the risk of incurring unanticipated costs if a site is contaminated as well as derelict or if the costs of remediating the contamination are higher than expected. Developers do not, however, need to risk the unanticipated costs eroding their profit or, in the worst case, their other assets because an increasing range of insurance and finite risk products enables the risks to be transferred.

A person who develops a site that is known or suspected of being contaminated should investigate the actual or potential contamination and, if necessary, remediate it. Planning Policy Statement 23 (“PPS 23”), which was issued in November 2004, states that possible or actual contamination is a material planning condition. Annex 2 of PPS 23, which is entitled “Development on Land Affected by Contamination”, details the manner in which local planning authorities should deal with land contamination.

If a site that is being developed may be affected by contamination, the developer should, at a minimum, submit a phase 1 environmental assessment to the local planning authority. The authority may require the developer to conduct further investigations if the development proceeds and if the investigations, and any remedial works, are considered to be necessary, reasonable and practicable.

As a general rule, the planning authority requires the developer to conduct further investigations and, if necessary, remedial works by conditions to the planning permission. Among other things, the authority may include a condition that requires the developer to report any contamination that is discovered during the development and to take appropriate actions. If the developer discovers contamination, he must conduct a risk assessment and submit a proposed remediation scheme to the planning authority for its approval. When the remedial works have been completed, the developer must submit a validation report to confirm that no unacceptable risks from the contamination remain. The planning authority may include an additional condition or, as appropriate, an obligation to require the developer to conduct monitoring or to have contingency plans to ensure that the contamination has been remediated.

The developer and the landowner (if the developer does not own the site), face other risks in developing brownfield sites. For example, contaminants that are on or under a site may leach to the groundwater and migrate to surrounding land. Construction works may rupture unknown underground storage tanks or buried drums of waste and cause their contents to be released into the soil or groundwater.

Developers and landowners may transfer the above risks to insurers and/or environmental consultants. The insurance policies provide cover for losses arising from the discovery of contamination that existed on a site prior to its development and the risk of remedial works being more expensive than anticipated. Remediation and general contractors may purchase policies to cover risks encountered by them.

Losses arising from the discovery of pre-existing contamination may be covered by a property transfer policy. The policy provides cover for costs incurred in remediating contamination that existed on a site prior to the date that the policy incepted provided that the contamination was not known to the insured or, if insurers agree, was disclosed to them. A property transfer policy may provide cover, not only for the costs of remedial works, but also for claims for bodily injury or property damage by third parties, delays in construction on the site due to remedial works, the diminution of the value of first-party or third-party property, the loss of rental income and associated defence costs.

A hybrid of a property transfer policy provides cover for the cost of further remedial works that must be conducted at a site due to the discovery of additional contamination after the initial remedial works have been completed or a change in law that necessitates further works.

Policies that provide cover for the cost of remedial works exceeding an estimated amount are known as remediation cost cap policies or stop loss remediation policies. They provide cover for costs above an estimate of the remedial costs agreed by the insurer and the insured plus a buffer amount that is borne by the insured. Costs that exceed the estimate may be incurred due to the discovery of additional contamination, the failure of the remedial works or unanticipated works resulting in a delay in the remediation.

The placement of remediation cost cap policies entails detailed investigations into the proposed remedial works by the insurer. Such policies, therefore, are offered only for remediation projects that exceed £1 million. The premium is a percentage of the estimated cost of the remedial works taking into account the limit of indemnity in the policy.

Remediation and general contractors may purchase contractors pollution liability policies. Risks covered by the policies include the costs of remediating contamination that is inadvertently caused or aggravated during the works conducted by the contractor. Situations giving rise to the risks include the above examples of the rupture of a secure container or the inadvertent creation of a pathway, such as a borehole or other excavation, that enables a pollutant to enter groundwater. The policies provide cover for losses arising from pollution-related errors or omissions and associated defence costs.

An increasingly popular type of product for environmental risks is a finite risk programme that combines an insurance element and a funding element. Such a product may, for example, enable a company to transfer its known and unknown environmental liabilities at one or more sites to an environmental consultancy. The consultancy agrees to remediate any contamination at the site(s) for a fixed price and to provide long-term warranty and indemnification protection to the company. An insurance policy backs up the consultancy’s commitment.

As environmental risks continue to develop, the environmental insurance industry continues to develop innovated products for those risks. The products outlined above are just some of the policies and programmes that are available to developers and owners of brownfield sites.

Valerie Fogleman is a consultant at Lovells and Visiting Professor at the University of Ghent.

Valerie’s book, entitled Environmental Liabilities and Insurance in England and the United States was published by Witherbys in April 2005.

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