November 01, 2014

Using Environmental Insurance as a Tool to Close Transactions

Christopher Alviggi and Dennis M. Toft

Transactions involving known or potentially contaminated sites often fail to close because both known and unknown environmental risks cannot be addressed to the satisfaction of all parties. Sellers of contaminated real properties seeking to walk away from perpetual liability by transferring risk to a buyer may be concerned about the liability recurring if the buyer defaults. Buyers may be concerned about the known and unknown risks of a contaminated property, including funding cleanup expenses and potential third-party claims. Investors brought into a transaction may seek to limit their exposure to environmental claims. Similarly, lenders often want to implement certain measures to ensure that their collateral is not impaired by known or unknown environmental liability. Add to this mix a team of consultants or cleanup contractors or other responsible parties who may have potential liability for cleanup costs at a particular site. Adding again to that mix, consider the various contractual terms and liabilities that may be at issue for a particular property. Contaminated-property transactions can become more and more complicated when there is an increase in both the number of the parties and the extent of the risks involved.

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