The environmental nightmares property developers can insure against

Pic for Arthur J Gallagher column March
Pic for Arthur J Gallagher column March
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Even the most conscientious and risk-averse property owners can inadvertently stumble into an environmental nightmare.

Often factors will be completely out of their control. Environmental risks, such as historic contamination, and the associated stigma attached to such issues are hard to quantify and therefore hard to effectively manage. But what are the common problem areas that those in real estate face?

n Acquisition of sites with historical contamination, especially sites once used for industrial purposes;

n Sites where hazardous materials are stored in tanks above and below ground, or where significant quantities of hazardous materials are used in tenant operations;

n Building renovations that are undertaken while the rest of the site remains in use - these increase the risk of third party exposure by the potential spread of contaminants through demolition or removal of materials;

n Commercial building vulnerability to mould or Legionella - these can form in heating, ventilation, air-conditioning and plumbing systems and elevate the risk of exposure to more people.

Any of these factors can translate into significant environmental liabilities for building owners dependent on the terms of individual lease agreements. But what are the real consequences of acquiring property riddled with such risks and what insurance protection is available?

Direct losses from expenditure to cover legal costs can add up extremely quickly. As can the unexpected clean-up expenses and damage payments to third parties, which are almost impossible to predict. Indirect losses are also a concern and can arise from a variety of events. For example, contamination of a property can render facilities unusable, causing business interruption losses, loss in rental income and relocation costs. Property devaluation due to environmental liabilities is a hugely common concern for property owners, and arguably the greatest risk to the overall value of large asset holdings.

To ensure sufficient coverage, businesses should consider a specialist Environmental Liability policy. Under such a policy, gradual pollution during the policy period is covered and cover for historical contamination occurring before the policy period can be included. Cover is much wider than standard Property Public Liability or Business Interruption policies, and includes third party bodily injury and property damage, as well as associated investigation, clean-up, defence, mitigation and biodiversity damage costs.

Arthur J. Gallagher specialises in risk management and insurance solutions. To find out more, or to discuss your insurance and risk management requirements, email Steven Lunn on