Environmental Liability Insurance: Making Projects Possible

March 9, 2021

Bethlehem Steel earned its place in American history by forging the materials used to construct the Golden Gate Bridge, the Supreme Court building and much of the New York City skyline. But by 2004, the heyday of the American steel industry was a distant memory, and Bethlehem Steel’s factory in Bethlehem, PA, was sold to an area nonprofit, Lehigh Valley Industrial Park Inc. (LVIP).

Repurposing a more than 100-year-old steel manufacturing site into useful property required massive remediation — demolition of buildings, the removal of underground gasoline storage tanks, paving to cap contaminant risks — as well as another form of protection: Environmental Liability Insurance.

With a program that included premises pollution liability coverage, LVIP was able to secure the $500 million loan necessary to convert the 1,000-acre property from a dormant but dangerous steel plant to a thriving industrial park that now serves as home to 32 businesses totaling about 4,200 employees. Soon their ranks will include an indoor vertical farm operated by the New York-based high-tech agricultural company Bowery Farming, Inc.

“A vertical farm on a former Bethlehem Steel brownfield: Wow, we’ve come a long way,” the city’s community and economic development director said to The Morning Call shortly after the vertical farm project was announced.

Commercial developments such as the one at the former Bethlehem Steel site and visionary companies such as Bowery Farming are reasons why the Environmental Liability market is among the strongest in the insurance industry, with a growing array of carriers and products available to buyers and a greater capacity for coverage limits offered by insurers (under the right conditions). As developers increasingly see building on property that is geographically desirable but possibly contaminated as preferable to digging up a cornfield in the middle of nowhere, Environmental Liability coverage helps make such projects possible.

The Outlook Entering 2021

Here’s the outlook on the market for Environmental Liability Insurance as outlined in Alera Group’s Property & Casualty 2021 Market Outlook whitepaper, released in December 2020:

► Overall, the market will remain strong and, supported by some 50 insurers, will be competitive and offer needed capacity for most industry segments. Underwriters seek to expand their market share, thereby precluding excessive price increases.

► The frequency and severity of environmental claims is expected to continue to be driven by natural catastrophes but will not cause a market disruption for most classes of business.

► Where “virus clauses” have not been sufficiently clear as to underwriters’ intent to limit or exclude related coverages, language will be modified to clarify their intent. If coverage is provided, it is likely to be limited to $1 million or less and apply to specific needs, such as cleanup/disinfection, while excluding business interruption.

While rate hikes did not appear to be excessive, we did see them as being significant — about 12%. And while availability of coverage and capacity on limits appeared to be trending favorably for Environmental Liability Insurance buyers, underwriting scrutiny and selectivity looked to be increasingly strict.

To obtain the entire Property & Casualty 2021 Market Outlook whitepaper, click the link below.


What’s New

While the outlook remains much the same as it was in December, it’s worth noting that an improving economy and the widespread vaccine distribution to combat COVID-19, further expansion of developments such as the Lehigh Valley Industrial Park and construction by companies such as Bowery Farming seem likely. This makes the Environmental Liability marketplace even more appealing to carriers, and that is generally good news for buyers.

What You Can Do

Although the market remains largely favorable in terms of availability of coverage and capacity for coverage limits, underwriters aren’t simply rubber-stamping applications for Environmental Liability policies.

Underwriters in this market are extremely knowledgeable and highly selective. It’s vital that you work with an agent or broker who knows your industry, understands your business and is experienced in Environmental Liability Insurance. An agent/broker who has built relationships and established a track record through working directly with carriers gives you a distinct advantage in the marketplace.

Working with an Alera Group representative gives you the further advantage of combining local service with national reach, as we’re able to tap into the resources of partners around the nation to deliver solutions other agencies simply cannot produce.

Finally, if Environmental Liability is a concern, there’s a good chance you also have questions about Commercial Property Insurance. Alera Group’s brief guide to Property Insurance ratings provides insight on contributing factors such as construction, occupancy, protection and exposure (COPE).

                                                GET THE PROPERTY INSURANCE RATINGS GUIDE

About the Author                             

Gene Nosovitch

HMK Insurance, an Alera Group Company

Gene Nosovitch is an account executive with HMK Insurance, an Alera Group company. He has more than 35 years' experience as a trusted adviser on commercial insurance.

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