The Right Questions Could Put Money in Your Hands

15 Apr The Right Questions Could Put Money in Your Hands

ESA meets with prospective clients nearly every day to discuss their environmental projects. When the project involves (or may involve) soil and groundwater impacts, ESA routinely discusses the potential to use Other People’s Money (OPM) to defray costs. Because some of these projects can be expensive, what could be better than using someone else’s money to cover part, or even all, of the project’s costs?

ESA has previously published two articles on the subject. Our first article explains the three most common sources of OPM. Our second article delves a bit deeper into the insurance angle. In this article, ESA shares questions we routinely ask prospective clients to ensure all potential sources of OPM have been investigated.

ESA recently met a commercial broker who is managing the potential acquisition of multiple properties to accommodate the expansion of a well-known retail chain. During the discussion, the broker revealed that perchloroethylene (a.k.a. “PERC,” a chlorinated solvent formerly used for dry cleaning) is a suspected contaminant on one of the properties. She wanted to know what that meant and how it could impact the property value and sale. The full answer is beyond the scope of this article. However, part of ESA’s answer involved OPM, so here is what we asked:

1. How long has the current property owner owned the property?
2. During their ownership, was there ever a dry cleaner on site or a known source of PERC?
3. Or, prior to their ownership, was there ever a dry cleaner on site?

If the answers to questions 2 and 3 are no, then it is possible that the current owner may not be responsible for the perc impacts.

But let’s assume that a dry cleaner operated onsite previously. This is where the insurance questions are asked:

1. How long have you owned the property?
2. Do you have copies of every insurance policy issued while you were an owner?
3. Did the dry cleaner operate on site prior to you taking ownership?
4. Who owned the property prior to you?
5. Can you contact the prior owner? If yes, ask the prior owner if they retained any or all of their insurance information.

By now, you may wonder who would retain such information for so long. And you’d be surprised to discover how many people never discard this type of documentation.

So, why is this information important? First, if we can establish that the dry cleaner operated prior to 1986, and if we can find those old insurance policies, then we may be able to get coverage. Insurance policies written on or before 1986 do not have an “absolute pollution exclusion” meaning that, if certain conditions are met, then coverage may be obtainable. Second, what if the insurance policies were written after 1986? If so, we still want to gather all those policies. It may be possible to get coverage for third-party damages, such as impacts to either groundwater or to a neighboring/offsite property. The point is that all these steps should be taken early in the process to establish what we call a “financial bulwark” to shield you from environmental expenses.

While most of our clients fail to properly investigate the existence of old insurance policies, we occasionally encounter someone who saves everything, and those people are often rewarded for their diligence. Even if old insurance policies are not readily identified, there are still several strategies that you can employ, one of which is to retain an insurance archeologist. Doing so will cost at least $10,000, but if you are looking at high environmental expenses, the investment could be well worth it.

These are the types of strategies and ideas that ESA’s clients are accustomed to hearing. We always think ahead and advocate in our clients’ best interests to minimize costs and defray them whenever possible. Put ESA on your team and discover the strategies we can employ to help you.