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ENVIRONMENTAL RISK TRANSFER INDUSTRY
Clients interested in capping and/or transferring their environmental liabilities have three basic avenues to choose from to create a successful transaction:
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Direct to Insurance Companies – Often the desired result can be achieved by going directly to an insurance company in cooperation with a broker to design and negotiate the tool required. Under this approach the client will need to assemble the technical teammate who would be the scheduled contractor under the insurance program. We recommend that the client select contractors for this role who are willing to take some risk, in exchange for a suitable reward, if the insurance is reached during the project.
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Liability Transfer Companies – For environmental liabilities where a contractual indemnity is required to meet the client’s objectives, there has emerged an industry, led by large environmental engineering and consulting firms, that provide a contractual indemnity that is typically backed by insurance. Under these arrangements, the liability transfer company often manages the insurance relationship and bears the risk that the insurance fails or is inadequate in some respect. Many times these transactions are “fixed price” with the contracting firm realizing the benefit of a below budget resolution. Most often, the indemnity runs to some negotiated definition of closure and then expires, though, in some instances the indemnity can be perpetual. This option is particularly attractive for liabilities that take more than a decade to resolve. Any real estate issues in the transaction are incidental to the broader goal of transferring liability.
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Real Estate Projects with Liability Assumption –In this third avenue the real estate project provides the primary driver with environmental liability management being an incidental requirement. Dozens of large and small real estate companies have been operating in this market for the past ten years. Typically, the buyer of the impaired real estate will provide a comprehensive indemnity to the Seller with the indemnity backed by insurance for a period of time.
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