Insurance Firms Begin to Cover Unforeseen Environmental Woes

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NEW YORK (AP) _ Insurance companies are offering a solution to developers and bankers who find them- selves paying for an unexpected cleanup of property where hidden environmental horrors lurk. Many in the real estate industry are terrified at the prospect of a government order under the federal Superfund Act to clean up an office building or vacant land they originally thought was fine but later discovered was polluted. Companies spend an average of $25 million to clean up a typical Superfund toxic waste site, says Moody's Investors Service. As a result, at least three insurers either are or soon will be offering new policies for coverage of unforseen environmental problem. The trend& shows how corporate America is& responding to the nation's heightened sensitivity to environmental problems. Analysts say this new type of busi- ness, a so-called environmental title insurance, has the potential for huge growth. "It's a much needed product on the market," said Geraldine Rudig, a vice president for Baybanks Inc. in Hartford, Conn. A recent federal court decision said banks can be held liable for cleanups of property for which they lent money if the banks influence management decisions at companies responsible for the toxic mess. "It has caused us as real estate lenders to take a very cautious look at lending," said Rudig, a commercial real estate specialist. Because of this, about 90 percent of all banks now require detailed reviews of commercial real estate for pollution problems, called environmental audits, before they will lend money, said Paul K. Freeman, president and chief execu- tive officer of the ERIC Group, a Colorado-based insurance company. Freeman's company is introducing property transfer liability insurance. It's designed to protect both lenders and borrowers against a Superfund-type pollution liability arising from a com- mercial real estate deal. "What they are paying for, in a sense, is the piece of mind that someone has examined that risk," Freeman said in an interview. Freeman, whose company spent $1.5 million in research and development of the environmental liability insurance, expects strong demand. ERIC Group reviewed 9,000 environmental audits of commercial real estate nationwide and found that one in eight had some type of environmental contamination. ERIC Group, which in 1987 began insuring contractors who remove asbes- tos from buildings, contends its property transfer liability insurance is "the first policy available on a nationwide basis. …