The rate of global mergers and acquisitions (M&A) has seen arecent uptick, prompting a need for growing companies to reviewtheir global environmental liability strategies, says areportby ACE's retail operations group.

2012 showed M&A growth, according to Mergermarketstatistics, with the year's first quarter topping three successivequarters of the highest M&A values experienced in the last fiveyears.

“Certainly, for those companies with strong balance sheets,access to inexpensive debt and superior working capital managementpractices, M&A will remain a core part of their strategicgrowth priorities, both domestically and abroad,” says SethGillston, senior vice president of Ace Global Mergers &Acquisitions Industry Practice and co-author of the study.“Companies seeking a stronger foothold in emergingmarkets–particularly within those countries that have liberalizedforeign ownership rules–will continue to pursue M&A as a meansof entry. In doing so, they will confront compliance with apatchwork quilt of constantly shifting environmental laws andregulations.”

Risk management is crucial to transferring exposures from atarget company's previous activities, which may include pollution,contamination, mold, hazardous waste, and toxic chemicals in water,air, and on land- especially when it comes to acquiring industrialmanufacturers.

Since 2010, the U.S.'s Environmental Protection Agency (EPA) hasrequired mandatory reporting of regulated pollutants for companiesin 41 industries, meting out up to $32,500 in penalties against theEPA's Clean Air Act transparency requirements per day, excludingfurther criminal penalties.

Among recent EPA actions is a total of $6.8 million in fineslevied against fuel transportation companies for failure to complywith a federal mandate to blend a percentage of biofuel into theirgas and diesel.

By 2010, all 27 members of the European Union (EU) council hadwritten a directive into their national laws that makes companiesfinancially responsible for repairing damage they caused toprotected species, natural habitats, water, and soil. The ACEreport says the laws demand that while the law establishes aSuperfund-like “polluter pays” standard, it not apply joint andseveral-liability, and require companies to clean up any imminentenvironmental damage.

Several policies can be applied to ease the uncertainty of thisregulatory landscape, including traditional Directors and Officers(D&O) coverage. However, these must usually be in place priorto a merger's closing in order to be viable; to this end, D&O“tail” coverage can be purchased as far as six years after atransaction closes, with an optional additional layer forsubsequent directors and officers hired after the deal's close orfor executives of the target company that then go on to work forthe acquiring entity.

Other coverage lines include Environmental Impairment LiabilityInsurance, which absorbs financial costs associated with cleaningup accidental spills or pollutant leaks, and Premises PollutionLiability (PPL) for first-party liabilities for on-site andoff-site environmental cleaning and remediation as well asthird-party liabilities from lawsuits brought by others for bodilyinjury, property damage or environmental cleanup.