When concerns are raised about potential undetected pollution during the sale of an industrial-property site, the buyer's lender typically requires its client to purchase Pollution insurance before the lender will finance the deal.
Sometimes, however, a seller will purchase the coverage simply to spur interest among potential buyers, as Site Pollution underwriters these days will transfer the coverage to the property buyer.
For the U.S. division of a German conglomerate trying to sell an idle industrial site a few years ago, the decision to purchase Site Pollution coverage was penny-wise and pound-brilliant, according to Cleveland-based broker Bruce Kranz, senior vice president of Environmental risk at Hylant Group Inc.
Kranz could not reveal the client that purchased the coverage, but he says the U.S. division of a German parent company wanted to divest an industrial site in Philadelphia. The site had undergone decades of contamination investigation and pollution cleanups.
Despite all of the effort that was put into remediating the site, the company purchased a Site Pollution policy that eventually was conveyed to the company that purchased the property.
Shortly after the new owner began redeveloping the property, construction contractors unearthed a previously undetected pipeline that had leaked contaminants into the soil.
The cost to clean up the contamination nearly exhausted the Pollution policy's $10 million in limits, Kranz recalls, noting that AIG had written the coverage.
Kranz notes that the claim was straightforward and that AIG "stepped up" and paid out the proceeds to cover the loss "all up front."
"If every claim went like that, we'd sell a lot more insurance," Kranz says.
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