As banks have failed and their assets (and liabilities) have been swallowed up by other players in the marketplace, it appears that very little if any attention has been paid to the environmental liabilities that are buried - hidden - within the unending mounds of paper debt.  Something like 70% - 80% of all commercial real estate loans did not receive any environmental due diligence when the paper was written, due to inconsistent bank policies in a very competitive lending environment.

As taxpayer dollars have poured in to "help" the economy by saving those banks which are deemed "too big to let fail", I have not seen any increased effort to identify and mitigate environmental risk.  

Am I missing something? Anyone else care to offer their perspective on this?

NY Appeals Court ruled (Nov 30, 2009) in favor 6-1 of the developer in the biggest eminent domain case since the now infamous U.S. Supreme Court case Kelo v. City of New London, 545 U.S. 469 (2005).

The developer Brooklyn based Forest City Ratner Cos. already has purchases 85% of the land for the proposed 22-acre development which includes a sports arena of the NJ Nets. 

Barclays Investment Bank and eight other companies has signed on to the arena to be called Barclays Center - 18,000 seat sports and entertainment venue and retail space.  The second phase includes 16 high rise towers for both residential and commercial uses (1/3 to be affordable housing) - some to be very high end condos!!!

The Barclays Center at $900 million is among the most expensive arenas ever built.

The argument for the "takings" of the private property (protected by the 5th and 14th Amendments of the Constitution) for "public benefit" included statements that the area was "blighted."  The argument that the area was blighted includes $600,000 condos.

One private landowner purchased his area condo in 2003 for $539,000 - the government is offering $510,000 and making him, and everyone else move out, for the Nets.  The developer is expected to build and sell luxury condos and sell them at a higher per square ft price than offered to private citizens that are forced by the government to move.

"Blighted" is the environmental nexus to this case.

Environmental Trend - eminent domain advocates struck another major victory but the backlash at the state level will likely be bigger with more states passing legislation precluding such takings.

Interesting Points - the landmark case of Kelo v. City of New London in 2005 - is worthy of a revisit today.  In 2009 Pfizer the beneficiary of the eminent domain - announced it was leaving New London!!!

Clean Harbors Environmental Services v. Boston Basement Technologies, Inc.

Issues: Insurance, Pollution Exclusion, Residential Spill, Strict Liability, Response Costs, Common Law Negligence/Property Damage

Facts: Boston Basement Technologies (BBT) was installing a waterproofing system at a residential home when they broke a heating oil line causing 150 gallons of heating oil to leak into the basement.  The sump pump - pumped oil onto the yard.  BBT hired Clean Harbors to clean the oil which cost $12,638.  MA DEP issued notice to Boston Basement Technology that it was strictly liable (under M.G.L 21E) for cleanup costs and to hire a Licensed Site Professional to "manage, supervise, or actually perform the necessary response actions at the site."

BBT sought insurance coverage under its GGL policy (Admiral Insurance Co.).  Admiral denied coverage citing the pollution exclusion in the contractor's policy stating that Clean Harbors services were response costs excluded under the policy.

Court Held: Admiral's policy covered BBT's liability in negligence (common law) for damage it caused to the property, including restoration costs.  Case remanded to finder of fact (jury) as to what amount of the Clean Harbor services were covered under the "exception" to the policy's pollution exclusion.

Insurance and pollution exclusions under general liability policies can be "clear as mud."  Noteworthy is that common law theory of liability is a means to an end in a lot of recovery cases. 

Also noteworthy is that you never know where an environmental risk can stem from and generally speaking - unless you have specific pollution insurance - you will be fighting with your insurance company.

WSJ: Will Bond Plan Have Teeth?  Conservative underwriting of a new CMBS issuance backed by 28 Developers Diversified Realty Corp. shopping centers - the first CMBS issuance under the Federal Reserves Term Asset Backed Securities Loan Facility (TALF).

WSJ - Government officials and developers alike hope "this debt sale will pave the way for other CMBS deals and help uncork a market that had been one of the most important funding sources for commercial real estate in the past decade."

Trend - hopefully more conservatively underwritten CBMS issuance that are well received by institutional investors to come.

How can this possibly be important to Environmental Risk when there is no mention 'RECs?!?'  Because with CMBS issuance comes a huge lending source and hence new batch of Phase Is to discuss "what is a REC."

NJ signed into law in May 2009 the Site Remediation Reform Act and created a Licensed Site Remediation Professional (LSRP) program modeled after the long established Massachusetts Licensed Site Professional (LSP) program. 

These are big changes!  LSRPs, bound by a strict code of ethics, are now going to be directly 'part of the process' and a violation of the code of ethics can result in a license revocation.

My strong opinion is that such standards should be held for all EPs.  Other professionals are held to an official code of ethics - including CPAs, lawyers, doctors.  Why not Environmental Professionals?  As a lawyer, if I violate my professional code of ethics I can lose my license and ergo my profession/livelihood.

EPs are in a significant position to influence the outcome of a site remediation for the long term and should be held to a higher standard.

I spent what feels like a lifetime working on environmental insurance for lenders.  The basic concept (summarizing here) is that the policy will provide protection to the LENDER only for cleanup costs, tort liability and associated defense costs.  For the policy to respond the claim would have to have BOTH a (1) Default by the borrower (for any reason) and (2) "pollution conditions" as defined in the policy.

To underwrite the policy - insurance companies like Zurich NA understand both environmental risk and financial risk.  Product Line Manager, Debra Hausser of Zurich, has been underwriting such risks for several years and provides policies for national banks across the country.

My experience is that the "more information, the better" for underwriting a risk.  Namely, the more information about potential the environmental risk - the better the insurance coverage and pricing.  Therefore, insurance companies work in tandem with environmental consultants in ascertaining the risk.

Environmental Trend: There are several insurance companies that are either new altogether, or existing insurance companies that have recently have started offering new environmental insurance products. 

Like any other insurance for our clients (e.g. fire, property, windstorm), environmental insurance provides financial security should an environmental claim arise.  And in some cases - it can fulfill a statutory requirement such in the case of financial responsibility for USTs; post-closure for landfills, etc.

There are many applications for environmental insurance as a solution to environmental risk.  One creative solution (previously mentioned) is to use a policy as a substitute for an indemnification from a party in a business transaction.

Obviously a main concern - is do insurance companies pay claims?  And what coverage am I actually getting?

Ed

"Midnight dumping" still occurs and will lead to the property owner being liable for the contamination (see strict liability under STATE law; then look at Federal Law - CERCLA and RCRA).

In the small town of Ipswich MA (very rural town of 4,000) 20 gallons of oil - contaminating a town property wetland. A Phase I environmental report does not protect against "midnight dumping" nor provide any financial mechanism for it's cleanup. 

This is a risk management/prevention issues (overlapping with Environmental Health & Safety).   The MA DEP and local fire and police responded - costing the taxpayers of Ispwich tax dollars (and/or the state).  Where does that money come from (besides the taxpayers - which part of the already strained budget)?

While the "trend" seems to be that midnight dumping is down significantly - will it start to pick up in a bad economy where people can barely get by and cannot afford to pay for proper disposal?  What is a landowner to do to prevent this?

Bank failures hit all time high since the end of the savings-and-loan crisis of 1992 (120 bank failures).  Bank failures have been concentrated in GA, FL, IL, and CA.

Number of Bank Failures

2009 = 106 and counting ... (analysts say another 400 over next couple yrs);

2008 = 26;

2007 = 3;

1992 = 120;

1989 = 534 - height of savings-and-loan crisis.

Poor underwriting from financial institutions clearly was a major culprit to the current credit crisis.

One of Many Examples:

A Wall Street lender I worked with proposed a $32 million construction loan for a new 20 story 400 room hotel to be built over a former case station/auto repair shot in downtown Manhattan.  Construction loans are the riskiest of all types of loans by their very nature - there is no cash flow from the property and the collateral is usually dirt.

A Phase I was conducted by EBI Consultants July 17, 2006 and then a Phase II by Roux Associates on July 19, 2006.  We procured environmental insurance for the site - but the lender did not require it and the borrower would not buy it.

April 11, 2007 - additional groundwater and soil contamination was identified by the environmental consultant and construction stopped.  The contractor had to wait for a groundwater discharge permit from the regulators to resume the construction.  Timely delays cost the project more than the environmental insurance premium and the actual environmental risk.

SUMMARY OF FACTS:  Taygeta is adjacent landowner to Varian which manuf. electronic equip. for yrs and dumped thousands of gallons of untreated waste chemicals onto the ground and into a stream running through the property.  1985 Varian removed a UST and found traces of waste acetone in soil.  Clean Harbors Environmental Services was retained to assist with assessment and possible remediation.  From 1987-1992 Clean Harbors prepared reports concerning nature and extent of contamination and started a treatment system in 1992.  In On June 10, 1993 Taygeta GZA GeoEnvironmental gw samples found contamination in gw on Taygeta's property.

LAWSUIT: (May 24, 1996) Taygeta filed suit alleging: (1) property damage pursuant to "Mass. CERCLA" (MCP 21E which is state law; NOT federal!) and (2) NEGLIGENCE (and separately Nuisance).  Negligence/private nuisance in the Varian allowed haz. waste to migrate from their prop. to Taygeta's and did not act expeditiously. Jury awarded $2.3MM in property damages to Taygeta.

ISSUES ON APPEAL:  The Statute of Limitations for MCP 21E claims is 3 years.  The statute begins ('tolls') when a Plaintiff knew or should have known of the contamination.  The Statute of Limitations for Negligence tolls within 3 years after the cause of action accrues (which is not statutorily defined; unlike MCP 21E).  Case law has 'defined' a 'discovery rule' for negligence claims - when plaintiff knows, or reasonably should have known, that it has been harmed.  May 18, 1993 - Varian stated that public concerns about the nature & extent of contamination (off-site) would be addressed once it began further phases of assessment and remediation.  So Taygeta clearly knew of the contamination for more than 3 years.

SJ CT HELD:  Case goes back to trial on negligence claim for the jury to determine if statue has tolled -but Plaintiff has a case for 'continuing nuisance' based on continued seepage of pollutants that is still occurring.

RELEVANCE TO COMMONGROUND: (several issues too many to discuss all).  The topic d'jour: statute of limitations, a 'battle of the consultants' and the nature of the contamination.  Even though the source of the contamination was removed (UST) - the contamination continued to migrate onto Taygeta's property through the gw.  The court found that to be a "continuing nuisance" and therefore no statute of limitation and a recoverable claim.  Contrast that with other cases in which a UST from a gas station is removed and contamination had leaked onto adjacent property.  Courts have held that to be a single encroachment - and Plaintiff's were time barred after 3 years.  See Carpenter v Texaco, Inc. (1995) 491 Mass. 581.

As a consultant - do you want to be responsible for conducting assessment concluding there exists a major environmental risk - but the client has no recourse because the statute of limitations has 'tolled?'

Environmental risk trends 2009 and a historically bad economy.  So what does environmental risk mean to you?  Whether you are are in real estate & due diligence, compliance, finance, insurance or a nonprofit, the economy has taken its toll and everyone has searched for how to adjust to the downturn in business/funding.

Commercial real estate and real estate finance for property transfers was (and still is) particularly hard hit in this recession.  The Commercial Mortgage Backed Industry was the second leading source of all commercial real estate funding - then it all but shut down.  The significant to environmental risk?  Multi-fold.  CMBS commercial real estate transactions came to a halt and hence a hefty flow of Phase I environmental reports.  How are people financing properties and or dealing with the credit crisis as it relates to environmental risk?  Are environmental initiatives being 'tabled?'

Insurance - Of course we all have heard about the push to become LEED certified or 'green buildings.'  What about the contract between the building owner (or bank) that says "I want a Silver LEED certification when my building is complete."  Did you know that insurance companies are providing specific endorsements to fill this "coverage gap" to your standard E&O policy?  Do you believe environmental insurance claims are likely to increase in a bad economy?

Environmental Regulations, Laws & Policy - new storm-water regulations in the Northeast - particularly Massachusetts and New Hampshire are a hotly debated topic; Green Laws/Clean Energy is a big push at the federal and state level.  What are the trends in recent foreclosure and bankruptcy courts regarding environmental risk?

Sustainability and "going green" seems to be the catchall phrase for every single solitary company under the sun.  But what does it really mean to have a 'sustainability plan' in place and in practice?  What does it mean for a company to 'go green?'

Nonprofits - environmental advocacy groups are fundamental for the preservation, advocacy, education, and protection of our natural resources including rivers, wetlands, air, open spaces.  As evidenced in ERTG's Blog "Salem Harbor Power Plant: Case Study" the Conservation Law Foundation (CLF), a nonprofit law advocacy group that had a significant impact on lowering the toxic emissions of the Salem Harbor Power Plant.

So what are the 'stewards of the natural resource' doing to drive fundraising during in these tough economic times?

Serious questions for environmental trends ...  What are your thoughts?