lender essentials: environmental liability insurance

Smart Data. Smarter Workflow.

Presented by:• Mike Herrmann, Legacy Risk Solutions, LLC• Canaan Crouch, P.G., Legacy Risk Solutions, LLC• Debra Hausser, AVP – Financial Institutions Leader, Zurich North

AmericaModerated by:

• Dianne Crocker, Principal Analyst, EDR Insight

Lender Essentials: Environmental Liability InsuranceOctober 1, 2014

INTRODUCTION2

Today’s Webinar will be presented by the following environmental insurance experts:

Michael Herrmann: Legacy Risk Solutions, LLC

Canaan Crouch: Legacy Risk Solutions, LLC

Debbie Hausser: Zurich Environmental

Agenda3

Overview: Why We Are Here Misunderstandings about Lender Environmental

Insurance Key Components of Environmental Risk

Management Essentials of Environmental Insurance Example Transactions and Observations Post

Financial Crisis Questions

Environmental Risk Management4

Misunderstandings about lender environmental insurance: Lender insurance is a replacement for lender due diligence.

Due diligence and risk mitigation provide risk transfer.

Environmental insurance coverage is cost prohibitive.

Insurance companies do not pay claims.

What is Risk Management (Cont’d)?5

Key Components of Environmental Risk Management: Risk Identificationo Identification of business risk.

Risk Avoidanceo Avoidance of adverse business risk.

Risk Mitigationo Action steps conducted to directly address business risk (i.e., escrow

agreements, carve outs, engineering or institutional controls, operational policies/procedures, etc.)

Risk Transfero Risk not addressed by avoidance or mitigation may be transferred by a

contract or insurance policy.

ZURICH NORTH AMERICA

LENDER ENVIRONMENTAL COLLATERAL PROTECTION & LIABILITY INSURANCE

Debra Hausser AVP - Financial Institutions Leader

Zurich Environmental SitePlease refer to policy for complete explanation of coverage

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Environmental Risks in Lending

The risk of environmental loss for a lender can be incurred in several ways. Loss of collateral value

Liability for cleanup costs on foreclosed/owned properties

Third party liability for bodily injury and property damage including defense costs

Loss of the CERCLA secured creditor exemption

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Target Customers

Banks Savings & Loans Companies Credit Unions Life Insurance Companies Pension Funds Loan Originators Other Financial Institutions which hold or invest in

commercial real estate backed loans

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Lender Policy – Coverage Parts

Coverage A - Collateral Value Protection - two triggers: Default and Pollution event

Coverage B - First Party Cleanup

Coverage C - Third Party BI/PD Liability including defense costs

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When do Lenders use this insurance: Individual Transaction

Individual Transaction Used when there is an environmental concern Used in lieu of financial guaranty or escrow Used when short turn-around time

Benefits of an Individual Transaction policy Tool to help lenders get comfortable with the

environmental risk on the property. Offers the lender a lower cost option to present to their

borrower to address the environmental concern.

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When do Lenders utilize this insurance: Portfolio Program

Portfolio Program Used as a risk management tool Minimum volume requirement: 25 loans per year Eligible property types: Commercial Real Estate propertiesBenefits of a Portfolio Program: Provides lender with a true risk transfer mechanism for their environmental

exposures Consistent approach to environmental risk management Insurance will pay for a covered loss associated with a pollution event Streamlines the loan process Reduce cost Provides lender with a competitive advantage Provides cash flow management in the event of a claim

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Examples and Trends Post Financial Crisis

Example Lender Insurance TransactionsActive dry cleanerHistoric gas station locationApartment complex

Claims ExamplesWatercraft sales facilityAuto repair facility

Observations on lender insurance since the financial crisis

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Debbie HausserDebbie HausserMichael Herrmann, P.G. Canaan Crouch, P.G.Michael Herrmann, P.G. Canaan Crouch, P.G.

Direct: 303-224-4071

Email: [email protected]

Website:www.zurichna.com/environmental

Michael Herrmann [email protected]

Canaan Crouch [email protected]: www.legacy-rs.comwww.legacy-rs.com/lender

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QUESTIONS?