By Joshua Burd
A consulting and engineering firm has teamed with a global insurance agency to expand coverage for environmental cleanups, with the goal of spurring remediation at sites that are otherwise seen as too costly or risky for property owners to take on.
The Pennington-based firm, WCD Group, is working with Beazley Group to offer an improved version of what’s known as cost cap insurance. As the name suggests, the coverage calls for limiting the cost of a remediation project and allowing WCD to share in the risk with its clients, under a framework that is both attractive for real estate owners and sustainable for the insurance carrier.
WCD President Chip D’Angelo said the program augments the other categories of environmental insurance that the firm has long offered. Those include typical project execution insurance for the work that’s taking place on the property and an optional site pollution policy that protects the owner against third-party liability, regulatory action and any unknown contaminants.
The cost cap program “fits on top,” D’Angelo said, while adding “a missing piece that was not in the marketplace, effectively,” by insuring the cost of the remediation and against additional expenses stemming from the known contaminants. That expansion could stem from an increase in the quantity of the work and an increase in known contamination.
“It’s the third layer,” D’Angelo said. “WCD has stitched together these insurance products with our execution to completely eliminate risk to the developer.”
It’s not the first time insurance providers have offered policies that cap the cost of remediation. Major providers have done so in past years, but allowed for major cost overruns and long, broad terms that gave excessive amounts of latitude to contractors and resulted in a surge of claims.
Jayne Cunningham, an underwriter with Beazley, said that made the policies unsustainable.
“Everybody got out of the business,” Cunningham said. “When we got into writing environmental, we said, ‘We’ve learned from those mistakes, we’ve seen what happened to other people, we’ve seen the mistakes and we think we could write that coverage if we did it just slightly differently — if you had a few more areas of oversight.’ ”
Beazley introduced its cost cap product in 2012 and has spent the ensuing years streamlining it to the point where policies now begin around $150,000, she said. The company has set shorter limits on the policies that are more in line with the estimated term of the project, while limiting the coverage to more modest-sized projects that could be cleaned up with proven technology.
One other major improvement that has impacted pricing has been to partner with consultants such as WCD Group, allowing the firm to manage the project and serve as Beazley’s eyes and ears. In turn, D’Angelo said WCD underwrites, estimates and schedules the project and modifies the policy to be very site-specific.
“It’s a new and improved cost cap,” Cunningham said. “Cost cap is not dead, contrary to all expectations.”