Sales of Contaminated Property — When is an Environmental Cleanup not a Cleanup?

commercial-real-estateEnvironmental discharges on commercial property are often discovered or confirmed during the process leading to the potential sale of that property. However, the discovery of that contamination does not have to bankrupt the seller or cause the sale to fall through. In New Jersey, contaminated soil that has been cleaned to less stringent non-residential, or “restricted use,” standards may remain in place on commercial properties as long as the public is protected from exposure to that material. In fact, even contaminated soil that exceeds non-residential standards may be allowed to remain in certain situations. Typically, capping the site with concrete, asphalt or a building footprint is all that is required to protect the public from exposure to the contamination. A cleanup is not really a cleanup.

If contaminated material above residential standards is left on a site, aside from the usual requirement that it be capped, a “deed notice” must also be placed on the property to disclose that the contamination exists and that certain uses of the property are prohibited unless the contamination is further cleaned up to residential, also known as “unrestricted use,” standards. There would also be a continuing inspection and reporting obligation, often an escrow or other financial assurance must be established to provide security that funds are available to maintain the cap or other protective mechanism, and payment of a small annual fee to the New Jersey Department of Environmental Protection is required. For properties whose location, zoning or other characteristics make residential usage unlikely or unappealing anyway, these requirements are usually not so onerous that they should prevent a sale of the property. In fact, the purchase of property subject to these requirements can present financial opportunities for buyers as the property may cost less than what it would sell for if cleaned to a more stringent standard.

Nevertheless, sometimes a future owner does wish to use the property for residential purposes or other purposes that require contamination to be cleaned to more stringent standards, like a school. In such instances, anyone wanting to change the property’s use to residential would need to hire a Licensed Site Remediation Professional to oversee a further cleanup of the site by removing or remediating the contaminated soil to residential, or “unrestricted use,” standards. In the case of schools, there may be further cleanup requirements, known as “presumptive remedies,” that must also be followed. These obligations would ordinarily be those of the new owner who is seeking to change the use.

However, in order to avoid any misunderstandings and protect a seller from possible future claims, any contract for sale of a property with a deed notice should specifically state that any new remediation obligation caused by a change in use will be borne by the buyer and that the buyer will release the seller from liability. The seller might also consider placing such language in the deed transferring the property so that these conditions would become known to and arguably binding upon successor owners who take title after the original buyer transfers the property – also known as “running with the land.” Thinking about these issues in advance often helps to avoid conflicts later.

Questions? Let Mitchell know.

Mitchell Kizner of Flaster Greenberg

Mitchell Kizner is a New Jersey focused attorney in Flaster Greenberg PC’s Litigation and Environmental Law departments. He represents clients in insurance, environmental, construction and other commercial matters as part of his active litigation and commercial law practice. He is also General Counsel to the firm. He can be reached at mitchell.kizner@flastergreenberg.com or 856.382.2247.

Insurance for Crowdfunding Portals

Every Crowdfunding portal should carry liability insurance. The important questions are what kind, how much, and with what terms.

umbrella 2Like all businesses, Crowdfunding portals should consider the following “standard” liability coverage:

  • General liability insurance (slip and fall, etc.)
  • Employment Practices Liability insurance (sexual harassment, etc.)
  • Workers Compensation and Employers liability Insurance (usually mandatory by law)
  • Excess or Umbrella Liability coverage (providing additional coverage limits for liability claims, and in the case of umbrella coverage, coverage for some claims not provided by a commercial general liability policy)

However, the “standard” coverage probably won’t cover everything a portal does. For that, a portal will need insurance specific to the world of buying and selling securities.

Someday, maybe soon, the insurance industry will create a product specifically for Crowdfunding portals and buying the right policy will be easier. But that hasn’t happened yet. Today, you have to pick a policy type that seems close – maybe a policy for managing a private investment fund – and then seek to modify the policy yourself. For example, the policy might cover making investments in portfolio companies. You would have to seek to modify that policy to explicitly cover “Raising money for debt and equity investments under SEC Rule 506 and Regulation A, and all related activities.”

Don’t assume that a “standard” policy will cover lawsuits from unhappy investors, for example. Also don’t assume that your insurance agent understands exactly what a Crowdfunding portal does. Sure, the insurance company will sell you the policy and accept the premium, but that’s only the first chapter in the story. The rubber hits the road when you’re sued and submit a claim. That’s a really bad time to find out your coverage is inadequate.

Portals should also consider:

  • Director and officer insurance, which protect the officers, directors, and managers of the entity from claims made on behalf of the entity
  • Fiduciary Liability insurance, which covers misappropriations by employees.

How much insurance should you buy? You’ve got to consider the size of your deals, how many deals you do each year, the amount of the typical investment, and the risk profile of your deals. You’ll find that the first dollar of coverage is the most expensive, while each additional dollar is relatively less expensive.

As anyone who’s been through litigation knows, being sued is very expensive. That’s why it’s critical that your insurance cover not only payment of the actual claims (if you lose or settle), but the cost of defending the claims. Sometimes the costs of defense are subtracted from the policy limits, and therefore effectively erode those limits.

EXAMPLE: Your nominal policy limit is $3 million, but defense costs are subtracted. The carrier spends $350,000 to defend a claim (yes, that’s possible). Now your policy limit is $2,650,000.

Other key points to consider in an insurance policy:

  • Whether the coverage is “occurrence” or “claims made” (the former covers all claims that relate to periods while the coverage was in effect; the latter covers only claims made while the coverage is still in effect)
  • Whether and to what extent the coverage includes “prior acts” (things that happened before the coverage was in effect)
  • The deductibles (the amount you have to pay before the insurance kicks in)
  • Whether you have the right to select legal counsel or must accept the lawyer chosen for you by the insurance company

My colleague, Mark Roderick, spends all his time in Crowdfunding. His email address is mark.roderick@flastergreenberg.com and his direct dial is 856.661.2265. You can also follow his blog at www.crowdfundattny.com or on twitter @CrowdfundAttny.

Questions? Let Mitchell know.

Mitchell Kizner of Flaster Greenberg

Mitchell Kizner is a New Jersey focused attorney in Flaster Greenberg PC’s Litigation and Environmental Law departments. He represents clients in insurance, environmental, construction and other commercial matters as part of his active litigation and commercial law practice. He is also General Counsel to the firm. He can be reached at mitchell.kizner@flastergreenberg.com or 856.382.2247.

Old Liability Insurance Policies Are like Gold When it Comes to Environmental Claims

Policyholders facing environmental cleanup claims should be aware that commercial general liability (CGL) policies and excess liability policies issued before approximately 1986 provide a recognized source of payment for environmental remediation costs in New Jersey. Until 1985-1986, these policies, although purporting to contain a pollution exclusion, actually did, under rulings of the New Jersey Supreme Court and the Appellate
Division of the New Jersey Superior Court, provide coverage for pollution claims. It was not until various dates in 1985 and in 1986 that these liability policies began to include what was or is known as the “absolute” or” total” pollution exclusion, which ended coverage for the cleanup of discharges that began after policies with this exclusion were issued.

Pot of GoldIf an owner, operator or supplier is alleged to be responsible for the cleanup of a contaminated site and the discharge can be shown to have first occurred before the absolute pollution exclusion went into effect, there may continue to be insurance for the cleanup. Because discharges that cause contamination may have occurred long ago, even though the existen of the pollution may not be noticed or discovered until decades later, and because these policies were “occurrence” based, which means that the coverage applies if the contamination occurred prior to or during the coverage period of the policy, these policies can provide protection even now. The key, however, is being able to prove that the coverage existed and applies to the contamination in question.

One key to establishing overage is to locate the policies in question, or to find other evidence of the policies, such as invoices or certificates of insurance. Secondly, there must be scientific testing or eyewitness testimony, and preferably both, to establish that the release of contaminants into the environment began prior or during the last policy located that provides coverage for pollution. While insurance companies will typically deny pollution claims when first made, they ultimately would be forced to pay these claims if properly established. In fact under the New Jersey Rules of Court, the insurance company will usually be required to reimburse the policyholder for its legal fees if the policyholder prevails in a suit to establish coverage.

Questions? Let Mitchell know.

Mitchell Kizner of Flaster Greenberg

Mitchell Kizner is a New Jersey focused attorney in Flaster Greenberg PC’s Litigation and Environmental Law departments. He represents clients in insurance, environmental, construction and other commercial matters as part of his active litigation and commercial law practice. He is also General Counsel to the firm. He can be reached at mitchell.kizner@flastergreenberg.com or 856.382.2247.

Mold Exclusion Does Not bar Coverage for all Claims Alleging Mold

Commercial general liability policies typically exclude injury or damage arising from mold. As a result, insurers often deny coverage whenever an alleged injury is caused in whole, or in part, by mold. Without insurance, the cost of defending the case and paying an ensuing settlement or judgment can be crippling. It is important, therefore, for a close analysis to be made of the allegations made by the claimant before any denial of coverage is accepted by the policyholders.

While mold-related exclusions bar coverage for arising from mold, they do not bar coverage for injury arising from something other than mold. So, if a complaint alleges multiple causes of injury (e.g., mold and water) the insured may be entitled to coverage. The New Jersey Supreme Court has made it clear that when a complaint alleges both potentially covered claims and claims that would fall within a policy’s exclusion, an insurer must defend the potentially covered claims until no potentially covered claim is left in the litigation. Moreover, in New Jersey, unlike other jurisdictions an insurer must consider information outside of the underlying complaint in making its coverage determination. Thus, if information obtained during the discovery process shows that there are also allegations of injury from causes other than mold, that should serve as a basis for coverage. Any such information should promptly be brought to the attention of the insurance company which will then have a reasonable period of time to assess the matter of coverage in light of any non mold-related allegations.

If the insurance company continues to deny coverage, despite allegations of injury caused by something other than mold, a declaratory judgment suit seeking to compel the carrier to provide coverage should be strongly considered. Insurance companies may reflexively deny coverage when allegations of mold are made, but under the law, they should provide a defense if it is alleged that the injury was caused by something in addition to, or instead of, mold.

Questions? Let Mitchell know.

Mitchell Kizner of Flaster Greenberg

Mitchell Kizner is a New Jersey focused attorney in Flaster Greenberg PC’s Litigation and Environmental Law departments. He represents clients in insurance, environmental, construction and other commercial matters as part of his active litigation and commercial law practice. He is also General Counsel to the firm. He can be reached at mitchell.kizner@flastergreenberg.com or 856.382.2247.