Clean-up Cost Cap Insurance: Wave of the Future or Washout?

Numerous types of insurance exist to transfer various risks associated with existing or potential clean-up obligations. The apparent certainty these insurance policies provide can be attractive to government agencies as well as policyholders. Up-front payments can be used to purchase insurance and other financial services to cover projected future clean-up costs, the risk that cost projections are too low and to purchase guaranteed investment contracts to cover future operations and maintenance costs (“O&M”). Through the use of these innovative environmental insurance products, potentially responsible parties (“PRPs”) can account for future clean-up obligations now, government environmental agencies obtain additional premium dollars to invest. Collectively, these advantages can facilitate settlement of Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) and other pending environmental actions. Several insurance companies offer these insurance services and at least one aggressively is marketing them via meetings with regional United States Environmental Protection Agency (“EPA”) personnel.