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Managing Environmental Liability: Cost Cap and Risk Transfer

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Capping Costs with Remediation Cost Cap Coverage

Environmental remediation projects are especially prone to going over budget, with hidden contamination or changing site conditions leading to unexpected expenses. Remediation cost cap (RCC) coverage directly addresses this risk.

How Does a Remediation Cost Cap Policy Work?

RCC policies provide financial protection by covering cost overruns when cleanup expenses exceed the projected budget, transferring the risk to an insurance carrier. These policies are structured around a detailed remedial action plan (RAP), which undergoes strict underwriting review to ensure technical soundness.

Policy limits are set according to the RAP’s estimated costs and typically include a self-insured retention and a possible co-insurance provision, where the insured shares a portion of costs above the retention.

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Key Benefits of Cost Cap Coverage

Key benefits include:

  • Protection from overruns: Shields your organization from unexpected costs arising from changes in site conditions or remediation scope
  • Long-term security: Policies can be written for terms of up to 10 years, covering the entire life-cycle of many remediation projects

Environmental Liability Transfer - Comprehensive Protection

For organizations seeking a more comprehensive way to resolve environmental issues, an environmental liability transfer (ELT) goes beyond cost control. It allows a company to transfer the entire responsibility for a cleanup project to a specialized third-party.

How Does Environmental Risk Transfer Work?

An ELT is a risk transfer solution in which a specialized company assumes all current and future environmental costs, risks, and regulatory responsibilities for a contaminated site. Backed by a combination of their own capital and comprehensive environmental insurance, these companies manage cleanup, fulfill regulatory agreements, take on toxic tort risks, assume regulatory re-opener risks, and may acquire the property—providing customers with a complete exit strategy from liability.

Benefits Of the Environmental Liability Transfer Approach

An ELT Can Offer Advantages Such As:

  • Risk mitigation: Transfers the financial risk and the legal and operational responsibility for the remediation
  • Balance sheet improvement: Removes a significant liability, which can positively affect a company’s financial statements
  • Protection from future changes: Programs can be negotiated to include protection against regulatory “re-openers” or future changes in environmental laws
  • Unlocks property value: For properties burdened by environmental issues, an ELT can clear the way for redevelopment, sale, or productive reuse

Choosing the Right Environmental Risk Management Solution

Both RCC coverage and ELT are specialized tools for managing complex environmental risks. Navigating these solutions requires specialized knowledge and deep connections within the environmental insurance and consulting industries.

Brown & Brown understands the market and can help you secure regulatory releases and insurance-backed indemnifications that bring certainty to your environmental remediation projects.

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