Insurance Needs

Slide1: 

Brian M. Murdock, ARM AIG Environmental Regional Manager, National Accounts Atlanta, GA 770-671-2171 or brian.murdock@aig.com

General Overview: 

General Overview Who is AIG Environmental? Policies for Contaminated Property How are governments using Environmental Insurance What local governments can do with Environmental Insurance to promote redevelopment

AIG Environmental: 

AIG Environmental AIG Environmental has been providing environmental insurance, claims management, and environmental loss control services for 25 years AIG Environmental is the largest environmental insurer and the leader in product innovation AIG Environmental - Regional offices are staffed by professionals with backgrounds in environmental law, engineering and other technical disciplines

Environmental Insurance Policies for Cleanup: 

Environmental Insurance Policies for Cleanup Pollution Legal Liability Cleanup Cost Cap Environmental Protection Program

Pollution Legal Liability (PLL) Select®: 

Pollution Legal Liability (PLL) Select® PLL Select provides environmental coverage for: On and off-site pollution conditions for both unknown pre-existing and new contamination Coverage for known and unknown pollution conditions not expected or required to be remediated Third party bodily injury, property damage First party Business Interruption & Diminution in value due to pollution conditions Defense Coverage and Transported cargo Non-owned disposal site liability

Clean-Up Cost Cap: 

Remedial Plan work area Known Contamination Clean-Up Cost Cap P r o p e r t y L i n e

Clean-Up Cost Cap: 

Clean-Up Cost Cap Actual Contamination Remedial Plan work area

Clean-Up Cost Cap: 

Clean-Up Cost Cap Actual Contamination P r o p e r t y L i n e

Clean-Up Cost Cap: 

Optional New Found Contamination Coverage: discovered pursuant to the actual RAP:New contaminants Clean-Up Cost Cap Does not cover new found contamination that is discovered due to activities outside of the action plan.

Clean-Up Cost Cap: 

Remedial Plan New Found Contamination Clean-Up Cost Cap

Clean-Up Cost Cap: 

Remedial Plan New Found Contamination X Clean-Up Cost Cap

Clean-Up Cost Cap: 

Actual contamination greater than estimated. Clean-up costs, above the SIR, within the RAP on and off-site. Off-site clean-up costs for pollutants considered within the RAP that are emanating from the covered site. Governmental / Regulatory changes to the RAP that are required during the policy term. Covers Remediation Cost Overruns for: Clean-Up Cost Cap

Clean-Up Cost Cap: 

Clean-Up Cost Cap C O I N S Cost Overrun Coverage Self-Insured Retention (SIR) Limit of Liability AIGE’s Expected Costs

Clean-Up Cost Cap: 

Clean-Up Cost Cap Underwriting (CCC) Contractor provides AIGE their costs for the known contamination - AOC/RAP’s Detailed AIGE (Internal) engineering review of the contractors proposed scope of works and costs AIGE Risk Profiles these costs establishing a risk model that evaluates Optimistic costs Most Likely costs Pessimistic costs

Clean-Up Cost Cap: 

Clean-Up Cost Cap Underwriting (CCC) Underwriting teams are set up for each contractor Each underwriting team has a dedicated: Underwriter Engineer Home office consists of a Product Line Manager and a QA/QC Engineer

Combining CCC and PLL: 

Known Clean-Up Cost Cap Site Boundaries Unknown Unknown Known But Not Actionable Pollution Legal Liability Select Combining CCC and PLL

PLL/CCC Combined: 

PLL/CCC Combined PLL/CCC Combined Form First Party Clean-Up and Liability Coverage - Clean-Up Costs / Bodily Injury / Property damage / off site disposal / transportation PLL portion addresses re-opener issues - post clean up Full “wrap around” coverage for known clean up issues. PLL coverage for the remaining parts of the site - the extent of this coverage is dependant on both the proposed end-use and the level of site specific data

PLL/CCC Combined: 

PLL/CCC Combined PLL/CCC Combined Form Policy Term for a PLL/CCC - 10 years maximum Limits available up to $35m - Excess limits subject to Reinsurance

Guaranteed Fixed-Price Contracts: 

Guaranteed Fixed-Price Contracts What is a Fixed-Price Contract? Many Forms: Contract between a contractor and site owner guaranteeing a fixed cost for a specific scope of work Known AOC Site Boundary Contractor: “We will remove the known AOC and any other discovered contamination to achieve a predetermined standard - for no more than X$$$.”

Environmental Protection Programs: 

Individually Tailored Insurance Programs Provides Long Term Solutions May be used to support a complete release from liability. Insurance terms of up to 15 years may be available, with Guarantied Investment Contracts or annuities used to pay for the actual cleanup costs beyond 15 years. Environmental Protection Programs

Environmental Protection Programs: 

Expected Costs Cost Overrun Coverage Environmental Protection Programs

Environmental Protection Programs: 

Example Environmental Protection Programs

EPP Examples : 

Iron Mountain Mine December 13, 2000 EPP Examples

Site History: 

Site History Located in Redding California More than 100 years of mining operations for Iron, Gold, Silver, Copper, Zinc and Pyrite Mined underground with miles of tunnels, and at the surface in the form of open pit and sidehill mining. Declared an NPL Superfund Site in 1983 Operated by Stauffer Chemical Company which was absorbed by Rhone-Poulenc which merged with Hoechst to form Aventis.

Site History: 

Site History One PRP (Potential Responsible Party) - SMC: Operator Mining exposed the mountains mineral deposits to oxygen, water and certain bacteria, and altered the mountain’s hydrology. The combination of these events acidic mine drainage to flow from the mine and into nearby waterways.

Environmental Problems: 

Environmental Problems Largest source of the acidic mine drainage (AMD) in the world. Largest source of toxic metals in the country. Site dumped the equivalent of 150 tanker cars full of toxic metals into the Sacramento River each day during winter storms. pH is less than 1. Discharge is so toxic that “when workers left a shovel in the green liquid flowing from one of its portals, the next day half the shovel had been eaten away completely”.

Environmental Remediation: 

Environmental Remediation Objective: Collect and treat AMD that will be produced at the site. Long term operation and maintenance (O&M) of the water treatment plant, estimated to be required for the next 1,000 to 3,000 years. Low Tech remediation - treating the AMD with Lime.

Transaction Hurdles: 

Transaction Hurdles SMC was looking for a complete release of any current or future liabilities as part of the settlement The EPA needed to know that they would have insurance protection for O&M for the next 30 years, and that they would have the required funds to pay for the operation and maintenance beyond 30 years. IT, the contractor that was awarded the 30 year contract, needed to show that they had the financial capability to perform the required cleanup for the next 30 years.

Parties that Needed to Approve the Transaction: 

Parties that Needed to Approve the Transaction United States Federal Government United States Environmental Protection Agency United States Department of Justice (NRD) State of California California Department of Toxic Substances Control California Regional Water Quality Control Board State Water Resources Control Board Department of Fish and Game State Lands Commission Governor

Insurance Program: 

Insurance Program Combined 30 year insurance program (CCC & PLS) with GIC payment due at the end of the 30 year term. One policy that provided 30 years of insurance protection, along with a guaranteed payment of $514 million at the end of 30 years which will be used to pay the for the expected O&M in perpetuity. Based upon our engineering review, the estimated cleanup cost for the first 30 years was $203 million. The policy provides coverage for up to $303 million.

Types of Sites (Applications): 

Types of Sites (Applications) NPL/Brownfield RCRA CA Mining (Reclamation & C/PC) Landfills (C&D) (Reclamation & C/PC) Nuclear Decommissioning (approved by NRC) Sites that are difficult to use insurance: Radioactively contaminated sites UXO site (concussive risk)

Concepts to Explore: 

Concepts to Explore Use of CCC on NPL Fund Lead sites where state purchases CCC in lieu of 10% cost share Pooling of sites (local/county level) Encouraging Divestment of Contaminated Property by Owners (“Mothballing”)

Mass BRAC: 

Mass BRAC Massachusetts Brownfield Redevelopment Access to Capital Created by legislation in 1999 with a $15 million fund Run by MASS Business - a state agency Pre-Negotiated Policies and Rates AIG Environmental is selected carrier

Mass BRAC (Con’t.): 

Mass BRAC (Con’t.) Offers PLL, and CCC State provides a 50% Subsidy on all premiums issued through program (Now lowered to 25% or $25,000 due to overall state budget issues) Tremendously Successful: 1999 - 4 Sites 2000 - 36 Sites 2001 - 40 Sites 2002 - 83 Sites 2003 - 44 Sites 2004 - 34 Sites

Mass BRAC (Con’t.): 

Mass BRAC (Con’t.) Cost to State in 4 years $4,720,000 Cleanup Leveraged by programs: $142,000,000 Funds Leveraged - Over $1.9 Billion ($1.1B in loans & $ 800M in investments) Jobs Created in Commonwealth: 24,600

Wisconsin – How it works: 

Wisconsin – How it works State has non-degradation groundwater policy State’s PLL coverage begins when developer purchases property with remaining Contamination after the source is removed Monitor for One-year If Contamination does not worsen after one year, Developer pays a fee to state (Ranges from $7,000 to $18,000) and is released from liability for GW Cleanup State uses fee to “attach” that site to its policy If Cleanup needed of GW, State files a claim against its PLL for cleanup – this way State’s budget is protected

California FAIR: 

California FAIR Cal EPA implement in 2004 AIG Environmental conditionally selected as Carrier Law allows the State to pay 50% of EI premium for SC, CCC, PLL Up to 80% SIR of CCC

Slide38: 

Brian M. Murdock, ARM AIG Environmental Regional Manager, National Accounts Atlanta, GA 770-671-2171 or brian.murdock@aig.com

Slide39: 

The scenarios summarized above are offered only as examples. Coverage depends on the actual facts of each case and the terms, conditions and exclusions of each individual policy. Anyone interested in the above product(s) should request a copy of the policy itself for a description of the scope and limitations of coverage. Policy terms may vary based on individual state requirements and may not be available in all states. Insurance underwritten by member companies of American International Group, Inc. The description herein is summary only. It does not include all term, conditions and exclusions of the policies described. Please refer to the actual policies for complete details of coverage and exclusions. Coverage may not be available in all states. Issuance of coverage is subject to underwriting review and approval. Non-insurance products may be provided through independent third parties.