Environmental Liability Transfer to Purchase Environmental Liabilities from Detrex

Following last year’s success with its purchase of El Paso’s Wichita refinery, Environmental Liability Transfer (ELT) again sought the services of Marsh’s Environmental Practice when entering into a particularly complicated agreement to purchase environmental liabilities from a former solvent recycler.

The seller, whose operations included a solvent-recycling business, was looking for a way to remove the liabilities associated with 20 locations of the former operations. The seller owned only four of the sites, and none was operating. The remaining locations were either former lease sites or sites that the seller had divested in the past.

ELT specializes in purchasing assets with known contamination issues and remediating the sites for re-development or changes in use. Because virtually all liabilities were being assumed with this transaction, the buyer and seller agreed to backstop the indemnities for third-party liabilities using a pollution legal liability policy.

Working closely with both buyers and seller, Marsh was able to craft a pollution legal liability (PLL) policy that provided coverage for third-party bodily injury and property damage resulting from pollution conditions that commenced prior to several retroactive dates (which coincide with the sale or lease termination dates). Marsh was able to secure coverage for these third-party liabilities despite the fact that many of the locations had known pollution conditions.

One unique component of the coverage, which became critical to completing the transaction, was a manuscript grant to provide dimunition in value coverage to a site formerly leased and occupied by the seller. Normally, dimunition in value coverage is only provided to off-site property owners impacted by pollution emanating from a covered location. The coverage was amended in this case to provide dimunition of value to the landlord of a covered location even though the site was occupied and controlled by the seller (one of the insureds on the policy) at the time the pollution condition commenced.

With this unique and complex transaction, Marsh again helped one of the premier liability buyout companies in the world meet business goals while helping their customers to remove lingering environmental liabilities from their books.