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Environmental Liability Buyout

Removing financial uncertainty from environmental cleanup costs.

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Certainty

Your environmental liabilities are transferred to a third party for a fixed cost.

Customization

Can include transfer of third-party bodily injury and property damage, as well as legal defense expenses.

Relief

Freedom from the distraction of your potential liabilities so you can focus on your core business.

For many US companies, environmental cleanup liabilities and remediation are part of doing business. Whether these liabilities arose from past operations or were acquired through mergers and acquisitions, they can represent a significant financial and managerial strain. Instead of bearing these burdens, companies can explore an environmental liability buyout.  

Why retain cleanup liability?

A company’s core competencies are the products it creates or the services it provides. Yet, managing environmental cleanup liabilities is sometimes an unfortunate frictional cost of business. These costs can include:

  • The forecasted cleanup cost
  • Cost uncertainty and overruns
  • Potential third-party claims
  • Management time
  • Legal costs
  • Environmental consultant costs
  • Regulatory fees

The environmental liability buyout solution

An environmental liability buyout contractually shifts the cleanup liability obligation from your business to a specialty buyout company. This can be a highly effective solution when dealing with mergers and acquisitions, bankruptcies, disposition of brownfield properties, and moving liabilities off corporate balance sheets. Think of it as an M&A of liability in exchange for cash.

Here’s how it works.

The buyout company completes due diligence around the cleanup liability. This is essentially identical to the due diligence that would be completed on these same liabilities if you were entering into an M&A transaction. The buyout firm then offers to assume the liability in exchange for a one-time cash payment. This transfer is in-perpetuity and includes:

  • Cleanup of known pollutants and unknown pollutants that originate at the property.
  • Cleanup of additional affected properties if the pollutants migrated offsite.

Buyouts can also be negotiated to include:

  • Third-party bodily injury
  • Third-party property damage
  • Legal defense expenses
  • Assumption of the real estate whose value would be an offset to the liability

It’s important to note that the buyout cost is not an “apples-to-apples” comparison with reserved cleanup costs; the buyout firm is assuming much more than the cleanup costs from a cost accounting perspective, including the frictional costs previously noted.

Environmental insurance is an important component of an environmental liability buyout to:

  • Reduce the buyout cost — having a pollution legal liability (PLL) policy can help cover potential unknown pre-existing pollution conditions instead of having the speculative cost of unknown pollution conditions built into the buyout price.
  • Manage environmental liabilities retained by the seller.
  • Insure the possibility of counter-party credit risk to the seller — using a PLL policy with an excess of indemnity endorsement will provide protection in the event of indemnity default.

The specialists in Marsh’s Environmental Practice are well versed in environmental liability buyouts and can help you assess their potential and facilitate their completion on your behalf.

Why Marsh

Marsh’s Environmental Practice is well versed in identifying your business’ environmental exposures. Our insight enables us to be on the forefront of emerging issues and changing markets, allowing us to be a consistent market leader providing industry-leading insurance and non-insurance solutions to meet your needs.

Our people

James Vetter

James Vetter

Managing Director, Environmental Practice

Webcast

Are you struggling with the uncertainty of cleanup costs?

Learn about one option you can employ to address the risks associated with cleanup liabilities as part of mergers and acquisitions, bankruptcies, restructuring, and corporate holdings.

Watch now

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