Morris Manning & Martin, LLP

Overcoming Environmental Problems: Three New Developments Enable Deals To Go Forward

Finally, some twenty-two years after the passage of the first major federal environmental legislation, a combination of factors is uniting to make it possible to more quickly and cost effectively move forward with deals and transactions having an environmental problem. In years past, when an environmental issue surfaced, the combination of draconian environmental legislation and regulations, inflexible administration of the regulatory framework, delays and/or expense associated with available remediation technologies and the unavailability of affordable environmental insurance often was the death knell for the transaction. This is no longer the case.

We believe that parallel developments in three key areas now enable parties to resolve and/or handle environmental issues in a practical, timely and cost effective fashion and allow the transaction to proceed. These developments are:

  1. The adoption by many states of risk-based action and/or clean-up levels;
  2. The development of cost-effective remediation technologies; and
  3. The availability of full coverage, cost-effective environmental insurance products.

As we move toward the twenty-first century, these factors will enable parties to "get the deal done" instead of seeing many otherwise lucrative transactions go by the wayside because of the presence of an environmental issue or problem.

Most early federal and state environmental legislation and implementing regulations contained stringent, automatic reporting and/or clean-up levels. The discovery of any significant contamination often required soil, water and/or groundwater clean-ups to "background" or pristine levels. This was frequently technologically impossible. Regulators, feeling that their hands were tied by the legislative mandate, were required to enforce this excessive clean-up scheme. This resulted in parties having to spend hundreds of thousands and sometimes millions of dollars in a futile effort to remediate sites to pristine levels even though, in many instances, the contamination levels posed no threat to human health or the environment. 

Recently, however, many states, including Georgia, have adopted risk-based action or clean-up levels. Both Georgia’s Underground Storage Tank program and the Hazardous Sites Response Act program have adopted site specific, risk-based clean-up standards. This means that the level of clean-up (if any) required is a function of the level of risk posed by the detected contamination. Risk-based action levels provide the parties and regulators with the flexibility to develop a solution that is appropriate for the level and/or type of contamination encountered. The detection of contamination no longer automatically requires hundreds of thousands of dollars worth of remediation. 

There have also been significant advances in remediation technologies over the past few years. Today, the discovery of soil or groundwater contamination does not require an immediate investment in massive soil excavation, groundwater pump and treat systems or even soil vapor extraction or groundwater air sparging. The development and refinement of technologies such as in situ oxidation, enhanced fluid recovery and bioremediation now enables parties to quickly and cost effectively contain onsite contamination and remediate contamination to appropriate risk-based, site specific clean-up levels. 

The third development which is allowing more deals to go forward is the availability, at competitive rates, of comprehensive environmental insurance. Insurance products are available to cap remediation cost at its estimated cost on sites with known, detected contamination and to protect against liability from claims by regulatory agencies or third parties arising out of either discovered or unknown contamination. Coverage also exists to protect against the risk of future impairment of a currently clean piece of property. Many of the major insurance carriers are now underwriting these coverages at competitive rates.

The confluence of these three developments now makes many deals viable which, in the past, would have been unable to proceed due to detected or feared contamination. By taking advantage of these developments we see lucrative opportunities for structuring transactions involving contaminated properties. 

Over the coming months, our Environmental Review will cover each of these developments in greater detail, so we can assist you to realize the opportunities which they present.