Indoor Air Quality and Re-Openers: When No Further Action Becomes New-Found Anxiety
In recent years, a significant impetus behind re-openers has been the increased focus on indoor air quality, particularly as it is impacted by vapor intrusion from the subsurface.
For many stakeholders in a real estate transaction, receiving a No Further Action (NFA) letter can feel like holding a winning lottery ticket. Certainly everyone wants to see it. From insurance agents and legal counsel to lenders and prospective purchasers, the interest they all show in this document can lead one to wonder if perhaps it should be framed or locked away in a safe for posterity.
If one reads an NFA closely however, it becomes clear that most are not absolute. Environmental regulators reserve the right to re-open remedial action on contaminated property in various circumstances. These can include finding previously unknown pollutants, discovering that known issues have worsened, making scientific advancements that improve detection methods, or even just changing legislation. Any of these can prompt regulators to conclude that there is sufficient risk to human health or the environment to warrant additional investigation and remediation.
In recent years, a significant impetus behind re-openers has been the increased focus on indoor air quality, particularly as it is impacted by vapor intrusion from the subsurface. To understand why this shift has occurred, a brief retrospective is needed.
Releases of contaminants to our nation’s soil and groundwater are both numerous and ubiquitous. But they are not equally serious. Recognizing that the costs—in terms of time, money, and labor—to remediate all of these sites for unrestricted use were simply too high, environmental professionals and regulators worked together to develop what are colloquially known as the “Rebecca” standards. These are the standards for Risk-Based Corrective Action (RBCA), which enables the prioritization of clean-ups to help ensure that our efforts are spent as efficiently as possible. As wise as this approach seems at first glance, it has an unfortunate side effect: contamination is knowingly left in the subsurface.
For certain types of hazardous material, for example asbestos, underground is likely the best place for it. This is because it is immobile as long as it is not disturbed. For many other types of contaminants, most notably volatile organic compounds (VOC’s), not only can they be mobile in the subsurface, migrating through both soil and groundwater, but they can also vaporize quite readily. These characteristics allow them to penetrate overlying structures through cracks in the foundations, through aging infrastructure, or even through improperly sealed or maintained electrical conduits. This process is known as vapor intrusion, and it can contribute to indoor air quality that is severely degraded enough to cause bodily injury to building occupants.
From a re-opener standpoint, as well as from a liability perspective, an important distinction must be highlighted between vapor intrusion and vapor encroachment. Often these two terms are used interchangeably, but they are not the same thing. Intrusion refers to what happens when the source of the contamination is onsite; that is to say, the property owner is likely to be held responsible for both remediating the indoor air quality problem as well as for mitigating the original source of the contamination. Encroachment happens when the problem is originating offsite. Because certain hazardous materials are mobile in soil and groundwater, “leaving them in place” can actually mean that they may migrate beyond property boundaries over time. When this occurs, an adjacent property owner may find their own investment has been negatively impacted through no fault of their own. Even worse, if they fail to address it and the contaminant plume continues to migrate through the subsurface to the next adjacent property, they may suddenly find themselves caught up in liabilities that they inherited through inaction.
Given the potential risks associated with vapor migration, it may seem astonishing that environmental consultants were not required to evaluate this exposure in an ASTM-compliant Phase I Environmental Site Assessment until 2013. From a practical standpoint, what this implies is that a “clean” Phase I that was completed prior to this time may have a glaring gap in its conclusions. Although this would not be an “omission” on the part of the consultant in the usual sense for which Errors & Omissions (E&O) coverage is purchased, it does suggest that those who breathed a sigh of relief that no Recognized Environmental Conditions (REC’s) were found during the due diligence process may have more to worry about.
Fortunately “NFA” doesn’t have to mean New-Found Anxiety. There are many mechanisms available to address legacy contamination that regulators have signed off on. Common measures have included contractual indemnifications, covenants not to sue, escrows, letters of credit, and Site Pollution insurance. When obtained with a highly-rated carrier through a specialized environmental insurance broker, a well-written policy is often the most favored approach because it involves true risk transfer at a very competitive price. Because such policies are often as unique and complex as the properties they cover, it is important to ally with a knowledgeable and experienced professional in all your pollution risk placements.
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