Over the past few months, we have all heard the much-repeated claim that we are living in unprecedented times. Never before in human history has the entire globe been simultaneously struck by a novel deadly pandemic and its resulting economic paralysis. While no nation has been spared, the successes and failures in managing these twin crises have varied widely. In the United States, our challenges have been heightened by two recent events that threaten to further upend our disaster preparations: the dramatic increase in civil unrest after George Floyd’s death while in police custody on May 25th, and the official beginning of the Atlantic hurricane season on June 1st.

While these four developments (COVID-19, massive unemployment, weather-related disasters, and social protests) may appear to have little to do with each other and even less with Site Pollution insurance, a closer look reveals them to be uniquely intertwined. As you are committed to helping your commercial real estate clients understand and address their pollution exposures, the following scenarios may help you in your presentations.

Scenario #1 – What can happen when non-medical facilities are enlisted to support hospitals?

According to the American Hospital Association (https://www.aha.org/statistics/fast-facts-us-hospitals), there are less than one million staffed hospital beds in the United States, or approximately 1 per every 355 individuals. Moreover, this figure is not uniform throughout the country, but varies considerably based on state, regional, and other factors. As the novel coronavirus has spread, it has also become apparent that some communities are being hit far worse than others, due to many variables that are still being assessed. What this variation means is that some areas are going to be seriously underprepared for any surge in COVID-19 patients they may experience, while others will have excess capacity. As a result, existing facilities that weren’t built for medical purposes—for example, convention centers, arenas, hotels, dormitories, or churches—may be adapted to provide support, possibly for non-urgent, preventative, or rehabilitative care if not for front line pandemic response.

What is important to keep in mind is that many of these types of facilities have been shut down or operating at reduced capacity for weeks or months. Such shutdowns can create new environmental hazards for future occupants, including mold and legionella, as well as leaching of metals (i.e., lead) from piping into stagnant water. These risks are sufficiently serious and widespread that the CDC has published updated guidance for minimizing them. (https://www.cdc.gov/coronavirus/2019-ncov/php/building-water-system.html)  But because most Site Pollution insurance policies feature broad definitions of pollutants that include mold and legionella, another prudent measure is to offer this coverage for all commercial real estate that has been subject to prolonged periods of restricted use.

Scenario #2 – What can happen when landlords once again pursue evictions of their commercial tenants?

In the face of widespread layoffs, furloughs, and business closures, legislatures have taken steps to temporarily prohibit landlords from evicting their tenants who are unable to make their rent payments. This is as true for multi-family residential properties as it is for other types of commercial real estate, such as retail centers, hotels, restaurants, office buildings, and light industrial sites. Even in those cases when tenants continue to make rent payments, the economic tightening may lead them to default on certain non-financial obligations of their leases, including property maintenance, security, or compliance with environmental laws. When this happens, landlords may still find themselves on the hook for any negative impact to the property, whether it comes in the form of skipped maintenance, vandalism, or release of hazardous materials. Perhaps having anticipated and planned for such an outcome, many landlords require their commercial tenants purchase Site Pollution coverage. 

But what happens if the tenant stops paying for their insurance, or cancels the policy and disappears with the unearned premium back in their pocket? What happens if they fail to pay a retention when due and the carrier cancels the policy for breach of the agreement? If a landlord has no coverage in their own name to protect themselves against environmental loss caused by a tenant, they can be stuck with the associated liability, or at best faced with lengthy and expensive court proceedings in their own defense. To help avoid such a scenario, it is always prudent to recommend that both landlords and their tenants carry separate Site Pollution coverage to protect their unique interests in the real estate, rather than trying to share the same policy (and limits) with an unrelated entity scheduled as an additional insured.

Scenario #3 – What can happen when evacuation facilities must adapt for social distancing?

Because social distancing is one of the key steps consistently presented as effective in limiting the spread of COVID-19, officials must consider how to achieve this when natural disasters force residents to seek shelter away from their homes. Where will they go? With so many unemployed, the costs associated with staying in hotels or traveling to reach family outside the danger zone may be unfeasible. If public resources are provided to evacuate or shelter in shared facilities, how will evacuees social distance? As with Scenario #1 above, it is likely that supplemental properties may be required to open their doors to meet the present needs. And in addition to the environmental hazards already mentioned, we can also expect increased cleanup costs if these buildings must be disinfected after the immediate crisis has passed. With this is in mind, be certain to review any pollution insurance proposal for exclusions regarding communicable diseases or disinfection costs.

Scenario #4 – What can happen when law enforcement conflicts with public health goals?

As colliding calamities can stretch everyone’s nerves to the breaking point, we realize that social discontent may be unavoidable even without allegations of systemic racism and police brutality to further enflame the tension. But as protests continue across the nation, the widespread use of tear gas, smoke, and other irritants has worsened a bad situation. While these materials may dissipate readily in open air, their residues are notoriously difficult to remediate in confined spaces (such as your client’s commercial real estate), and they require appropriately trained specialists to complete this work. Moreover, not only are medical personnel warning that risk of infection by COVID-19 may be increased for those whose respiratory tracts have been damaged by airborne contaminants, but also some law enforcement officials have discouraged the wearing of face masks in the belief that protesters’ true goal is concealment instead of public health. If these mass protests and officials’ responses do cause infections to spike, they will exacerbate the issues already noted in the previous three scenarios.  The key difference in this one is to be certain to review the policy exclusions regarding an insured’s deliberate non-compliance with any statute or ordinance, as well as those concerning acts of war, martial law, civil commotion, strikes, and riots. These exclusions vary quite widely from insurer to insurer and must be reviewed carefully.

In the current uncertainty, it is always important to remind your clients that the most vulnerable are those who have failed to purchase Site Pollution insurance at all. Because this product is often viewed as a discretionary purchase, it may be rejected when funds are tight. But having the proper protection in place in times of crisis is necessary not just for all the hazards we can anticipate. It is also for the unprecedented.