Brad Niziak (brad@miniter.com) is a senior vice president in the environmental insurance division of the Miniter Group in Norwell.

How do you finance a former mill building, an industrial site, a former gas station or a property that had or may have an environmental pollution condition because of its current use, prior use or proximity to a known contaminated site? What does a banker do when the 21E property report recommends further testing? The last thing a seller wants to do is undertake further testing of his site. Despite the cost, the seller knows that if he uncovers a pollution condition above actionable levels, not only will he kill the sale, but will also be liable to clean up the site. The banker knows that he may jeopardize his career if he disregards a 21E report that recommends further testing and proceeds with the financing. The buyer, on the other hand, needs financing at a reasonable rate, wants to expedite the loan approval process and wants protection in the event that an unknown pollution condition is uncovered.

The solution for buyers, seller and lenders of potentially environmentally impaired properties is the Massachusetts Brownfields Redevelopment Access to Capital Insurance Program. The BRAC insurance program provides pollution liability insurance for the buyer and seller of potentially environmentally impaired properties and lender environmental insurance for the bank. Moreover, the state of Massachusetts will pay 50 percent of the insurance premiums up to $50,000 for private projects and $150,000 for public projects.

Through the BRAC environmental insurance program, buyers and sellers of Brownfield properties can purchase subsidized pollution liability insurance which will provide on and offsite clean-up, bodily injury, property damage and defense costs for unknown pollution conditions. If an environmental cleanup is required for the site, a developer can purchase a subsidized BRAC cleanup cost cap policy which will cap the remediation costs by providing clean-up cost overrun insurance. Unanticipated cleanup cost overruns can be devastating to both a developer and a lender and can lead to bankruptcy. Cleanup cost cap insurance enables a developer to quantify and cap his remediation costs up front.

For the lender, the lender environmental insurance policy insures the lender against environmental risk associated with the commercial real estate loan. In the event of a pollution condition and borrower default, the policy will pay the lesser of the loan balance or the cost of the cleanup. The lender environmental insurance policy also insures the bank against third party bodily injury, property damage and defense costs.

Most buyers, sellers and lenders prefer environmental insurance to site assessments, indemnification or escrows as the insurance en-ables all parties to transfer the environmental risk to an A rated insurance carrier, thereby avoiding costly escrow accounts or having to provide environmental indemnification. Moreover, indemnification is only as good as the pocketbook of the provider. Who are the insurance carriers underwriting the Massachusetts BRAC Program? They are among the largest commercial insurance companies in the world – AIG, Chubb, ACE Environmental and XL Insurance.

How much do these insurance policies cost? Although every site is different, a $1 million, 5-year pollution liability or lender environ-mental policy starts at about $25,000 ($12,500 after the Massachusetts subsidy) for the entire 5-year term. This averages about $2,500 per year – relatively inexpensive for a $1 million, 5-year environmental insurance policy. Outside of the Massachusetts BRAC Program, the minimum premium for a $1 million environmental policy is $10,000 per year – five times as expensive as a policy obtained through the Massachusetts BRAC program. Policy limits for the BRAC pollution liability policy and lender environmental insurance policy is $50 million with a maximum policy term of 10 years. The application process takes about a week.

What about gas/service station loans? Those loans are eligible for the BRAC environmental insurance, which will insure the sites against preexisting pollution conditions. For future releases or pollution conditions, most insurance brokers recommend storage-tank liability insurance policies. Those policies will insure against future on and off-site cleanup, bodily injury and defense costs that commence after the policy inception date. Depending on the number, age and construction of the tanks, premiums begin at $450 annually and additional insureds, including a lender, can be added to the policy for $100 each. Most lenders will not consider a gas/service station loan without a lender, pollution liability or a storage-tank liability policy.

What about properties outside of Massachusetts? The good news is that environmental insurance is available for any U.S. property or bank. The bad news is Massachusetts will not subsidize the cost of insuring properties outside of Massachusetts. However, many sellers of brownfield properties will contribute to or pay the entire environmental insurance premium in order to expedite the sale of their property and avoid risky additional site testing. In exchange, the seller can often be added to the pollution liability policy as an additional insured.

Lender environmental insurance policies allow banks to finance projects that they would normally shy away from because of environ-mental risk. These policies transfer the environmental risk from the lender to an A rated carrier, thereby enabling the lender to proceed with the loan. As such, lender environmental insurance not only facilitates new business for banks but also generates good will for a bank by making available the necessary capital to cleanup and put back into productive use brownfield properties.