Insurance Replacing Phase One Environmental Assessments.

Phase I site assessment reports are getting phased out by environmental insurance in commercial real estate lending, believes Environmental Warranty, a player in the environmental insurance arena.

The company, which brokers environmental insurance, has recently signed up with Chubb to market and underwrite Chubb's "collateral impairment and environmental site liability" policy which will protect lending institutions from any liability that results from contamination on real estate collateral when a loan defaults.

Environmental Warranty has similar arrangements with two other insurance companies, Zurich America and AIG.

Charles Perry, president, Environmental Warranty, said that while a Phase I report helps a lender understand the sort of risk involved in lending on a certain property, environmental insurance helps them transfer the risk.

Mr Perry said, "As some of my clients say, 'I don't want to understand it. I want to get rid of it. I am not getting paid as a lender to take environmental liability, just as I am not getting paid to take title liability. I am getting paid to take credit risk. Any other risk, I want out.'"

Environmental liabilities really became a problem for lenders in the 1980s, after the U.S. government enacted the Super Fund legislation, which dealt with attempting to put responsibility on owners of properties in case they were polluting the ground, according to Mr. Perry.

He noted, "Along with Super Fund legislation and those responsibilities, lenders now had a new concern to be wary of - environmental liabilities.