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Lender Pollution Liability Policy protects real estate lending institutions from the risk of lending on properties that have historical environmental contamination. The policy can be structured to cover an individual loan or a loan portfolio. The policy protects lenders against environmental liability due to an environmental condition throughout the term of the loan. This coverage gives lending institutions the confidence of knowing they have diligently managed and minimized the exposures associated with environmentally impacted properties. 

Lender Pollution Liability

Are you protected against an environmental issue that results in a default of your loan?

Financing a commercial property with identified known or potential environmental issues could result in unforeseen liability and substantial financial loss for a lender. Environmental due diligence, contractual indemnities and/or escrow agreements often fall short of mitigating the risk. As a result, these issues often stall or derail the deal as lenders are unwilling to accept the risk of the environmental exposure.

As a risk-transfer solution, lenders should consider procuring a pollution liability insurance policy. Lender pollution liability insurance policies are available from several A.M. Best “A” or higher rated carriers providing indemnity protection for the lesser of the estimated cleanup costs or the remaining loan balance. In addition, the policy provides coverage for third-party bodily injury and property damage claims, diminution in value of the collateral, business interruption loss and legal defense expense.

How can a lender protect themselves?

  • Coverage for cleanup costs for known or unknown pollution conditions on, at, under or migrating from the covered location(s)

  • Coverage for the lesser of the estimated cleanup costs or remaining loan balance following a borrower’s default

  • Coverage for third-party bodily injury and property damage claims, including loss of use, diminution in value and natural resource damages

  • Coverage for diminution in value of the secured real estate

  • Coverage for business interruption loss

  • Coverage non-owned disposal site liability

  • Coverage for transportation pollution liability

  • Coverage for legal defense expense

Policy Coverages

  • Limits of liability up to $50M each pollution incident

  • Claims-made and reported policy form

  • Policy terms up to 13 years

  • Insured entities include special and master servicers and trustees

  • Assignable to subsequent purchasers of the loan

  • Covers secured real estate in the U.S. or Canada

Policy Benefits and Features

  • Two years of borrower financial statements

  • Commercial loan documents, including term sheet and property appraisal

  • Credit memorandum

  • Environmental site assessment reports and property condition reports

Submission Requirements

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