In the event of the borrower's default and discovery of environmental damage at the collateral property, the policy reimburses the lender for the "lesser-of" the unpaid loan amount or remediation costs (Coverage A) or, following foreclosure, for on-site remediation costs (Coverage B). The policy also helps to protect the lender against third-party liability claims arising from pollution incidents on the collateral property (Coverage C).

Coverage A can be alternatively structured as a "loan balance" coverage such that the lender would be paid the unpaid loan amount at the time of default and discovery of environmental damage.

How is this policy utilized?

A bank wants to implement a new program that will:

1. streamline the environmental due diligence process for loans with real estate as collateral;
2. offer a cost-effective alternative to traditional due diligence borne by the bank's borrowers; and
3. provide an efficient mechanism for transferring the environmental risks to a financially secure company.

A customized due diligence and insurance program can be designed by FSRM in partnership with the bank to cover the bank's commercial loan portfolio or to cover each loan separately.

An Example of How It Works:

After the program's inception, a loans has an event of default. The bank's pre-foreclosure due diligence investigation reveals the presence of environmental contamination from a past dry cleaning operation. In lieu of foreclosing on the property, the bank makes a claim for the outstanding loan balance and extra expense associated with the loan. This policy is usually structured for the “lesser-of” the unpaid loan amount or remediation costs as mentioned above.

Our Other Environmental Risk Management programs:

Environmental Site Protection

Remediation Cost Gap

Blended Finite Program

Contractors Environmental Protection

Environmental Liability Transfer