Environmental Insurance Applications in Commercial Real Estate

Leveraging the Right Policy to Obtain Financing

June 12th, 2020

As the Greater Toronto Area evolves into a mature metropolis, it will continue to experience the growing pains that come from rapid expansion.

Rising prices, increased costs and regulations to build, and growing populations and congestion are but a few. However, the fact is that very little untouched, virgin land remains in the City, with the majority of new development and acquisitions being done of previously-occupied sites.

This is important, because, as each site may have several previous and current Occupiers, as well as neighbouring Owners and Occupiers, the likelihood of environmental contamination increases substantially. 

And with the serious ramifications and expenses that go along with Environmental Remediations, as well as potential fines and penalties, doing your environmental due diligence may not be enough to uncover or mitigate all of the possible risks and liabilities.

According to Berkley Canada, between 1991 and 2009, the average total value of fines and penalties levied across Canada was $1.4 million per year. In 2015, the total value of large fines and penalties was $3.9 million, with values consistently exceeding $10 million in subsequent years and peaking in 2017 at $17.2 million. 

When you are in the business of owning, occupying, or developing commercial industrial properties, you cannot even buy or sell unless you conduct these environmental assessments, and that those reports deem the site to be clean.

Even if you did not contaminate the site, but are an owner, you are still on the hook for cleaning it up. Officers of companies become personally liable and unable to hide behind corporate protection. In 2018, a director was ordered to serve 45 days in jail for failing to meet the requirements of the PCB regulations made under the Canadian Environmental Protection Act. 

Banks will generally not provide financing for environmentally-impacted properties. And people, generally, are not willing to take a risk and step into ownership without plans in place to remediate, as well as additional protection to guarantee that that happens.

That is why putting in place the proper environmental insurance policy may make all the difference.

While companies can focus capital expenditures on systems and controls that minimize contaminant releases to soil, groundwater, or air, the use of environmental insurance should be examined as a backstop to a company’s environmental management system, where possible.

With regards to environmental insurance, losses arising from non-compliance or wrongful acts are excluded, and thus, do not remove the responsibility of the policyholder to take the requisite actions to meet standard regulations.

That being said, cover for fines and penalties – which have grown considerably over the past 6 years – can be insured, even in the event of deliberate non-compliance, on a case-by-case basis after careful review of the circumstances.

So, with this in mind, let us review a number of case studies provided by Berkley Canada, a boutique Environmental Insurance provider that delivers exceptional expertise and service to their broker partners and insureds.

This week, we are covering our first case study, so let’s begin…

Case Study: Sale Price – $3,980,000 – Redevelopment Site – Greater Toronto Area


Providing coverage for the purchase of a property with 80+ years of industrial operations; resulting in volatile organic compound impacts beneath the building.

Desired future use: open floor plan industrial office space (upper floors) and retail/commercial space at grade.

Purchaser’s concerns: environmental liability and ability to obtain financing.

Note: any likeness to an actual GTA building is accidental. Generic images and diagrams were used for the purpose of this case study illustration. Source: Berkley Canada


Required Underwriting Information:

  • All available environmental reports (e.g., Phase I/II Environmental Site Assessments, Groundwater and Vapour Monitoring) 
  • Penultimate Purchase and Sale Agreement 
  • Redevelopment and remedial action plan (if applicable)


Pollution Policy Terms: 

  • $2 million Policy Limit 
  • 5 year policy term 
  • Cost: $165,000 

Benefits of Policy: 

  • Enabled purchaser to obtain loan from Tier 1 lender (0.35% reduction on 5yr rate);
  • Mitigates risk associated with tenant bodily injury claims (e.g., indoor air quality);
  • Responds to claims from both neighbouring property owners and government agency for cleanup (e.g., movement of impacts beyond site boundary);
  • Protects directors and officers from government agency orders (e.g., investigation and cleanup); 
  • Facilitates future transactions (e.g., sale or sale-lease back).

Overall, putting in place the right policy enabled the Purchaser to meet their short-term objectives of obtaining financing to close while ensuring compliance with government agency regulations. 

We would like to thank our friends at Berkley Canada for providing this professional insight to our readers.

For more information on how Berkley Canada can help you assess and manage environmental risk, as well as put in place the right policies for your protection, please visit www.berkleycanada.com or contact:

Carl Spensieri 
VP, Environmental


This is a continuously evolving situation…

Whether you are an Investor or Occupier or Lender we understand that the impact of the COVID-19 pandemic on your business may be significant. All parties involved have keen issues they are focused on and potentially different priorities at this moment. Proper and transparent communication is what will sustain and strengthen the relationships that will get us to the other side… Just remember…

We are all in this together…

DISCLAIMER: All information herein is for informational purposes only. This is not intended as professional legal, insurance, tax, or accounting advice. We are not liable for any damages, real or perceived, as a result of you receiving or consuming this information. Please consult your attorney, accountant, insurance broker, or other counsel prior to making any decisions… 

As we navigate through these uncertain times, rest assured that our team is working diligently to meet the needs of our clients and colleagues. The manner in which we do business is changing constantly, but our commitment to providing the best information and advice remains the same.

Cushman & Wakefield’s leadership team and research resources are committed to providing information on the overall economic and, specifically, the commercial real estate impact due to this pandemic. Please continue to check cushmanwakefield.com for the latest information regarding COVID-19 and the commercial real estate industry.

Once again, we’re all in this together, so please reach out with any needs you may have during this time.

Please stay healthy and safe.

Best Regards,

Goran Brelih, SIOR

Senior Vice President, Broker
Cushman & Wakefield ULC, Brokerage.
Immediate Past President, SIOR – Central Canada Chapter

Office: 416-756-5456
Mobile: 416-458-4264
Mail: goran.brelih@cushwake.com
Website: www.goranbrelih.com


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