New CERCLA PFAS Designations: Strategies for Managing Risks and Moving Deals Forward

Scott Davis: Hello. Hello! And welcome. While we wait for more participants to join us, on screen is the ERIS content disclaimer. This webinar is being recorded and will be posted on the ERIS website in the next few days at erisinfo.com. Today’s presentation will be 1 hour and 15 minutes in length.  There will be time dedicated to questions and answers after the presentation. Please enter any questions you have in the Q&A section of the platform, and not the chat section as we may not see them there. Let’s get started. I’m Scott Davis, Senior Vice President, Industry Engagement for ERIS, and I will be moderating today’s session. If you’re not familiar with ERIS, ERIS is an environmental risk data and information service company that provides high quality reports for environmental site assessors conducting due diligence and site assessments of real property. Our latest platform, Scriva, brings ERIS project information about your site seamlessly into the report writing phase, and this can be done during your site visit using the ERIS Mobile App. Today we’ll be discussing the environmental due diligence considerations for commercial real estate when the presence of PFAS is found on a property. The EPA’s final rule designating PFOA and PFOS as a hazardous substance under CERCLA went into effect on July 8th, 2024. We will talk about the implications to environmental professionals and strategies for managing risk and moving deals forward. We are fortunate to have with us today an incredible panel. I’d like to welcome them and give each a very brief introduction. But I encourage you to visit erisinfo.com to learn more about them. First, we have Dana Wagner, Director of Environmental Due Diligence Services and Senior Principal and Vice President with Terracon. Dana has 35 years of experience and specializes in transactional environmental due diligence, particularly for the financial, legal and investment sectors throughout North America, Europe, and Asia. Next, we have with us Meaghan Colligan, a Partner and Environmental Attorney at Holland and Knight. Her expertise includes renewable energy, pollution prevention and brownfields redevelopment. Meaghan also works in regulatory compliance, risk management and Superfund matters. And finally, we are also joined by Jared Dubrowsky, Senior Vice President at NFP’s environmental insurance practice.  Jared has over 20 years of experience in designing insurance programs for environmental exposures and environmental risk management. Prior to NFP, Jared worked at Santander Banks, New York City Department of City Planning and Stantec Consulting. Meghan.

Meaghan Colligan: Hi everybody. Excited to kick this off. And I know that our group is diverse, but we have principally consultants, and so, you know, I end up being the person who is looking at your reports. And so one of the things that we thought would be helpful would be to outline the legal framework for what we are looking at when we get those reports, and what type of risks and liabilities we’re thinking about on the back end with clients. So can you give? Go to the next slide, please. Big picture, as you all know, the final rulemaking came through on April 19th, and it became effective just a few weeks ago. And so all Phase I reports moving forward, and as of July 8th anything that’s been published, or being published, or currently being worked on. If you haven’t sent out a final draft right now, you want to make sure that you go back and look at your diligence to confirm that you’ve complied with the ASTM moving forward. Next slide. So one of the big questions that our clients are asking us is, what are the ramifications of this rulemaking? Dana is going to go over the ASTM rule, and the thinking that we recommend that you take to make sure you’re compliant. But bigger picture. What we are looking at here is changes in release. Reporting PFOA and PFOS releases must now be reported. This also gives EPA the ability to look at these two compounds more explicitly in five year review of sites on the MPL. As many of you already know that’s been happening even without the hazardous waste designation. This makes it more official, really creates the regulatory authority for that action. With that in mind this gives both EPA the ability to order cleanups of PFOA and PFOS, and recover costs. If they do any independent cleanups from PRPs it also gives private parties the ability to seek costs formally as hazardous substances in laws. We’re going to be talking about lawsuits throughout as questions. But big picture. You know, we have seen very few CERCLA cases regarding PFOA and PFOS because the compounds have not been designated. Instead, most of the lawsuits to date have been using torts such as trespass, nuisance, and things like that, and negligence going back after the manufacturer. So we believe that there’s going to be a shift in litigation. Existing lawsuits will likely be amended to include Federal PFAS claims under CERCLA and otherwise. So that’s expected to pick up quite quickly. In addition, Federal entities that transfer and sell property are going to have added notice requirements. And finally, is going to be required to regulate PFOA and PFOA hazardous materials. Next slide. Big picture, going back to your environmental law 101 class. Who are the PRPs. Why does this matter so during a deal? The first question that I’m going to be asking is, you know, what kind of cleanup liability is there, because the current owner, which most of our purchasers are going to become after the diligence is completed, will put them into a position of becoming strictly liable for the historic contamination as soon as they become the owner of the property. Even if they didn’t cause it they become a PRP. That’s why we do Phase I environmental site assessments to identify those historic risks and give them an opportunity to mitigate that risk of being a strictly liable owner with the Phase I defenses which I’ll talk about in a second. But ultimately we’re also thinking about future lessees because of the 2018 amendments to the Brownfield Act, and so there was a period of time where lessees were not completing Phase Is as a matter of course. You know, to the extent that your clients are not doing so. There’s a legal reason to encourage lessees to engage in Phase Is. For that reason they have the ability to have the BFP and other landowner protections as a lessee. And so kind of thinking about this type of liability. What this means is that EPA can go after that in that landowner, even if they didn’t cause the contamination. And they can wipe their hands clean and say, that’s the only party. We’re going to go after..we’re going to minimize our time and energy and effort, even though we know there’s probably historical parties that had responsibility, whether on site or off site. They will limit their costs by working with only one PRP. Sometimes it’s the historic, the party with the most responsibility, and sometimes it’s the current landowner. Then EPA and other State regulatory bodies will expect the named PRP to go seek clean up costs from other parties, using CERCLA of contribution actions. And so in essence, you know our clients that we’re representing as purchasers can be put on the hook for this historic contamination that they did not cause, and it’s, I believe, our job in the industry to ensure that they fully understand that risk. Next slide. So kind of coming back to the purpose of the Phase I. Sometimes, you know, that’s actually one of the biggest, the first thing that I’m going to be looking at and are my legal colleagues will look at it is the Phase I done in compliance with the ASTM. Because if it isn’t done in accordance with the ASTM you might have a procedural reason at in a court of law to say that the client did not achieve the liability exemption that they sought to achieve with the Phase I. Even we’ve seen cases a failure to sign a Phase I by the professional engineer has resulted in courts determining that the prospective purchaser who became the current owner still has CERCLA liability. They did not achieve the liability exemption. So compliance with the ASTM is critical for our clients. I know that it is a way to bring clients in the door, and so a lot of companies are working really hard for not a large, if any profit margin. So it can make it challenging. But it is a critical component of the liability protection for our clients to ensure that our work is done in in accordance with the ASTM. So I’ve been talking a lot about the bona fide prospective purchaser. Because that’s the really well known liability exemption. But there are two others. And so just quickly, what are the differences between them? And how do you secure them? First, Phase Is is one of the two components to secure, to just make sure that you have. It doesn’t mean you’ll keep it, but you get it if you do the Phase I in accordance with the ASTM, and you ensure that you’re not affiliated. Just a very complicated definition with any of the parties that caused the release. Then, the prospective purchaser is going to need to do their continuing obligations to make sure that they maintain that exemption. So for our consultant teams whether it’s through the lawyers or the consultants, we try to make sure that all of our clients walk away from a deal knowing what steps we all think are reasonable for them to take as they move forward with the operation of their property. So I do think that that is a combination requirement that our consultant and legal team should be collectively thinking about to help our clients think through risk mitigation. So bona fide, prospective purchaser that applies when you did a Phase I, and it did. It was determined that it was dirty, or probably dirty. That report will help you secure that particular exemption, because that’s basically that you that the party knows about the contamination. The next one, the contiguous property owner. Exemption is for scenarios where you do the Phase I and the next door neighbor is the sole source and cause of any contamination that is found to be, or expected to be, identified on the site. And then, finally, the innocent landowner is the party that completes the Phase I and not and there’s no contamination or likely contamination identified. But then, at a later date… there is indeed, contamination identified. So those are the different scenarios that the legal teams will be looking at. Your Phase I reports. Next slide. And I believe, final slide. Okay, yes. So last big thing I wanted to talk about. And this is the stuff our clients are spinning their wheels around right now. In essence on the exact same day. If you haven’t read this, if you take anything away from this besides everything Dana and Jared are going to say. But for me, please go read this policy because it outlines what EPA is thinking about, who they’re going to come after, what sites they’re going to look at for prioritize and clean ups. I have the list here from kind of my own summary of the enforcement policy. But in essence, they’re..they’re taking a very practical approach by saying they’re going to be looking for the parties that have actually contributed to the contamination. They’re looking for the manufacturers on site next door. The parties that are using PFAS in their operations and have caused the discharges. Most federal facilities, I think that’s them in, you know, giving us the heads up that they understand that PFAS are at most fire fighting facilities, and by the DOD, and then, just in general, industrial parties are at higher risk, because PFAS are so ubiquitous and used in most industrial practices. They are less likely to pursue the entities that it’s been determined that they didn’t have a direct cause. They didn’t directly cause the contamination we’re in. The industry was referring to them as the passive receivers in essence. So, for example, potws that are handling wastewater wherein a party was discharging PFAS for a long time, and nobody even knew that there was PFAS in the waste streams, whether it was the party or the potws that could change as the potws are gaining knowledge of PFAS in their systems by requiring reporting. So that’s something for Ptws to be thinking about. EPA is not saying we won’t come after you ever. They’re saying we’re not intending to. As long as you don’t make it worse is my summary. With that I’ll pass this over to Dana about what would entail an ASTM compliant Phase I.

Dana Wagner: Thank you, Meaghan. And again, like Meaghan, I’m going to go into a little bit of primer territory. You know, we were looking at the pre questions that were coming in, and I think there are a lot of questions about how one goes about understanding what the PFAS risks are at your site. So with that let’s talk a little bit about how it was. So with the ASTM E1527-21. Of course it included emerging contaminants as an ASTM non-scope item, and that is typically addressed as an additional service.  And that was essentially something that we endeavored to address as part of the practice, knowing that these were issues that were forthcoming, but recognizing that it wasn’t included within the scope of ASTM, so we endeavored to make sure that there was a discussion regarding it as emerging contaminants in our collateral and in discussions. And there was certainly an opportunity then for the client to include it as an additional service scope item in the report itself. And then, of course, the evaluation we undertook we were focusing and identifying as a business environmental risk if, of course, a concern was there. So that’s changed in a major way. Of course, as Meaghan was talking about, so effective July 8th PFOS, PFOA two of the most prevalent PFAS compounds are to be addressed within the scope of ASTM 1527. And what that means, of course , it would be considered within all of the work that we do within the standard, and I must add as well that E1527 or E 2247-23. Of course the forest Line standard is going to be enshrined in AI I believe this August, so that will also be part of what would be considered here. Now, with that we have this idea of PFOS, PFOA, other PFAS compounds outside of PFOS, PFOA may still be considered a business environmental risk. That’s important to take away one key aspect. And this is going to the questions that we were getting about. How do you address this? And I’ve seen this come up time and again with clients. And again we would apply essentially a rec logic approach and establish the site specific risks accounting for the regulatory framework and the use factors ultimately, as far as what you do with it. So again. That’s an important element here. Again, enshrining this REC logic equals the PFAS REC logic. You’re going to be looking at the very same elements and an EP, making a determination on the basis of weight of evidence relative to the elements that are reviewed as part of the ASTM scope. So that’s important to emphasize. But we also want to consider that when you’re looking at other typical items or constituent concern that are considere within the ASTM scope has substances, petroleum products. You also have, this idea of what are the characteristics that they bring forward in each of the constituents. Different characteristics, of course, which make them a little more difficult to manage and to investigate, to remediate. No different with PFAS. And it’s really important when you’re doing your evaluation that you take into account some of these key characteristics and fiscal setting, of course, is always important when setting your conceptual site model for evaluating risks that are being posed by the findings that you’re identifying. But really, even of more utmost importance here. So a couple of key characteristics readily mobile in soils. If deposited, it can basically entrain quite quickly. It has the ability to be deposited over an area via air emissions, and then, once deposited, it can be entrained with stormwater surface water conveyances much like we were talking about prior with the air emissions. You can get this conveyance into drainage features, and this can result in it affecting downstream stormwater systems as well as receiving bodies around water doesn’t readily degrade the plume length can be multiple of typical constituents of concern. And it’s also interesting to note that it has a very high KLC. It is not readily absorbed from aquifer soils. And we’ll talk a little bit about that here in a moment. Regulatory limits, hugely important when evaluating and understanding risk. They’re low and they’re getting lower in some cases, and of course, with the MCLs we have a federally enforceable standard. And of course there’s State standards that apply as well. Lastly, if all that wasn’t complicating enough, there’s this question of ubiquity. It’s found in multiple settings and at times can be very difficult. Many times can be very difficult to pinpoint the source. So let’s visit on the pathways real quickly. And you guys are probably all for at least consultants are all familiar with the ITRC PFAS cycle. And again, really important to understand where you might see these appearing in the real property that you’re looking at as an investor, as a lender, and as a consultant. So surface disposal, of course, leaks and spills your traditional case. It is important to note that and we’ll talk about this in a moment, that when you have this as a finding, it is also important to continue on with this idea of what is the mechanism by which it would get into soil and groundwater and surface water? So again, those are things that you want to take into account as you’re evaluating these pathways. Wastewater discharges, of course, stormwater discharges we talked about. Air deposition event stacks, including wind blown. We’ll talk about that in one of our scenarios, and then groundwater, and then vapor for PFOS, PFOA, not generally a vapor issue. But there are certain PFAS compounds which can have a vapor concern. So it is really important that you make sure that that evaluation is done as part of your follow up work. So let’s talk a little bit about the where there’s a good likelihood of seeing these concerns. And of course, as this is well known to many. But, of course, where there’s manufacturing of the material, or where there’s your manufacturing chemicals containing it. A real big one that we run into constantly, of course, on site AFFF use. And this can be in a variety of settings where there’s fire suppression systems, where there’s fire training areas, public private airports, very, very common, and of course, DOD facilities, to say the least. One important consideration is past fire responses. That’s one we’ll talk about here in a moment. Electroplating can be problematic from a standpoint of the surfactants, landfills, passive receivers as wastewater treatment plants. And then ag sites for bile solids have been applied. One item of note in that moderate to higher car washes, of course, with the materials that are applied containing PFAS compounds. This was identified in one of the industries at risk by EPA individually, and we always get the comment or question regarding dry cleaning and laundry facilities. And yes, because of the fact that they would have been used for purposes of cleaning materials which have this compound on it. They can be certainly a potential problem. So let’s talk. Let’s talk a little bit about as we go through. Our review from a standpoint of ASTM. So, of course, important aspect of that is the regulatory records review and the 3rd party database listings there are PFAS related databases that are noted that are available on a Federal and the State level. We’ll talk a little bit more about that in the next slide. We have this idea of the NAICs codes which were noted as those facility uses which are identified as being at risk. And these are codes that can be evaluated from a standpoint of what you learn, not only during the Site Review, but also in the Records Review. These codes will generally be present where there’s been a regulatory filing made. So you would look for that as also an indicator. We also have interestingly, which is a little bit of a variation on understanding adjoining and surrounding site risk. But this idea of higher risk facility types. So things like airports, DOD facilities, landfills, wastewater treatment facilities, large industrial facilities with electroplating. These are all sites that you want to have an understanding of where they are vis-a-vis, your property. And again, it’s not to suggest that this would be an auto recognized environmental condition, but rather it’s a finding, then, that you would evaluate the weight of evidence, whether or not that finding rises to the level of presence, likely presence of a release, a couple of other items on the regulatory records review, of course, the PFAS analytic tool. This is essentially information that can be found in ERIS’s database listings. The information that has been pulled. There is also an ability to look at this separately, if you wish to. There’s a variety of other different information that is there relative to FOIA records. Of course, fire department records are very important. You want to document whether or not there was a use of AFFF. You also want to find out if there were fire responses. It’s very common for them to record all their responses. But it’s really important to understand what if there was an actual fire response? And in particular, if they used AFFF. Let’s talk a little bit about that PFAS data landscape. So again, as noted, Federal level PFAS databases. ERIS also curates that level PFAS databases, and they’re available in 37 States. The quality of the information is highly variable. So that is a cautionary note. Firefighting training site survey responses, groundwater sampling locations potential PFAS handlers in that type of thing. The information that is available is growing and and continue to evaluate that to understand what is coming in new, make sure you’re in contact with ERIS to talk about that very thing. You also have an ability to look at other data sources as needed. And based on the environmental professionals determination. Keep in mind, again, we’re following ASTM, so it has to be information which is considered readily ascertainable and practically reviewable. So the historical review real quickly on this, of course, the site adjoining and surrounding. And you’re going to be looking for evidence of various of these types of features that are present. Site reconnaissance. This is really important, as as it always is as part of the ASTM evaluation. But importantly here, because there are particular questions that you want to make sure are asked of the key site manager and potentially prior occupants, if possible. So again, we talk about that NAICS code. Important to understand what they identify under, and of course confirm with other sources. Are they currently using PFAS containing materials? They may not have any knowledge of that. But you want to ask the question and be observant. Are they aware of PFAS being historically used at the site? Again, you want to be very vigilant about, and very curious about the responses and what you’re seeing at the site. And that includes the historical regulatory review that you did prior to going out to the site. So again, focusing on fires. What is the water supply? Private water supply systems? You want to understand what the – do they have analytical data regarding that supply. Septic systems. Are they present? Those are very much easy conduits for material to get into the subsurface waste stream review. SDS review is needed. So real quickly. Again, once you get done with going through your findings and making your determinations, you know, is a Phase II necessary? Phase I ESA is not definitive. I think that’s one thing we always want to emphasize. It provides a good indication of what’s going on there. But again, not definitive, it should be viewed as part of the site risk profile along with any of the other considerations one is making relative to the risk at the site. Another aspect is this idea of Phase II. It shouldn’t be necessarily automatic. And you want to be very careful of that, because there there will be situations where you don’t want to necessarily jump automatically to a Phase II. And then broader analysis is required to define the the risk profile. And what is the client’s intention? You want to make sure that you’re understanding these aspects because each one of these affects the risk profile in different ways. Phase II for baseline conditions can ultimately be concluded. If that is part of what is needed to get to you know, get things moving forward on the deal. And then understanding the possible on site, Genesis and extended magnitude. If you already know that there’s something there, but there is a real desire to do something with this site you certainly can undertake additional investigation. The key with PFAS related investigations. Make sure that you have experienced. People. Experienced consultants advising that they do have standard operating procedures, and that ultimately, you want to understand, is it important to have reproducibility with the data? And that could be a sensitivity of the deal. It could be that you have findings which are maybe in question. So again, those are aspects you want to keep in mind. And then, lastly, how far do you take an investigation. Again, should be aligned with the deal requirements. This isn’t a decision a consultant makes. It’s a decision that should be made collaboratively with the client. But the decision is ultimately the clients that goes for the Phase II as well. There will be scenarios that you may prescribe additional characterization. Voluntary cleanup program, for instance. Very few times does your Phase II meet the requirements of adequate site characterization. So keep that in mind as you’re moving forward, and if that’s part of your risk management elements, expansion and redevelopment. Consideration of the characterization management disposal of those materials is hugely important, because that can really turn a deal upside down quickly as it can with non-PFAS related items as well, but very important in a PFAS setting. Off-site characterization can always be challenging. If you find a site that has this as an issue, that requires certainly some some real significant discussion about where you’re going and how you want to get there. But again, that can be a real real difficult element to deal with. And then, lastly, the potential to impact drinking water sources. Whenever you’re vetting what risks are from findings that you’ve made. Certainly this idea of your site being a source number one. That’s a big deal versus that it’s coming off to onto your property from outside location. That’s again, those are the things you want to understand in in attempting to address or mitigate your risks. But then also, is there a drinking water source that would be potentially affected. If, indeed, your property was the source, or maybe even a pass through in a significant manner. So again, these are things that you want to understand as you go through it. So with that I’m going to throw it over to Jared and the insurance considerations.

Jared Dubrowsky: Thank you. Jared Dubrowsky, Senior Vice President with NFP Environmental Risk and Insurance practice. And I specialize in placing environmental insurance policies. A lot of what we are seeing lately is obviously around PFAS. We can jump to the next slide, please. So you know to understand environmental insurance you kind of have to go back to where it came from, and environmental insurance was born of exclusions in GL policies around the mid eighties that started to happen, because that was around the time when we went through our environmental revolution. We had the Clean Water Act, the Clean Air Act that led up to that period. As a result, people started to file claims under their GL policies, the GL policies excluded it, and then a whole new line of insurance is born. I say this because a lot of these old policies, these legacy gl policies. They’re still around and they can still be accessed today through an insurance archaeologist. So a lot of the manufacturers of these products are out there and they are getting some level of coverage. So we can jump to the next slide. Oh, back it up. Just one. Thank you. So today, we’re going talk about three main types of environmental insurance policies where we are placing these policies to protect our clients. So just a little update on the the insurance market. Environmental insurance policies without a PFAS exclusion are still widely available. Yeah, we do have some carriers who are out there who are going to exclude it outright, either based on the class of business, based on geographic location. Some other factors that may, you know, fall in there. Okay, so the first policy we’ll discuss today is the contractor pollution liability policy. Then we’ll talk about a site pollution liability policy. And lastly, lender liability policies. We can go ahead and jump to the next slide. Okay, Dana, or is everyone on mute. I’m just getting a lot of feedback. Thank you. Okay, so for the contract to pollution liability policies. This is going to protect a contractor. So a contractor could be anyone who’s doing work for you on your behalf or at your site right now. One of the misconceptions with environmental insurance policies is that they only cover remediation. The reality is is that remediation is the tip of the iceberg when we’re dealing with an environmental insurance policy. And many of the claims that we end up seeing they’re not even associated with remediation of contaminants. These policies are going to cover remediation. 3rd party claims for bodily injury, property damage, legal defense, which is a big one. Transportation not on disposal site, natural resources, and a few others. So the remediation, like I said, tip of the iceberg. A lot of what we’re seeing are claims for bodily injury and property damage. Legal defense is probably the biggest one, especially when we’re dealing with PFAS. These policies can be triggered off an allegation alone. So usually the first call is going to be to an environmental attorney. The policy can be triggered at that point. So now, when we’re discussing these contractor policies like I said, they’re going to cover anyone who’s doing work at a site. Any contractor under the sun. Now, as we’re finding PFAS and PFAS related materials in more and more building products, it’s really important to consider that any contractor going out drilling a hole in the wall spreading dust throughout an office place could potentially be a PFAS condition that has to be properly remediated. So you want to trigger the policy to cover that. Another thing that we’ve seen are contractors who are disposing of construction debris in C&D landfills, which again may contain PFAS, and some of these materials. If that landfill gets Superfund status your contractor could be a PRP. So these are a policy just to think about you know if you have any contracting clients. Go ahead to the next slide. So site pollution policies. This is really where we focus a lot of time in my practice. Site pollution policies are probably what I would call the most manuscriptable policy in the industry. Meaning there is no standard form. We change this form to fit our clients needs and what they’re doing. Again, the site pollution policy is going to cover you for that remediation for bodily injury, property damage, legal defense, transportation, natural resource, and many other things. So the site policies are going to cover you for two things. Your unknown conditions and your new conditions. Your unknown conditions in many cases can be PFAS or PFAS related material. That can also happen for new conditions when we’re looking at the site policies. One thing that’s basic and pretty much every policy that we place is going to be reopener coverage. So everyone on the call is familiar with a No Further Action letter. Everyone in this form probably understands how quickly a No Further Action letter can be rescinded. And one of the lovely things about an environmental insurance policy. The policy can be triggered if that claim or case gets reopened again. So now we have a lot of policies out there right now. 10 year policies with no exclusion for PFAS. If those policies get triggered, the client is going to be very, very happy that they happen, because, like we all know, the EPA changes regulations, everything gets reopened. We’re good to go there if you have the policy in place. Another area that these policies can cover is claims from former employees. Now, when the employee is at the site working, it’s going to be excluded under a site policy, because generally they would be picked up by a workers comp policy. However, once they leave, they’re not covered by the workers comp policy. There is some fear in the insurance industry that you will start to have former employees go back to employers where they may have come in contact with PFAS. And since it is in pretty much everything in our day-to-day lives, it’s going to be very hard to say whether it did or didn’t come from that job site. We are able to structure these policies to cover them. Now, also, I just have to back up for a second here when we’re talking about reopener coverage. It’s important to note that if a case is reopened, you may be sampling for more than just PFAS, right? So if you are, and that case gets reopened, and let’s say something was closed out due to an NFA. The policy is going to respond. It’s going to pick that up. New conditions. One of the big things that we’re starting to see on the environmental insurance industry is illicit abandonment. Okay? Illicit abandonment is midnight dumping. So let’s say, somebody owns a development site. PFAS is now becoming more and more regulated. You can’t just dump it in any old landfill or certain materials in any old landfill. So the likelihood that we start to see this stuff show up at vacant land is pretty high, Right? So if you have that stuff on your site, you are responsible for cleaning it up. And that’s a cost that you may not want to bear on your own. So that’s another area where the insurance policy is going to kick in. Next slide. So the last policy we’re going to talk about today is a lender liability policy. Now, these are an interesting product in the industry, because number one, they’re not utilized widely nearly enough. But they’re designed to protect the lender and the lender only. Now I say that because the other policies are designed to cover the borrower or the property owner, and can also include the lender. These policies are unique, because, like I said, they’re covering the lender. Only there’s a dual trigger. So it has to be event of default and discovery of pollution condition. And what’s also unique about these is that they’re underwritten off the borrower’s financials. So if the site has a lot of environmental issues associated with it, maybe you have a standard site pollution policy that’s going to have a PFAS exclusion. However, if the borrower’s financials are strong, you’re generally not going to see a PFAS exclusion. So a lot of banks will now do these in lieu of a Phase II because they understand that the bank, the loan has been with the bank for a long time.  It’s going to come up for renewal, you know. Maybe we don’t go ahead and do the Phase II. But we do a Phase I, Doing a Phase I standard points to the fact that there may be PFAS on the site. Let’s go ahead and put the lender policy in place. They’re cost effective. And it’s another way for the banks to truly transfer the risk, instead of just either signing a credit waiver or some of the other methods that have been used in lending in the past. Other thing about these, they are going to pay either lesser of the estimated cost of remediation or the remaining balance of the law. Now, the reason that I emphasize the estimated cost of remediation is, as we all know, banks do not want to get involved in the management of the property. If the bank starts to undergo the actual remediation they can lose some protections. So better situation for them is to take that estimated cost, sell it at a loss, and then they’ll basically between the estimated cost that the insurance policy pays and whatever the loss may be that they sell it at, they’re going to recoup something. Next slide. That’s all I have. So now, Dana, I think we’re going to jump into those scenarios. And now it gets really exciting. And I think you’re still on mute.

Meaghan Colligan: While we’re waiting for Dana to come back, Jared, great job.

Jared Dubrowsky: Thanks.

Dana Wagner: Yeah, thank you. Hear me now?

Jared Dubrowsky: Yeah. Now you’re good. We got you.

Dana Wagner: Alright and so so thank you, Jared. Excellent stuff. And from so a couple of things we wanted to go through a few scenarios here, and we’ll set up on our on our first one and talk a little bit about the findings. And then some of the technical aspects and then explore the legal and the insurance aspects that we can. That we can take advantage of.  So with that scenario number one that we’re looking at. So this is actually a actually a loose take off of an actual scenario that I had worked on. And so this is a former Air Force base hangar and fire station. And the seller is a local economic development authority. We’re going through the stakeholders because it’s important from the legal aspects as well as just looking at the risks. Proposed use the redevelopment as a data center physical setting, shallow groundwater, silty sand with a nearby creek. Again, those features that you recall from the key characteristics. And the site itself is on a municipal water supply. Good thing regulatory records of you. The site did appear on the PFAS facility database, no past site investigations. There was evidence of hanger and fire station from 1950 to 1980. And the site recon, which included a review of the hangar and the fire station building, indicated that there was evidence that the fire suppression piping was, still, still present. And as well as no water separator for the fire station and the findings. Of course, in looking at this today, we have a REC related to that past PFAS use. Recommendation, of course, would be subject to review. And we’re going to talk about that a little bit relative to the legal. But in this case The Phase II was undertaken, and we noted soil and shallow groundwater impacts. And the groundwater impacts were just slightly above the MCL for PFOA and PFOS. So in just looking at it from a technical perspective, of course we got a planned redevelopment. And there’s a few things to keep in mind there. One relative to a building that has this type of PFAS accoutrements of still present. Those are things that you want to evaluate and manage properly. In particular, if there is still a liquid product that is present, but also with the piping and other delivery aspects. You would want to make sure that intake when you’re decommissioning the building, that there’s steps taken to essentially clean and recycle, if possible. Or ultimately take down and dispose if cleaning and recycling are not options. The other aspects to keep in mind are relative to the development itself, which again, we have shallow soil impacts. And again, a couple of things on that soil impacts. You certainly would be looking at managing what you can from a standpoint of source removal. That’s always advised. If you’re going to be going in at a site, and then keeping in mind the disposal aspects of that, you want to make sure that you’re contacting local disposal facilities to understand what they can accept. Key aspects. Make sure you’re going to align facility, make sure they have a management plan and approval and permitting in place to basically take this material on. And then, lastly, and very importantly. Make sure that the characterization that was done relative to the impacts are certainly covering the PFAS compounds that they will be regulating which are going to be
25P. I guarantee it far more than PFAS, and then make sure that you have a proper sampling interval. And, you know, relative to the groundwater impacts. Of course, this is one where it’s a data center. There was really a desire to have the site. And so managing this kind of impact especially understanding that there’s a a former Air Force base, so potential involvement by them which you know Meagan will talk about. It is important that you take steps to control the migration of the impact on site. There’s various ways to do that. We won’t get into the technology too much other than to say, in preparing yourself for this, manage to get the development done. But then also establish that you’re not exacerbating or understanding your continuing obligation relative to the impact that’s remaining behind. And with that, Meaghan, I’ll throw it over to you on the legal aspects.

Meaghan Colligan: Great and we don’t have a ton of time, so we’ll probably go through these pretty quickly. But just kind of I think this is really helpful for showing the type of things that you guys are thinking about, and that the legal team is thinking about. And so from our perspective we’re always looking for what is the risk? Right? What and due diligence with our clients is, I would say, an exercise in risk management. And so here, I think Dana has clarified some of the risks. And we’re going to start with okay, who’s the one? Who’s the the liable party here at the end of the day, statutorily, as we mentioned, the new owner will take on that liability. But here they’ve done a Phase I environmental site assessment that will be very helpful to the extent that there’s any future issues against the the new owner. hmm? We will be looking at whether or not there’s a drinking water issue, not here because of the municipal water supply. So I’ll always I go right into the Phase I. I’m like is this, you know, is that the issue here? And I’ll look at whether or not the plan development will result in any potential exposure to the soils, and from there I step back and say, okay, how do we mitigate any any liabilities? And the big liability that is left open here is 3rd party defense costs which Jared was talking about a little bit earlier. In essence, just because you achieve the bona fide purchaser exemption, you know the PFAS is there doesn’t mean you’re out of the the liability stream. You still have to prove that. So you’re going to have to be prepared to one. Make sure that if that the Phase II findings that you take reasonable steps with respect to that PFAS contamination. And so what I’m going to say. I’m going to call Dana and say, Dana, you know, is there anything that they need to do with respect to this PFAS to prevent a person from touching it, or being exposed to it, or from me to make it go off site to for making it worse. So that’ll be the first question that I’ll ask to see if there’s something that they should do to make sure they really have secured that liability exemption. And then I’ll probably call up Jared with the client and say is there a pro? Is there something in place that would protect for the legal fees, basically, as well as the defense costs for engaging with the Air Force, because it is likely that the Air Force will end up taking this on. But we’ve negotiated multiple deals with the government in similar scenarios, and it is a long and expensive process to get to a point where they do agree to take on any cleanup liability. And it is frequently a lot of the agreements are given in a less in not in the way that we expect private contracts. So there aren’t indemnification clauses in contracts with the government. In essence, because very big picture. It’s not a a right that they can give away. There’s a a process for claims against the government that they would direct you through so it can get complicated when you’re working with the Federal Government with respect to those claims. So that’s how we would look at it. We would potentially reduce the purchase price request so we can put aside money on the side for future defense. We would look for insurance policies and those types of things to mitigate the risks. So, Jared, what do you think would be available in this scenario from an insurance.

Jared Dubrowsky: Sure. So this is a good one. Right? So we’ve obviously identified the contaminant as being there. And I’ll go ahead and I’ll use the burning house example. Right? We’re not going to call up our homeowners insurance company and say, hey, I need to take out a homeowner’s policy on my house. It’s on fire. So you’re not going to get any remediation coverage in a site like this. But what you can still get is defense costs, and that’s what I would look to do. I would look to get third-party liability. So if anything is confirmed as migrating offsite, and then I would look for defense costs. The other insurance that I would also look to here is a variation of a contractor pollution liability policy, because we are going to be developing the site we are going to be moving around dirt that we know may or may not have this contaminant in it. So the likelihood of making something worse is there? So we are going to want to put something in place to protect us against that. And now what we would do is in addition to putting that site policy in place, we’re going to go ahead and put that owner-controlled CPL policy because we’re not going to really want to rely on our contractors to come onto the site with the right coverage. We want to make sure we want to have a blanket coverage over everything that they do. So if they do have the coverage, great. Their policy will respond first. If they don’t have the coverage or don’t have enough coverage our policy is there, and it’s going to cover them. So those are the two things that I would do if this came across my desk.

Meaghan Colligan: Last thing I have to say in response with Jared is talking about I don’t think folks frequently think about the redistribution of contamination during development, whether it’s through storm, water plans or otherwise. But if an owner is determined to have moved contamination around such that it becomes worse, they would lose their exemption to circle liability arguably under the continuing obligations. So it’s something that the consultants who are, you know, agents for the owner should be very careful about.

Dana Wagner: Excellent. So moving moving on to another topic that is important. So now let’s consider other PFAS compounds. So there’s of course this idea of a non CERCLA of PFAS in this case. We put two examples forward. PFOA and PFOS. And I do think this is a good time as any as well to note that of course there is proposed rulemaking for the CERCLA changes, identifying nine compounds as hazardous constituents, which could certainly mean that once promulgated, that would then be also considered under CERCLA as it being a hazardous waste. So those are, those are important things to keep in mind and following the regulation. And I think it’s important to also say that the policies ahead of the science in many respects, but very important, understand how that works fundamentally. So with that, we talk about the scenario, of course, selected state regulated hazardous substance. That’s another thing that is very important to understand in the state that you’re operating in. That what is listed, what do they consider to be regulated? And even though under ASTM not considered a CERCLA level hazardous substances for purposes of REC determination, it would still be something you would want to understand, and then address in the as a non scope item and ultimately identify business environmental risks associated with that. Of course, the threat of release and risk management are all the same, and if you do have PFAS findings, they would be considered under the standard. And again, you would look at presence, likely presence. One other aspect on this relative to water supply concerns. And again, this is related to the MCL listings and I, which Meaghan, I think you were going to share, that ultimately as well here. But there are things you want to consider when you’re coming into and evaluating a site. Water supply concerns very important. If you have a private water well, you want to make sure you understand the water quality that’s there, including PFAS. Also understanding if your municipal water supply has is being tested for PFAS. There was a recent article that noted 800 communities had water that was above the current MCL affecting 47 million people. So it’s something you want to be aware of. As you’re moving forward in a private setting, there are ways that you can deal with it with, you know, on site treatments that would focus on the source. But again, very important. Understand this element. Meaghan from a standpoint of the the legal aspects here.

Meaghan Colligan: The other things that, I would add, because you covered a lot of them, Dana would be, you know, just remembering that. And I don’t think I hit the this topic too much earlier. But one of the Comp. Elements of CERCLA liability is that it’s retroactive. And they, you know, they put that into place when they made the law, because they wanted to be able to go back before 1980 to clean up the historic contamination. And so you know whatever we do right now, and what we’ve been doing for the last five years is setting up how our clients can think about this and past risks. So it’s kind of like, if you’re going to the airport, you see something you say something. Does it necessarily need to be in the report? Those are things to think about from a risk management perspective. But you know I would, I think, thinking about making sure the risk is known to the client, it should be the primary focus. You have to satisfy the ASTM always, and so in everything else is can be creative as long as the client is brought that awareness. Because if you think that there’s okay, there’s no PFOA or PFOS, but there is. We think there’s PFBS, you know. How do I handle that in this report? is what we’re we’re working through with people. Interestingly, for existing cleanup sites, The Department of Defense and EPA has been setting ours based on either state drinking water standards, or even used to be. In some instances the Federal drinking water standards. So we have to also think about the fact that even if it isn’t something that we we call it as a REC, there’s a potential that that particular compound could lead to a cleanup event. And so if we don’t put it in there as a be, or it could be challenging. And it gets tricky. If there is a State law separately designating in different ways. So each one of those things have to go through is a case by case basis. There’s no hard and fast line rule except for what do I have to put in this ASTM, and then the rest is, how does it make sense to manage the risk? Is my perspective.

Dana Wagner: Jared. Was there any particular insurance aspects here?

Jared Dubrowsky: No, you know what we are seeing now, when we do see a PFAS exclusion, it’s a broad exclusion. So it’ll be PFAS, which basically means going to encompass everything underneath that. What I encourage my placement team to do is to really push back and to try to limit that exclusion to just PFOA and just PFOS thereby. So we’re still going to get coverage for those other contaminants. You know, and and in hopes that we get the coverage.

Dana Wagner: So let’s… a couple of other quick ones. It looks like we’re… so real quickly on biosolids again. We talked a little bit about the review. And again, much like we talked about before relative to REC identification, but very important to check the historic record and the FOIA, because there will, generally they they do maintain records of where this was placed, but not always, of course. But make sure that that for your request is made in evaluating that relative that there’s one thing here that we wanted to talk about. I thought that was very interesting, and that’s on the solar development side and the aspect of Brownfield tax credits. And the idea of how you want to access those. This is something that’s available under the Brownfield Inflation Reduction Act. And there is dollars that are available relative to solar developers. And this is something that we’ve seen more and more activity on keeping in mind that usually solar developers are trying to excise out those pieces of property that are related to RECs, but in this case they want to evaluate those and see if there’s something that they can leverage from a standpoint of the tax credits.

Meaghan Colligan: The only thing we’ll add on that, Dana, is that a lot of our our clients are doing the cost benefit analysis and seeing that, you know. Okay, maybe there there are some sites that we traditionally would perhaps avoid taking certain steps to trigger liabilities or reporting or next steps, whereas clients are saying, you know what? We’ll take the risk. Well, because the amount of money we can get from tax credits is far greater than the cost to clean up the site. And so it is incentivizing the energy community to rethink the way they’re managing environmental considerations which I think is helpful. Especially with respect to installations that go below the subsurface and may have impacts on contamination and soils. Yeah.

Dana Wagner: Excellent. And then, lastly, real quickly. On seeing the landfills. These are very commonly encountered, especially in rural settings, and sometimes in wildcat settings. So they just pop up. And again, it’s really important to understand your boundaries, the operating history, the former personnel. These are facilities that they certainly can have this kind of material associated with it. And again, really important to understand your boundary and how to, in fact, interact. So with your site. There’s a few liability concerns as well. Meaghan. Yeah, I think. I’m actually on working on a situation right now where one of the Phase Is determined that the landfill is potentially on the site. And it’s actually the only potential REC and and so there’s, you know, saying that we can’t actually figure out what the extent of the boundaries of the landfill are. And so, you know, we have our our legal teams, you know, making maps, and we don’t have GIS. So we should just call you and say, can you guys try to make the tax parcel lines match? Because that kind of question can change the entire liability analysis if they’re trying to get the tax credits. I want that landfill to be on the site. So you know, there’s. Hope there’s. So there’s definitely. We’re looking very closely at landfill boundaries with respect to the direct designation for things like credits and liability. So you can expect follow up questions if you guys haven’t taken it to the next step. And see if we can figure it out. Sometimes you can make. You can find records to help figure that out. And usually that’s a separate contract in the Phase I.

Jared Dubrowsky: So, and then I’ll jump in on the insurance side here. You know, look. And and in the situation Meaghan gave. That’s a great opportunity to put an environmental insurance policy in place, because  if those boundaries are determined somewhere later on that hey, you know what, there is a portion of this landfill on my site. They find something, even though they said the boundaries weren’t there. That’s a great way to trigger a policy, not what the insurance carriers want to hear. But that’s really what it’s designed to do is to cover that uncertainty. So now, when we’re talking about C&D landfills, that’s one that’s really difficult to get environmental insurance on. We’ve seen PFAS excluded from landfill for years, just because we all knew it was kind of ending up there. But what we do know, and what I did discuss is these smaller contractors who are bringing waste and debris to these facilities. They may not be the one who’s ultimately responsible, but they are going to get pulled in at some point, and a lot of these small contractors. They may not have the means to pull in an environmental attorney to defend them. Their other lines of insurance are going to exclude it, and for what these contractor pollution liabilities cost for a trade contract. It’s very minimal. You’re talking a thousand dollar starting point to get a million dollars in limit. So it’s one of those things where anybody who’s going to be operating at one of these sites definitely should have that coverage in place because they could potentially get pulled in. And that’s not something they’re going to want to deal with.

Meaghan Colligan: So I think that brings us through the topics that we had flagged as things we wanted to talk about with you. We’ve got a lot of questions, Scott. I don’t know how you’re going to pick.

Scott Davis: Yeah, yeah, we do. Let’s try with Meaghan. This is a two part question. Meaghan, do you first? Do you think the PFAS lawsuits could dwarf those of the asbestos and tobacco?

Scott Davis: And then Dana and Jared, what impacts would those PFAS lawsuits have on commercial estate and insurance?

Meaghan Colligan: My answer is, it already has, I believe, from the existing PFAS litigation with the manufacturers, and it will only continue to increase in scope and impacts on the industries. Now that we move beyond the tort lawsuits, and we can use the strict liability contamination law under CERCLA and similar state laws. Jared and Dana.

Jared Dubrowsky: Yeah. So you know, from an insurance standpoint, that was one of the reasons I brought up the the insurance architect, or I’m sorry archaeologist. Because they they can look back on those old GL policies and a lot of these companies that have been producing PFAS or materials with PFAS. Their legacy companies have been around for a while, so there may be some coverage in some of those older policies. So it’s definitely something we can get go forward basis. It is a little harder to get the coverage for materials that can contain PFAS. So a lot of people are looking to those legacy legacy insurance policies.

Scott Davis: Dana.  Yeah, alright I’ll go to the next question. This is related to the due diligence practice slide. What is the risk of considering more than just PFOA and PFOS as a potential REC instead of business environmental risk. Meaghan? Did you hear the question? Or Dana.

Meaghan Colligan: From my perspective the risk of considering more than just PFOA and PFOS is, that is, is really dependent on the party. So a seller may be less interested in having anything more than what is required being involved in the response, whereas a buyer might be more likely to say, I want to see everything. And then that creates, you know, more areas for risk management. So I think it’s more about who’s your client. Then what’s the risk? At the end of the day, again, my recommendation is, if there’s any PFAS concern on the site, whether it’s PFOS and PFOA, that you’re at least speaking about it with your client.

Scott Davis: Yeah.  So consider, a site is a retail property and example could be an REI store that’s been there for over years, and they sell vortex clothing. And maybe a ski wax, or maybe they perform waxing on skis.  And they might have other products as well they sell. Would they be considered a REC? Or would that site be considered correct because they sell the the products that might have.

Meaghan Colligan: I can tell you what I would be looking as a lawyer while we see if Dana can get back on with us. I would be asking Dana if there was any likelihood that that was released into the environment. And so, for example, is there, is the outside of the retail building paved? Are there drains in the retail business that are cracked or concrete? Is there any indication that the practice was illegally discharging and putting products down the sinks, into the drains, into the environment. And then actually, an an interesting second question would really be whether or not they’re disposing of the products off site. I think that’s actually probably where the risk is bigger for that particular client rather than on the property. It would be Superfund liability offsite for disposals. But I think we should also have Dana write in on his perspective from the ASTM.

Scott Davis: Yeah.

Jared Dubrowsky: And Meaghan, you know, from an insurance standpoint. That offsite disposal that they’re not thinking of is one of their risks. That’s something that an insurance policy is going to cover, so that not on disposal coverage. That’s there, right? So if they did get pulled into something, because what seems, you know as benign as ski wax ends up in a landfill, and it can be traced back to them. They could get pulled in. The policy, could get triggered.

Meaghan Colligan: That would come more into play in a diligent scenario that involved a purchase of the assets and operations.

Jared Dubrowsky: then.

Meaghan Colligan: In an evaluation of the actual real estate. The off-site consideration.

Scott Davis: Okay? Meaghan, the question here, how long does it take for a FOIA request to get a response?

Meaghan Colligan: What is, what are? How quickly are we supposed to get it, and how quickly do we get it? I can’t recall off the top of my head. I think that you’re supposed to receive a response within, I think it’s 30 days. But it’s a it’s a process. So we’ll follow up with the exact timeline for you after this.

Scott Davis: Okay. All right. Well, we’re…

Meaghan Colligan: I wanna end..I don’t want to end on something I didn’t know the answer to.

Scott Davis: Oh, okay. Okay.

Dana Wagner: Apologies Scott. I’m back.

Scott Davis: Alright.

Scott Davis: Then we’ll do one more question?

Meaghan Colligan: This last thing that Ben Stone says. I think it’s a good.

Scott Davis: Sure.

Meaghan Colligan: So Ben basically says, since only PFOA and PFAS are subject to an ASTM compliant Phase I scenario, would a Phase I prepared prior to the change give a party the BFPP for PFOA and PFOS? And I’m going to say it’s yet to be determined. We’re going to have to see that play out in court. But I would argue that because CERCLA liability is retroactive if the contamination is there, the party, if they didn’t look at it, they’re strictly liable for it. They don’t have the BFPP with respect to the contaminant that was not evaluated, which is one of the reasons why several of us in the industry have been saying, look at it, anyway. Put in your put in your Phase Is. But I do think that there’s a significant risk there for those Phase Is performed beforehand that did not evaluate PFAS.

Scott Davis: Dana.

Dana Wagner: Yeah, I’m can you hear me, Scott?

Scott Davis: Yep.

Dana Wagner: Terrific. Yeah, I had a problem with Zoom. Sorry about that.

Scott Davis: That’s alright.

Scott Davis: Did you have a the comment on that last question that was referred to Meaghan?

Dana Wagner: So I you know again, I do think this is somewhat early days, and as Meaghan noted, there’s going to be a lot of information coming forward. A lot of case law coming forward. That’s going to parse that out. You know, at the end of the day though, you know I will say that if, yeah, making sure that there was a conversation, I think is going to be important that that had happened, you know. So again, I think that’s one aspect. But we will have to see how it’s viewed, because again, they were not considered hazardous substances at that point. However, it is retroactive. I think we’re going to really be sorting through a lot of this. And I think that’s one of the biggest concerns that people have, honestly. At lease, you know, clients that we’ve been working with.

Scott Davis: Alright. Okay. Well, unfortunately, that’s all the time we have. Just to let you guys know. Sorry we’re not able to answer all the questions, but the panel has agreed to answer the remaining questions in writing for those that were not answered. So we will send those out at a later date. So, please, be on the lookout for our email with the answer to those questions. And again, we do appreciate your time for spending that with us. If for those who want to read more about due diligence, please visit ERIS info [email protected], which contains curated articles, podcasts and past webinars. Again, please note, this webinar has been recorded and will be posted on the ERIS website in the next few days. On behalf of ERIS and our attendees, I’d like to give a big thank you to our panelists for the knowledge and experience they shared with us today. And you to you, our audience. We want to thank you for your attention during this past hour. Please enjoy the rest of your day. Thank you for attending.

Dana Wagner: Thanks! Everybody! Take care!

Jared Dubrowsky: Thank you.