Insurance can be used to manage environmental risks in real estate and commercial transactions, so that the insurer assumes the risks that the parties to the transaction would prefer to avoid. For example, the parties to a transaction may have difficulty agreeing who will pay the cost to clean up pre-existing contamination that may be discovered on the insured property in the future or who will pay if neighboring property owners successfully bring claims for property damage or bodily injury arising from pollution conditions that have migrated from the insured property. Even if the parties agree that those risks have a low probability of occurring, neither may be willing to be the one left on the hook. Environmental insurance may allow the parties to overcome these issues that are sometimes significant obstacles to closing the transaction.

Unlike most insurance policies, which are contracts of adhesion, environmental insurance policies are routinely negotiated with the insurer. To obtain coverage that best meets the needs of the parties, someone familiar with the transaction, the environmental condition of the insured property and the language of environmental insurance policies needs to negotiate the language of the endorsements to ensure that the policy will cover the risks that impede closing of the transaction.

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