Risk Partners Life Sciences Roundtable 2025, thank you very much!
Risk Partners Life Sciences Roundtable 2025, thank you very much!
Environmental risks in a transaction cannot be fully addressed through contract language, disclosures, and warranties alone. The focus is on the actual condition of the soil, groundwater, technical facilities, and the site’s history—often in areas that have not been fully investigated by the time the deal is signed.
Added to this is the German liability regime: remediation obligations may be tied to ownership or actual control of the property, regardless of fault, and irrespective of who caused the contamination or when it occurred. SPA guarantees can allocate this risk, but they neither eliminate a remediation obligation under public law nor resolve an unclear technical assessment.
For transactions involving industrial properties, properties previously used for commercial or industrial purposes, former sites, brownfield properties, or manufacturing facilities, environmental insurance should therefore be treated as a separate point of review alongside due diligence, the purchase agreement, W&I, and purchase price mechanics.
In M&A transactions in particular, conflicting interests come into play: Sellers do not want to be held liable for historical environmental liabilities on a permanent basis through waivers, purchase price set-offs, or rights of recourse; buyers need protection against historical site and operator liabilities that only become fully apparent after the transaction closes. Environmental insurance can help translate these conflicting interests into an insurable risk structure.
The Federal Soil Protection Act distinguishes primarily between “polluter liability” and “liability based on current condition” in transactions. The party responsible for a harmful soil change or a contaminated site, as well as that party’s universal successors in title, may be held liable for remediation. In addition, the respective property owner or the person in actual control of the property may also be liable for remediation, regardless of whether they caused the contamination or were aware of it at the time of acquisition.
This is particularly relevant for asset deals: When purchasing a piece of real estate, the buyer assumes not only ownership of the property but also liability under public law for its actual condition. There is no automatic exemption based on good faith. Although claims against the party responsible for the condition of the property are limited by the principle of proportionality—with the market value of the property after remediation typically serving as a key benchmark—this limit is not a simple, predetermined cap on liability. Knowledge of the risk, willful acceptance of the risk, or negligent disregard of the risk can support claims for greater liability.
In share deals, the property does not change hands. However, the target company remains liable for historical environmental liabilities; the buyer assumes the economic risk through the acquisition of shares. This makes a difference in risk assessment: In an asset deal, the focus is on the acquirer’s direct responsibility for the property’s condition, whereas in a share deal, the focus is on the target company’s environmental status and its impact on the purchase price, indemnities, and insurance coverage. For buyers, this affects not only liability issues but, above all, the purchase price, provisions, financing, and future marketability.
Auch Verkäufer können nach Vollzug betroffen bleiben. Ein früherer Eigentümer kann nach § 4 Abs. 6 BBodSchG sanierungspflichtig bleiben, wenn er das Eigentum nach dem 1. März 1999 übertragen hat und die schädliche Bodenveränderung oder Altlast bei Übertragung kannte oder kennen musste; es sei denn, der frühere Eigentümer hat beim eigenen Erwerb schutzwürdig auf die Altlastenfreiheit vertraut (§ 4 Abs. 6 Satz 2 BBodSchG). Für Verkäufer kann eine Environmental-Deckung helfen, Freistellungen, Rückgriffsszenarien oder Kaufpreiseinbehalte zu begrenzen. Das kann eine Veräußerung erleichtern, bei der Umweltaltlasten nicht dauerhaft als Nachhaftung beim Verkäufer verbleiben.
A separate set of circumstances concerns the insolvency administrator. The insolvency administrator does not become the universal successor to the party responsible for the contamination by virtue of his or her appointment. However, in the case of contaminated properties that form part of the estate, he or she may be held liable for remediation as the holder of actual control under § 4(3) of the Federal Soil Protection Act (BBodSchG); the resulting obligation may constitute a liability of the estate. The release of a property from the insolvency estate may limit this liability. In the case of asset deals arising from insolvency proceedings, therefore, not only should the site’s contaminated land status be examined, but also the treatment of the property under insolvency law.
Whether coverage is actually granted depends on the specific circumstances of each case, the discretion exercised by the authorities, the available information, and what is reasonably expected. For the purposes of the insurance review, this legal framework must be considered in conjunction with the technical findings.
Environmental risks are among the areas of coverage where there is often a discrepancy between formal willingness to provide coverage and coverage that can actually be utilized. Even if environmental warranties are not completely excluded from the W&I process, insurance coverage is regularly limited by pollution exclusions, provisions regarding known facts, disclosure requirements, insufficient environmental due diligence, or short warranty periods. Without a site-specific investigation, little environmental coverage often remains under a W&I policy. Added to this is the time limitation: General warranties under W&I typically run for 36 months, though in individual cases terms of up to 60 months are possible. Environmental damage often does not become apparent until years later, for example, when groundwater tests conducted as part of a follow-up transaction or an official investigation reveal a contaminated site for the first time.
Environmental insurance is structured differently from W&I. It is based on the technical site assessment, legal liability, and the agreed scope of coverage. The term, underwriting, and claims handling are determined independently.
| Product | Type of Risk | When applicable |
| W&I | Contractually Guaranteed Characteristics of the Target Company | Environmental liability is formally covered, but in practice is often limited by pollution exclusions, known circumstances, disclosure requirements, and term limitations. |
| Environmental Insurance | Physical Contamination Status, Strict Liability | Unknown or potential contamination; long-term risk horizon, regardless of the purchase agreement. |
| Contingent Risk Insurance | A specific, individually identified risk that must be assessed from a legal or factual perspective | When a specific legal, liability, or administrative issue is central to the case—such as a dispute over the legality, scope, or cost allocation of a remediation order. |
| Title Insurance | Title and Legal Defects in the Property | An independent risk that has nothing to do with the physical condition of the property but is often relevant in real estate transactions. |
The line between environmental insurance and contingent risk is drawn not based on the level of knowledge, but on the type of risk. Known soil contamination generally remains insurable under environmental insurance as long as environmental reports, survey data, and correspondence with authorities make it a tangible site- or remediation-cost risk—for example, when a remediation plan exists but its cost estimate or technical success is uncertain. Contingent Risk is more likely to be considered when the focus is no longer on the technical site or remediation cost risk, but rather on a specific, quantifiable legal, liability, or administrative issue—such as the legality of a remediation order or the allocation of costs among multiple parties.
Many target companies have environmental liability or environmental damage insurance as part of their ongoing insurance program. This is usually not sufficient for a transaction. These programs are typically tailored to operational environmental and liability risks arising from day-to-day operations. Historical site contamination, creeping pollution, government-mandated remediation measures for the company’s own properties, an acquirer’s liability for the condition of the property, changes in land use, or transaction-related exclusions, on the other hand, must be reviewed separately against the specific wording of the policy terms.
Auch allgemeine Haftpflicht- und Sachversicherungen erfassen diese Risikokonstellation nur eingeschränkt. Klassische Umweltbausteine in Haftpflicht- und Sachprogrammen sind meist auf plötzlich eintretende, unfallartige Freisetzungen zugeschnitten. Die Sachversicherung schützt primär versicherte Sachwerte wie Gebäude, Maschinen oder Vorräte; Boden, Bodenluft und Grundwasser sind damit regelmäßig nicht der eigentliche Deckungsgegenstand.
Internationally, a separate product category has been established for this risk: Environmental Impairment Liability (EIL), also referred to as Pollution Legal Liability (PLL) or Environmental Site Liability (ESL), depending on the provider. The market structures these products around three basic scenarios, which are also reflected in German market practice:
Site-Specific EIL: This coverageapplies to specifically identified properties, whether owned by the policyholder or to be acquired. The decisive factor is whether the contamination originates from the insured site. Whether the contamination was caused by the policyholder or by a third party is not the central determining factor for this type of coverage. This is the basic form relevant to M&A transactions because it can cover both historical (pre-existing) and new contamination conditions, thereby addressing both liability for actions and liability for conditions.
Activity-Based Environmental Coverage (Contractors’ Pollution Liability):Relevant for construction, renovation, and maintenance activities at third-party sites, but not for the acquisition of the property itself. This is generally not the appropriate basis for asset or share deals in the strict sense, but may become relevant in the case of carve-outs followed by construction work.
Combined/Package Coverage:Combines location- and activity-based elements and is primarily used for corporate groups with multiple locations and varying activities, such as in portfolio transactions or carve-outs from international corporate structures.
Product selection depends on the risk type and the stage of investigation. A contaminated site or remediation scenario that has already been investigated can be tailored to specific cost risks, such as additional investigation and remediation measures, undetected residual contamination, or the need for corrective action in the event of a remediation target agreed upon with the authorities. In contrast, an open site assessment or broader environmental coverage for historical and new contamination conditions requires a different risk assessment, different documentation, and, in most cases, a different structure for the policy term, deductible, and exclusions.
Depending on the policy terms and conditions and the risk assessment, comprehensive environmental coverage may include the following components in particular:
Laufzeiten von fünf bis zu zehn Jahren sind im Markt anzutreffen; für vorbestehende Kontaminationen werden regelmäßig längere Perioden gezeichnet als für Neuereignisse. Limit, Selbstbehalt, Laufzeit und Prämie hängen aber stark von Standort, Nutzungshistorie, technischer Due Diligence, behördlichem Status, Schadstoffbild und geplanter Nutzung ab. Bei komplexeren Standorten können historische und neue Umweltzustände auch unterschiedlich behandelt werden. Vorbestehende Kontaminationen, die aus der Zeit vor Vollzug stammen, können eine andere Laufzeit, einen anderen Selbstbehalt oder andere Ausschlüsse erhalten als neue Umweltbeeinträchtigungen während des künftigen Betriebs, einer Sanierung oder einer Projektentwicklung. Einzelne Risikoträger stellen erhebliche Kapazitäten bereit; bei größeren Deckungsbedarfen wird in vielen Fällen eine gestufte Platzierung über mehrere Versicherer geprüft.
In addition, the international market offers specialized coverage for specific environmental or product liability risks, such as certain asbestos-related product liability scenarios. Hazardous substances in buildings, such as asbestos, PCBs, or mineral fiber, must be treated separately and assessed individually against the available insurance coverage.
Environmental insurance does not replace either a technical site inspection or a clear allocation of risk in the purchase agreement. A risk becomes insurable only once the findings, the status of the investigation, the remediation or use plan, the regulatory position, and the economic objectives have been sufficiently described. Of particular concern are known but insufficiently investigated contaminations, pure development cost risks, changes in land use, scheduled soil excavation, building contaminants, known but undisclosed circumstances, intentional or knowingly unlawful violations, as well as contractually assumed liabilities that exceed statutory liability.
In addition, depending on the terms and conditions, the principle of claim assertion, known circumstances prior to the start of coverage, disclosure obligations, deadlines for subsequent reporting, and any retroactive effective date must be examined. Historical contamination is not automatically excluded; however, it must fit within the agreed-upon coverage framework and must not be excluded from insurance coverage as a circumstance that was already known, not disclosed, or expressly excluded. Particularly in cases involving ongoing communication with regulatory authorities or already known investigation orders, the timing may determine whether a risk can still be included in an insurance policy.
Kaufvertrag und Versicherungsvertrag müssen zueinander passen. Umweltgarantien, spezifische Freistellungen, Kaufpreiseinbehalte oder Treuhandregelungen, bekannte Sachverhalte, Offenlegungspflichten, Behördenkommunikation, Sanierungsmaßnahmen, Schadensteuerung und Kostenverteilung sollten keine widersprüchliche Risikozuweisung erzeugen. Gerade bei bekannten oder vermuteten Altlasten muss früh geklärt werden, welche Risiken beim Verkäufer verbleiben, welche wirtschaftlich über den Kaufpreis abgebildet werden und welche sich überhaupt in eine Versicherungslösung überführen lassen.
If W&I and environmental insurance are used in parallel, the insurer’s rights of subrogation, the insured’s obligations to cooperate, communication with regulatory authorities, the conduct of the defense, and settlement decisions must also be coordinated. Otherwise, the transfer of risk may fail due to procedural issues in the event of a claim, even though the risk was, in principle, insurable.
A legal risk assessment alone is not sufficient for an initial market evaluation. Insurers require documentation that clearly outlines the site’s location, usage history, status regarding contaminated sites, remediation or containment plan, and regulatory status. Of particular relevance are the usage history, site and property data, extracts from the contaminated sites registry, Phase I and (if available) Phase II reports, soil, soil air, and groundwater analyses, existing remediation or containment plans, correspondence with authorities, public-law contracts, planned changes in land use, and existing environmental, liability, and property insurance policies.
For industrial, logistics, or production sites, additional information is required regarding facilities, hazardous substances, separators, tanks, waste streams, permits, and previous incidents involving damage or releases. Comprehensive underwriting documentation allows the insurer to distinguish between known findings, risks narrowed down by expert reports, and unconfirmed assumptions.
The technical basis is typically a Phase I assessment of the site; in cases of elevated risk, suspected contamination, sensitive future use, or regulatory recommendations, this is supplemented by Phase II investigations involving soil, soil air, or groundwater samples. This process can run parallel to the due diligence process but should be factored into the timeline early on due to the independent technical assessment—initiating market outreach only shortly before signing often leads to time pressure, which worsens the terms.
For sites with a low-risk profile, a document review may be sufficient for an initial assessment. However, in cases of suspected contaminated sites, sensitive future land use, ongoing communication with authorities, or planned civil engineering work, it is often not possible to determine a reliable contamination level without Phase II data.
Die Environmental Insurance ist in M&A-Transaktionen kein isoliertes Versicherungsprodukt. Sie muss aus Standortbefund, Haftungsregime, Kaufvertrag, Due Diligence und wirtschaftlicher Risikoverteilung entwickelt werden.
This article is intended for general informational purposes only and does not constitute specific legal, tax, or insurance advice. Whether and to what extent insurance coverage is available depends on the specific facts of the case, a legal review, the insurers’ underwriting requirements, and the final terms of the policy.
How does Risk Partners provide support?
We are available on short notice to provide an initial assessment of the insurability, marketability, or structuring of an environmental insurance policy.
Rufen Sie uns an unter der Nummer +49 160 92598958 oder schreiben Sie uns: dealinsurance@riskpartners.de.
