Clearing Canada’s Brownfields

In the late 1990s, CU published several articles on brownfields work being done by the National Round Table on the “Environment and the Economy” (NRTEE), which led to their “State of the Debate” report in 1998. Since then, a further government request came in the December 2001 federal budget for the NRTEE to produce a national brownfield redevelopment strategy for Canada. The new strategy was recently released.

The recommendations put forward in the National Round Table’s latest brownfields strategy resulted from considerable consultation and discussion with stakeholders across Canada. The prime objective of the strategy is to break down some of the current barriers to brownfield redevelopment and resolve problems facing owners and developers of such sites. The strategy also looked at addressing how “orphan sites” can be handled in redevelopment.

The thrust of the strategy is threefold:

Applying strategic public investments to address upfront costs of brownfield redevelopment;

Establishing an effective public policy regime for environmental liability and risk management; and.

Building capacity for and community awareness of brownfield redevelopment.

The second bulleted item involves a number of issues relating directly to insurance, or which would have an impact on insurance, and it is these – and the problems they address – that I propose to touch on in this article. It is important to note that we were asked to produce a “national”, not a “federal” strategy, and therefore our recommendations were aimed at the individual level of government with the authority to make changes. For insurance, this would be mostly provincial/territorial.

CLEARING HURDLES

Problem number 1: After the sale of a brownfield for clean-up, the vendor can still remain liable for future problems.

Solution and rationale: allow binding contractual allocation of regulatory and civil liability on transfer of a brownfield. Many private brownfield landowners are reluctant to sell the sites for redevelopment as, under existing laws, they still remain liable for any future problems. We believe that if liability transfer were recognized by the courts it would bring a large number of private brownfields onto the market and speed their remediation. However, there would have to be financial and remediation assurances to prevent the transfer of property to shell companies without the resources to remediate the land or meet possible future claims.

Problem number 2: After clean-up to approved standards, a brownfield owner can still be responsible for future regulatory remediation requirements.

Solution and rationale: provide for termination of regulatory liability. Once regulatory approval of remediation work has been given, there should be termination of all on/off-site regulatory liability. Similarly, the federal government should accept the provincial/territorial approvals process and exempt the property from federal liability. This has been an extremely useful mechanism used in a number of U.S. states. Reopening the file would only be permitted in very limited circumstances such as fraud, emergency, change of land use, (although liability for this would be assumed by the proponent of the land-use change, not any previous owner) or failure to obey conditions attached to the property. Changed standards for contaminants would not cause reopening of the file.

Problem number 3: After clean-up of a site the owner can still remain liable for civil suits, infinite in both time and amount.

Solution and rationale: provide for termination of civil liability after a limitation period. This is undoubtedly the most contentious of the insurance recommendations, affecting as it does the rights of future third-party claimants. However it would bring certainty to the insurance equation, leading ultimately to better and more competitive pricing for brownfield redevelopers and, in conjunction with the previous recommendation it would act as a spur to brownfield owners to clean the sites and limit their future liability. The limitation period would commence with the registry on title of rights of liability, while termination would end, we suggest, 15 years later. Also tied in to this and the previous recommendation is the strong suggestion that provinces should review the current joint and several liability insurance regimes and amend them to reflect the Canadian Council of Ministers of the Environment principles on apportionment of liability (essentially polluters pay and recognizing innocent parties and apportionment of liability).

Problem number 4: How do you deal with valid claims after termination of liability in 2 and 3 above?

Solution and rationale: create an insurance fund for post-liability termination claims. Recognizing that recommendations 2 and 3 could leave innocent parties without redress after the expiry of the limitation period, we have proposed setting up an insurance fund, with premiums to be paid at the time of regulatory approval of the remediation, to cover any future claims. There were several possibilities put forward for further thought:

Each province could manage premiums and claims on its own;

A national fund could be set up by the provinces and territories with pooled premiums and claims;

A federal fund could be set up with the cooperation of the federal, provincial and territorial governments with pooling of premiums and claims;

The fund could be handled on a national basis by a private insurer on behalf of the provinces and territories, and

Coverage could be provided by private insurance with reinsurance provided by the federal, provincial and territorial governments.

Problem number 5: How can you ensure that remediation is carried out to approved standards?

Solution and rationale: provide for regulatory approvals and confirmation of remediation efforts. This is a key element that ties in with liability limitation and which provides a degree of comfort to redevelopers, even if it attaches no liability to the regulatory agency as any future claims would be settled from the insurance fund in recommendation 4.

INSURANCE REFORM

These recommendations form part of an overall complementary package that, if acted on, would spur brownfield redevelopment in this country, generating significant insurance opportunities not only for remediation-linked policies but also for the post clean-up construction. A background economics paper we commissioned found, to our astonishment, that brownfield redevelopment could bring annual public benefits to Canada of between $4.6 and $7 billion over those created by development on greenfield sites. The costs to the three levels of government would be more than recovered by the income, sales and property taxes, a large portion of which would be on a continuing basis – not just one-time revenues.

There are also substantial benefits for the insurance industry contained in the recommendations – from joint and several liability reform to time limitations on civil and regulatory liability. All that remains is to see if governments at all levels heed the proposals put forward in the strategy and act upon them. We will all benefit!