The Risks of Bonding Environmental Remediation Contractors Presented by: Larry Howard

1. The Risks of Bonding Environmental Remediation Contractors Presented by: Larry Howard The Guarantee Company of North America October 8, 2013

2. BIOGRAPHY Larry Howard Jr. is Vice President – Environmental Surety for The Guarantee Company of North America USA. He is based in Atlanta, Georgia. Mr. Howard started his surety career in 1989 and began building his environmental surety expertise in 1995. Over his career he has spent time with Safeco, AIG, Zurich, American Safety and now The Guarantee. He received his B.A. in Finance from the University of Northern Iowa. 2 October 8, 2013

3. SCOPE OF THIS PRESENTATION Focus on Environmental Remediation Contractors Not Reclamation or Closure/Post Closure Bonds My Background is Surety, Do Not Profess to be an Insurance Expert 3 October 8, 2013

4. Environmental Remediation Background and History • 1970’s - Emergence of the Hazardous Waste Problem • Prior to 1970’s – Threat Not Understood or Solution Not Readily Available • Many Environmental Contaminants are Naturally Occurring Substances 4 October 8, 2013

5. Environmental Remediation Background and History • Market Levers – EPA Regulations • Real Estate Transactions • Economically Sensitive • Cost - Reducing Technologies 5 October 8, 2013

6. Environmental Remediation Background and History • Most States Have, Had or Will Have UST Removal Programs • Estimated Size of Environmental Surety Market - $100,000,000 USD • Most Buildings Built Before 1972 Contain Asbestos 6 October 8, 2013

7. Environmental Remediation Background and History Former Active Environmental Sureties Kemper ECS Reliance AIG Frontier Midwest Indemnity Gulf 7 October 8, 2013

8. Federal Environmental Legislation • 1972 – Clean Water Act – Addresses the Mounting Problem of the Poor Quality of our Rivers and Streams due to Industrial Pollution • 1976 – Resource Recovery and Response Act (RCRA) – Regulates the Disposal of Solid Waste, Particularly Hazardous Waste • But it did not address contamination from inactive waste sites • Subtitle C • Subtitle D • 1976 – Toxic Substances Control Act (TSCA) 8 October 8, 2013

9. Federal Environmental Legislation 1980 – Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) • AKA Superfund • Congress enacted in response to increasingly widespread public alarm over abandoned or inactive hazardous waste sites • 1978 – 1980 – Love Canal • Empowers EPA to address the threats posed by releases of hazardous substances • NPL (National Priorities List) = Federal Superfund Sites • Liability Scheme 9 October 8, 2013

10. Overview of Contract Terms and Conditions Affecting Environmental Risk • Indemnification Clause Environmental claims by third parties for property damage or personal injury resulting from remediation activity or disposal of hazardous wastes. 10 October 8, 2013

11. Overview of Contract Terms and Conditions Affecting Environmental Risk • Site Investigation and Differing Site Conditions Clause The discovery of hazardous wastes of different types, different concentrations or different quantities than anticipated. 11 October 8, 2013

12. Overview of Contract Terms and Conditions Affecting Environmental Risk • Permits and Responsibilities Cause Responsibility for complying with environmental laws and regulations and the associated liability for obtaining permits and exposure to fines for failure to comply. 12 October 8, 2013

13. Overview of Contract Terms and Conditions Affecting Environmental Risk • Force Majeure Clause • Dispute Resolution Clause • Actual vs. Liquidated Damages Clause 13 October 8, 2013

14. Checklist for Evaluating Risk on Environmental Remediation Contracts • Contracting Method • Traditional “Bid to Specifications” • Design/Build Responsibilities • Method of Compensation • Cash vs. Salvage • Monthly, Unit Price, Milestone, Cost Cap 14 October 8, 2013

15. Checklist for Evaluating Risk on Environmental Remediation Contracts Additional Questions 15 October 8, 2013

16. Checklist for Evaluating Risk on Environmental Remediation Contracts Funding 16 October 8, 2013

17. Checklist for Evaluating Risk on Environmental Remediation Contracts Adequate Insurance Coverages • GL, Auto, Worker’s Compensation • CPL – Contractors Pollution Liability • Occurrence • Highly Rated Carrier 17 October 8, 2013

18. Checklist for Evaluating Risk on Environmental Remediation Contracts Red Flags • Patented or Proprietary Technology • Long Term Contracts • Efficiency Warranties • Unproven Method or New Territories • Unfamiliar Soil Conditions 18 October 8, 2013

19. Sureties Risks on Environmental Claims Typical Performance Bond Options for Surety • Cure • Takeover Agreement • Tender New Contractor • Finance Original Contractor • Pay Owner • Deny Liability 19 October 8, 2013

20. Sureties Risks on Environmental Claims Q. Can a Contractor be held Liable as a PRP? A. ERCLA contains a clause that states “entities who render care, assistance or advice on a cleanup project are relieved of the strict liability standard.” Only susceptible to PRP status if negligent. 20 October 8, 2013

21. Marketing • Ideas • Who Do Your Clients Sub Environmental To? • Yellow Pages – list is usually short • Partner With an Environmental Insurance Professional • Still a Contractor 21 October 8, 2013

22. The Risks of Bonding Environmental Remediation Contractors YOUR QUESTIONS? If you do not have the opportunity to have your question addressed during the Seminar, you may contact the presenter directly: Larry Howard The Guarantee Company of North America LHoward@gcna.com 22 October 8, 2013