Leadership, Knowledge, Solutions…Worldwide. NAREIM A&E Council Meeting Environmental Insurance Marketplace Charity O’Sullivan Senior Vice President (213) September 26, 2012

Marsh—Leadership, Knowledge, Solutions…Worldwide. 1 Uses of Environmental Insurance  To facilitate transactions – Acquisition, divestiture, merger; single site, several sites – To back replace, back up, or sit “excess of indemnity” responding if it fails  To facilitate redevelopments  To provide a safety net for operations -- part of Environmental Management System  Exposures you can’t control, e.g., neighbors’ releases; 3 rd party transport  To address historical environmental liabilities, e.g., nonperforming assets, divested properties, non-owned disposal sites  To facilitate settlements over cleanup liability  To address exposures from contracting operations / construction projects: hospitals, hospitality, commercial, industrial, residential buildings, light rail, sewer lines

Marsh—Leadership, Knowledge, Solutions…Worldwide. 2 Environmental Risk Transfer Options VIABLE OPTIONS  Pollution Legal Liability – Environmental Impairment Liability – PLL, PARL, PPL, ESL  Contractors Pollution Liability LIMITED AVAILABILITY:  Secured Creditor – Collateral Impairment Liability – Real Estate Lenders NO LONGER AVAILABLE (sort of):  Cleanup Cost Cap – Impacts Liability Buyout Guaranteed Fixed-Price Contracting Marketplace Clients should be aware that "finite risk" solutions may consist of a combination or blend of risk transfer and other risk financing strategies. Under certain circumstances, auditors and regulators, such as the SEC, the IRS, and various insurance departments, have challenged “finite risk” transactions accounted for as insurance, questioning, whether, among other things, there is sufficient risk transfer to support the accounting and/or tax position taken by the insured. The future use and value of “finite risk” solutions remains and will continue to be subject to evolving positions of a wide variety of commentators. Marsh is not authorized to provide, and expressly disclaims responsibility for, any advice or guidance on the tax, accounting, legal or regulatory consequences of any insurance solution. Each client should consult with its own independent professional advisors with respect to such matters.

Marsh—Leadership, Knowledge, Solutions…Worldwide. 3 Cost Cap Marketplace; Known Cleanup Projects  Covered cost overruns from remediation activity of known issues  Cost Cap Disappears in Losses killed the Golden Goose - Carrier Status  Current Alternative Solutions - Guaranteed Fixed Price Remediation - Environmental Liability Buyouts - Captives - Excess of Indemnity Pollution Legal Liability - Environmental Remediation Expense Management (REM) Program

Marsh—Leadership, Knowledge, Solutions…Worldwide. 4 Pollution Legal Liability  Pollution Legal Liability: What it covers – Clean-up of unknown and newly discovered issues – Third party bodily injury and property damage – Defense costs – Non-owned disposal sites, transportation cargo, first party business interruption  Facilitates settlements, transactions, and M&As – Vapor intrusion concerns: bodily injury and property damage – Re-openers of NFA – Excess and wrap around indemnification – Fulfill lender requirements  Premium for a 10 year term is on average $85K-$130K for $10M in limits

Marsh—Leadership, Knowledge, Solutions…Worldwide. 5 Residential Developer Purchases PLL for Contaminated Property Issue:  Semiconductor property contaminated with VOCs in soil and groundwater to be purchased and developed into residential and mixed use.  Concerns with unknown conditions found during development and toxic tort claims Solution:  PLL policy placed covering both the buyer and the seller, including their investor  Excludes known pollution conditions in soil and groundwater for clean-up only – No restriction for the deeper groundwater aquifer – Restriction in soil limited to certain parts of the site – No third party bodily injury and property damage restrictions for knowns  10-year term  $25 million in limits  $100K SIR/$300,000 Aggregate SIR  Premium: $180,000-$200,000

Marsh—Leadership, Knowledge, Solutions…Worldwide. 6 PLL Helps Settlement for Contaminated property Issue:  Client sold heavy industrial property several years ago to an entity  Other entity cooperated with Local Redevelopment Agency to develop the site for public use  Redevelopment and other entity agency pulled prior owners into a Federal lawsuit suit to pay for clean-up of the site.  Everyone agreed to settle as long as costs with environmental issues could be quantified and addressed so there was no post-settlement uncertainties for all parties. Solution:  Settlement included funding cleanup by Client,and use of PLL insurance to manage unknown pre-existing conditions and other environmental exposures from known and unknown conditions (e.g. third party BI/PD, legal defense expense, NRD) 1st PLL: Part of settlement covers all parties involved  Covers all parties for third party bodily injury and property damage for known and unknown issues  Covers clean-up of unknown issues such as emerging chemicals and other  10-year term, $10 million in limit, $100K SIR  PREMIUM: $250K-$275K 2nd PLL: Client purchased additional coverage sits excess of the settlement agreement  Coverage excess of indemnification agreement  Covers clean-up of known issues excess of the indemnification agreement in the event of failure to perform  5-year term, $5 million in limit, $50K SIR  PREMIUM: $40K-$60K

Marsh—Leadership, Knowledge, Solutions…Worldwide. 7 Broad Coverage for the Lender Issue:  Property contaminated and currently undergoing remediation  Lender concerned with known and unknown environmental liabilities and the risk to assume them in the event of default. Solution:  Pollution Legal Liability policy solely covering the lender  No coverage for current owner of the site  No exclusions for the clean-up, bodily injury, or property damage claims for the lender  10-year term, $10 million in limit, $50K SIR  PREMIUM: $120K

Marsh—Leadership, Knowledge, Solutions…Worldwide. 8 State of the Marketplace: Pollution Liability  Remains Highly Competitive - Many New Carriers / Increased Capacity - Aggressive Coverage Terms - Highly Manuscripted Forms  Layered Programs  Enhanced Policy Terms  Innovation Around Industry  Signs of Transition in Certain Lines of Coverage/Classes of Business - Pollution Legal Liability - Contractor’s Pollution / GL and Professional

Marsh—Leadership, Knowledge, Solutions…Worldwide. 9 Claims Are we seeing claims?  PAID: Known issue disclosed to carrier with no exclusion with only an elevated SIR. During refinance lender requiring property to be remediated in order to refinance. Client triggers policy for clean-up of plume. $1.5M in reserves to be paid.  PAID: Groundwater main breaks in alleyway. Oil bubbles to surface and runs off-site to drainage and nearby creek. Culprit was an unknown tank city says our client is responsible. $300K paid in clean-up costs.  PAID: Glue manufacturer had an explosion releasing glue into the environment and on cars. Claims for third party property damage, bodily injury, and clean-up. $3.5M paid  DECLINED: Client found contamination and spent $500K to remediate. Carrier declined due to obtain prior written consent and failure to make a timely claim.  NOT PAID: Suit filed against client for release of metals. Dismissed by courts as groundless. Client then purchases a portfolio policy, but doesn’t disclose case. “Watchgroup” files another suit (potential class action). Claim filed. Carrier threatened to cancel policy due to misrepresentation because previous suit was not disclosed. Common Reasons Claims Declined/Disputes  Failure to Disclose  Misrepresentation  Failure to make a timely claim, keep carrier in the loop  Policy language not clear  Not above the SIR/Deductible  New: Policy not triggered yet…How is policy triggered; Prop 65

Marsh—Leadership, Knowledge, Solutions…Worldwide. 10 Questions & Answers Thank you! Charity O’Sullivan Senior Vice President Marsh Risk & Insurance Services, Inc

Leadership, Knowledge, Solutions…Worldwide. This information is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. Statements concerning tax, accounting and/or legal matters are general observations based solely on our experience as insurance brokers and risk consultants and should not be relied on as legal, tax or accounting advice. You should contact your legal, accounting, tax and other advisors regarding specific coverage and other issues. The information contained in this publication is based on sources we believe reliable but we make no representation or warranty as to its accuracy. All insurance coverage is subject to the terms, conditions, and exclusions of the applicable individual policies. Marsh cannot provide any assurance that insurance can be obtained for any particular client or for any particular risk. Marsh makes no representations or warranties, expressed or implied, concerning the application of policy wordings or the financial condition or solvency of insurers or reinsurers. The hypothetical case studies contained herein are for illustrative purposes only and should not be relied upon as governing any specific facts or circumstances. All policy terms, conditions, limits, and exclusions are subject to individual underwriting review and are subject to change. Marsh cannot provide any assurance that insurance can be obtained for any particular client or for any particular risk. Marsh is part of the family of Marsh & McLennan Companies, including Guy Carpenter, Mercer, and the Oliver Wyman Group (including Lippincott and NERA Economic Consulting). This document or any portion of the information it contains may not be copied or reproduced in any form without the permission of Marsh Inc., except that clients of any of the companies of Marsh & McLennan Companies need not obtain such permission when using this report for their internal purposes so long as this page is included with all such copies or reproductions. Copyright 2011 Marsh Inc. All rights reserved.