The seller, a metals manufacturing business in DACH, operated the existing site for over 20 years and prior to its occupation, it had been used for heavy industrial manufacturing, going back to the 1930s. The buyer, an international metals conglomerate, was seeking to acquire the target business to add to their existing production portfolio.

The issue blocking the M&A transaction was: the target business, as the tenant of the property, could held liable for the historic pollution and therefore required to pay for the remediation/clean-up costs. There was known contamination caused by a variety of industrial processes being undertaken around the site such as wood processing, wagon manufacturing, asphalt production, coal tar distillation and oil refining. The tank farm of the oil refinery was completed destroyed by bombing in WW2.

The parties to the transaction were seeking environmental cover for the seller’s indemnity in the SPA relating to the current leased area as well as a synthetic indemnity to cover the corresponding environmental risk relating to an additional leased area which would form part of the existing area in the renewed lease agreement. Traditional W&I insurers were unwilling to cover these environmental risks.

An insurance policy was issued to the buyer as the party inheriting the historical contamination risks. The underwriting process was complete within the proposed transaction timetable. Particular attention was paid to the additional land included in the lease extension. In order to get comfortable with this aspect of the risk, we were able to work from historical due diligence from a previous transaction, since the buyer had not conducted its own environmental due diligence.

Limit insured: EUR 20m; with a policy retention below the thresholds in the SPA and a policy period of 10 years.