It is common to build new industrial plants and warehouses on previously used industrial sites. The acquisition costs for the land are usually lower, and many have the advantage of being located close to critical transportation links and infrastructure. But the Phase I Environmental Site Assessments (Phase I ESAs) typically used to certify that a site is free of contamination from previous uses may leave companies vulnerable to unexpected additional costs for environmental remediation. Although Phase I ESAs provide guidance on the existence of Recognized Environmental Conditions (RECs) at a particular site, they have some substantial limitations. A “clean” Phase I is not foolproof, and additional investigation and protection is merited at industrial sites.
Why a Phase I ESA Doesn’t Tell the Whole Story
The American Society of Testing and Materials (ASTM) developed Standard E1527 to provide guidance on how a Phase I ESA investigation should be conducted and reported. This standard only calls for investigation at a superficial level. While the scope of a Phase I is designed to determine the potential for contamination, there’s no sampling of soil or groundwater to affirmatively prove whether contamination actually exists.
A Phase I ESA typically consists of an on-site visit to inspect present conditions at the site and neighboring properties, interviews with persons with knowledge of the site, a file review of municipal records, aerial photographs, chain of titles, and a database review of state and federal records for the site. Depending on accessibility, some of these inquiries may be curtailed or not completed. In addition, the quality of the inquiries can vary. For example, inspectors are limited to interviewing the “most qualified persons available” during their investigation, and these individuals are not always those with deep historic knowledge of the property and its previous usage.
In addition, critical records like underground storage tank registrations might be missing — either they were not filed before legally required, or were never transferred to the new owner when the site was sold. Inspectors also have the latitude to determine whether the cost or time required to obtain the information outweighs the benefits, and they may cut the inquiry short. The personal opinions of the environmental consultant conducting the Phase I can also have a bearing on the ultimate conclusions.
Industrial companies can utilize environmental insurance coverage, in addition to a “clean” Phase I and/or Phase II ESA, to effectively manage environmental risks at properties where they want to build and operate in the future.
Even if a Phase II Site Assessment is conducted in areas of concern (collection/analysis of soil and/or groundwater samples), the accuracy of the ultimate conclusions is highly dependent on how comprehensive the Phase II study was. Variabilities in Phase IIs include sampling location, number of samples collected, which media sampled, constituents sampled, subsurface depth of sample collection, and the consultant’s interpretation of the data. If any of these variables are inappropriately determined by the environmental consultant, the results can present a misleading picture of actual conditions.
These inherent limitations and variability can add up and lead an environmental consultant to come to a conclusion that is far from accurate and leaves companies exposed.
How Do You Avoid This Trap?
Industrial companies can utilize environmental insurance coverage, in addition to a “clean” Phase I and/or Phase II ESA, to effectively manage environmental risks at properties where they want to build and operate in the future. The combination of a Phase I and/or Phase II assessment and environmental insurance provides protection from unknown contamination that environmental assessments, on their own, may not reveal and helps keep potential liabilities in check.