New York’s Climate Superfund Act and Environmental Liability Changes Are Reshaping Commercial Property Insurance Requirements

Commercial property owners in New York State face unprecedented changes to their environmental liability exposure following the enactment of significant environmental legislation in 2024. On December 26, 2024, New York Governor Kathy Hochul signed the Climate Change Superfund Act (“CCSA” or the “Act”) into law, finding that “‘fossil fuel companies’ historic contribution to the buildup of greenhouse gases” is “largely responsible for climate change.” This groundbreaking legislation, combined with evolving environmental liability laws, is forcing commercial property owners to reassess their insurance coverage strategies to protect against contamination risks.

Understanding New York’s Evolving Environmental Liability Landscape

Commercial property owners in New York may be held strictly liable (i.e. regardless of fault) for soil and groundwater contamination under certain state and federal laws. New York Navigation Law Section 181 and the federal Comprehensive Environmental Response & Cleanup Liability Act (“CERCLA”) create significant financial exposure for property owners who may inherit contamination from previous owners or operations.

When pollution or contamination is discovered on a commercial property, the current property owner is primarily responsible for cleanup. Property owners must typically first investigate all causes and sources of contamination, fully delineate the scope of the contamination in a report, and pay for a cleanup effort. The costs can be substantial, often exceeding the property’s value, particularly when contamination has migrated off-site.

The Climate Superfund Act’s Impact on Commercial Properties

The new Climate Change Superfund Act represents a significant shift in environmental liability. The law requires certain fossil fuel producers and refiners with sufficient connections to New York to pay into a state “climate Superfund” an amount commensurate with the entity’s past global greenhouse gas (“GHG”) emissions over an eighteen-year period. The New York State Department of Environmental Conservation (“NYSDEC”) will collect $75 billion from these entities over the next 25 years.

While this legislation primarily targets fossil fuel companies, the Act imposes strict liability for past GHG emissions—not present or future activities—those deemed “responsible parties” will face cost recovery demands imposing substantial new and retroactive liability upon their past lawful activities. This precedent could influence future environmental liability interpretations affecting commercial property owners.

Insurance Coverage Gaps and Market Changes

The modern Comprehensive/Commercial General Liability (CGL) policy contains a “absolute pollution exclusion” which has given rise to specialized insurance policies such as the Pollution Legal Liability policy or other policies insuring against Environmental Impairment Liability, General Liability or Errors and Omissions. This exclusion means that standard commercial property policies typically don’t cover environmental contamination, leaving property owners exposed.

Businesses across New York continue to face evolving risks, rising repair costs, and changing environmental conditions. New York businesses face many challenges, and rising insurance rates have become a significant concern in recent years. Many companies notice that the cost of protecting their buildings and property increases every year. Environmental liability insurance has become increasingly important as these costs continue to rise.

Essential Coverage Updates for Commercial Property Owners

Commercial property owners must now consider several specialized insurance products to adequately protect against environmental liabilities:

• Environmental Liability Insurance: Environmental insurance provides coverage for businesses and individuals against environmental risks such as pollution, contamination, and associated liabilities. Environmental insurance is designed to cover the costs associated with environmental liabilities, including cleanup efforts, legal fees, and claims by affected third parties.
• Pollution Legal Liability (PLL) Coverage: This specialized coverage protects against third-party claims and cleanup costs related to pollution conditions.
• Professional Environmental Liability: Environmental Liability with a limit of not less than $1,000,000 providing primary coverage for bodily injury and property damage, including loss of use of damaged property or of property that has not been physically injured. Such policy shall provide coverage for actual, alleged or threatened emission, discharge, dispersal, seepage, release or escape of pollutants, including any loss, cost or expense incurred as a result of any cleanup of pollutants or in the investigation, settlement or defense of any claim, suit, or proceedings.

Due Diligence and Risk Management Strategies

Under federal environmental laws, purchasers of commercial real estate who conduct an environmental due diligence inquiry may be entitled to rely on safe harbor provisions under federal law limiting otherwise unlimited cleanup response costs should contamination be discovered after purchase. Under the Comprehensive Environmental Response, Compensation, and Liability Act, commonly known as CERCLA, if hazardous substances are found on a property, the owner of the property is generally liable for the costs of cleanup.

Property owners should ensure their environmental due diligence includes Phase I Environmental Site Assessments conducted by qualified environmental professionals. Done correctly, a Phase I Site Assessment finding no “recognized environmental conditions” will allow the purchaser or owner of commercial property to assert the “innocent purchaser defense”, limiting CERCLA liability if contamination is subsequently discovered.

Working with Experienced Insurance Professionals

Given the complexity of New York’s evolving environmental liability landscape, commercial property owners need experienced insurance professionals who understand both the regulatory environment and available coverage options. Max J. Pollack & Sons Insurance, a family-owned Brooklyn-based agency with over 80 years of experience serving the New York metropolitan area, specializes in helping commercial property owners navigate these challenging insurance requirements.

When evaluating commercial property insurance in NY, property owners should work with agents who understand the intersection of environmental liability laws and insurance coverage. Leveraging our experience in the New York insurance market, we will guide you through the process of finding the coverage that best suits your business. If you are already insured, in most cases we can provide alternatives with substantial savings while maintaining your present levels of coverage.

The Future of Environmental Liability in New York

Although the CCSA is likely to face legal challenges, and the New York legislature has already proposed amendments to the CCSA, these “climate Superfund” laws may not be going away any time soon. Similar laws have been proposed in California, Maryland, Massachusetts, and New Jersey, but have not meaningfully advanced to date, but such state legislation could see new momentum following the enactment of the New York law.

Commercial property owners who proactively address their environmental liability insurance needs now will be better positioned to handle future regulatory changes and potential contamination discoveries. The key is working with experienced insurance professionals who understand both the evolving legal landscape and the specialized insurance products available to protect against these emerging risks.