Guideline: NM 88 Series – Energy Project

Explanation:

This endorsement is one of a series of endorsements designed specifically for energy projects (e.g., wind farms, solar farms, geothermal plants, traditional electricity generating facilities, etc.).  These energy project endorsements are designed to address several unique issues associated with these projects, including:

• The projects are typically large geographically and may be created through a combination of fee parcels, leaseholds, and/or easements.
• These interests allow the energy producer to construct improvements, access the improvements for service, maintenance and repairs.
• The projects often include a transmission line component from the generating facility to the electrical grid.
• These projects typically comprise many constituent parcels of land that are aggregated into a large tract but may be more of a checkerboard with respect to wind farms, and issues of contiguity and accessibility are paramount.
• Although these projects tend to cover a lot of ground, the real economic value of the project usually lies with the solar panels or wind turbines or transmission lines, all of which may or may not be considered to be real property.

There are three sets of endorsements, one for an owner’s policy and one for a loan policy, based on the nature of the interest(s) insured.  Different versions of this endorsement include coverage for insured fee estates, leasehold estates and/or easement interests utilized to create rights in the land for some or all of the energy project improvements.

NM form 88 (Owner’s) and NM form 88.1 (Loan) are designed for policies that insure an easement or an easement and a lease.

NM form 88.2 (Owner’s) and NM form 88.3 (Loan) are designed for policies that insure a leasehold, but not an easement.

NM form 88.7 (Owner’s) and NM form 88.8 (Loan are designed for policies that insure a fee simple interest.

All of these endorsements are modeled on and include components of the NM form 20 Leasehold Owner’s  Endorsement and NM form 21 Leasehold Loan Endorsement and ALTA 31-06 (Severable Improvements Endorsement).  NOTE:  the ALTA 31-06 is not promulgated for use in New Mexico.

The endorsements that are the subject of this guideline share several common features:

• They contain an expansive definition of “Electricity Facility” that includes an existing electricity generating facility and an electricity generating facility under construction or to be built on the land in locations according to defined “Plans” depicting the project. They also contain a definition of existing and future “Severable Improvements” linked to the definitions of Electricity Facility and the Plans.
• They provide that, in the event of an eviction or an ejection, as applicable, the calculation of loss shall include the diminution in value of the Insured’s interest in any existing or future Severable Improvements.
• They contain a definition of “Constituent Parcel.” They provide that, in the event of an eviction or an ejection, as applicable, caused by a covered matter affecting any Constituent Parcel, the computation of loss or damage resulting from the eviction or ejection shall include loss or damage to the integrated project.
• They provide that the Insured Claimant shall have the right to have the Electricity Facility and the insured estate valued either as a whole or separately.
• They also tailor the provisions of the “Additional items of loss covered by this endorsement” section to energy projects. For example, it includes the reasonable cost of disassembling, removing, relocating and reassembling any Severable Improvement.
• They contain an exclusion clarifying that costs of remediation resulting from environmental damage or contamination are exclude from coverage.

Insuring an energy project is considered an extra-hazardous risk. It requires approval by an Associate Senior Underwriter or Senior Underwriter.

Underwriting Requirements:

1.  Do not issue without the approval of an Associate Senior Underwriter or Senior Underwriter.

2.  The project must involve an electricity generating facility (e.g., wind farms, solar farms, geothermal facilities, traditional electricity generating facilities, etc.).

3.  These endorsements are designed primarily for policies insuring an energy project under construction or to be built. However, they can be used for an existing, completed energy project.

4.  If the project is to be built or under construction, obtain and retain a set of the plans for the project (survey, site and elevation plans or other depictions or drawings prepared by an architect or engineer), and such plans must be referenced in the endorsement. If the project is completed or existing, and no construction is contemplated, you may waive the requirement of the plans.

5.  If the energy project contains a combination of fee, leasehold and/or easement interests insured on the same policy, the policy may contain several different versions of the energy endorsements.

a.  If you issue an NM form 88 or an NM form 88.1, an easement must be insured on Schedule A.

b.  If you issue an NM form 88.2 or an NM form 88.3, a lease must be insured on Schedule A.

c.  If you issue an NM form 88.7 or an NM form 88.8, a fee interest must be insured on Schedule A.

6.  If an NM form 88, 88.1, 88.2, or 88.3 is issued, it should not be necessary to also issue an NM form 20 (Leasehold – Owner’s) Endorsement or an NM form 21 (Leasehold – Loan) Endorsement.  However, you may do so if requested by the customer.

7.  The cost of these endorsements is ten percent (10%) of the Basic Premium Rate. You may charge the 10% for all owner policy endorsements, irrespective of the number issued, and the 10% for all loan policy endorsements, irrespective of the number issued.  Do not charge the 10% for each separate endorsement.

In addition to these three sets of endorsements, there are three other energy project endorsements that may be issued in conjunction with any of the foregoing endorsements: NM form 88.4 (Owner’s) and NM form 88.5 (Loan), which insure against certain violations of covenants, conditions and restrictions (and in part modeled on the ALTA 9 series of endorsements (in New Mexico forms 50, 50.1, 56, 56.1, 57, and 57.1); and NM form 88.6 (Owner’s or Loan) which insures against certain encroachments.  See specific guidelines for NM forms 88.4, 88.5 and 88.6.