“ThE ThREAT OF A MANDATORy FINANCIAL guARANTEE sChEME, AT FIRsT CONsIDERED sMALL, MAy bE INCREAsINg.”
experience on its implementation is available thus far. Authorities often did not have rules compliant with the ELD in place or on time. Operators were often unaware of the specific legal obligations. Insurers and other institutions offering financial security were not sufficiently familiar with the requirements their products had to meet to be ELD-compliant. Thus the available information does not yet allow for concrete conclusions to be drawn about the effectiveness of the directive in remedying environmental damage.
Few accidents reported
An issue of concern with this directive is the very small number of cases which would fall under its specifications. The Commission’s report identified 16 cases treated under the ELD at the beginning of 2010, and estimates that the total number of ELD cases across the EU may be now around 50.
The report explains that the low number of cases can be attributed to
the limited knowledge of operators; it is not envisaged that increased knowledge on the part of the operators will increase this number. In fact I believe that operators that are aware of the added potential liabilities under the ELD will carry out better risk assessment of, and accident prevention work in, the locations concerned (those close to Natura 2000 habitats—an ecological network of protected areas in the EU territory).
Will we see more cases in the future? I doubt it, because environmental accidents that generate damage to biodiversity as specified in the ELD are, and will remain, rare, particularly because of the preventive effect of the directive.
Remedial costs have been estimated in the Commission report
at between €12,000 and €250,000. These, again, are relatively small amounts but there is no doubt that occasionally (perhaps once every 10 years) a major incident will generate damages in the region of millions of euros. Those, however, should remain the exception.
A (bad) US influence? Although compensatory and complementary remediation is new in the
EU, it has existed in the US for more than 40 years. Federal legislation that imposes natural resource damage (NRD) liability includes the Oil Pollution Act 1990 (OPA) and the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA).
Although CERCLA and OPA have a wider scope of liabilities for NRD
than the ELD, there are many similarities between the three regimes, particularly in relation to primary, compensatory and complementary remediation. One major difference, however, is that CERCLA allows the Environmental Protection Agency (EPA) directly to implement
remediation measures in specific cases, an approach that does not exist in Europe.
Fortunately for European operators, the Commission has always stated that it will not copy the US system and its known aberrations. US legislation was heavily influenced by the lobbying of American law firms which made millions of dollars out of the complexity of the US model.
Should financial security be mandatory?
During the preparation of the green paper of the directive many pressure groups brought to the attention of the Commission the fact that new risks imposed on the operators should be adequately financed.
Under Article 14(1) of the directive, member states are requested to
encourage the development of financial security instruments and markets, with initiative for such developments coming from the private markets.
Over time, insurance has proved to be the most popular way of providing cover for environmental risks. For many years products have been widely available to cover sudden, accidental and even gradual pollution, including remediation costs, whether on an ‘all risks’ or on a ‘named perils’ basis. These policies may be sufficient to cover most of the costs involved in repairing damage to third parties. However, nature cannot be considered a third party under those policies.
This is the novelty of the directive: “nature” is represented by non-governmental organisations (NGOs), authorities or any other stakeholder that can now claim to be indemnified for damage or loss of service. Insurers such as ACE, Allianz, AXA CS, Chartis, Chubb, LIU and XL have all developed special policies to cover most (if not all) of the risks introduced in the ELD .
However, due to a lack of awareness or simply because the new risks
are considered too small by a large majority of operators (confirmed by the low loss record), demand for the new insurance policies has so far been modest.
Is this a good reason to make insurance mandatory? A few pressure groups are pushing for it, either nationally or at a European level.
Insurers and risk managers are both strongly opposed to any mandatory
arrangement, whether through pools or any other government schemes. This position has regularly been stated in reports of the ad hoc committee of the CEA (European Insurers Associations) of which FERMA (Federation of European Risk Management Associations) is a member.
Both parties prefer the freedom of underwriting, pricing and risk selection
offered by a competitive market. At first, pools (nuclear, natural catastrophes, terrorism), when and where implemented, fulfilled a purpose but they later
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