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Environmental liability: are you covered?


T


he Environmental Damage (Prevention and Remediation) Regulations 2009 came into force


on 1st March 2009, and there is similar legislation applicable in Wales, Scotland and Northern Ireland. T e Regulations arise from a European Directive and are based on the “polluter pays principle” rather than burdening the taxpayer.


“Environmental damage” has a specifi c defi nition in these Regulations, which deals with serious cases of environmental damage:


• Adverse eff ects on the integrity of a Site of Special Scientifi c Interest (“SSSI”) or on the conservation status of species and their habitats protected by EU legislation;


• Deterioration of surface or groundwater status; • Contamination of land that results in a signifi cant risk of adverse eff ects on human health.


For certain activities, such as; waste operations, discharges to water and transportation of dangerous goods, the principle of “strict liability” applies, this means that there is no need for an enforcing authority to prove any fault. All that needs to be determined is the identity of the operator responsible for the environmental damage and a remediation notice can be issued. Such authorities include; the Environment Agency, Marine and Fisheries Agency, Countryside Council for Natural England and local authorities.


Remediation may be more extensive than under other legislation as; primary (measures to restore actual damage), complementary (additional measures including alternative sites) and compensatory (compensation for loss of natural resources) remediation may be necessary.


Under the Regulations environmental impairment


liability insurance is regarded as a failsafe position as, in the fi rst instance, organisations should be proactive in determining if there is an imminent exposure and take appropriate precautionary measures so damage never occurs.


T e Association of British Insurers (“ABI”) defi nes


environmental liability insurance (“ELI”) as, “T e cost of restoring damage caused by environmental accidents, such as pollution of land, water, air, and biodiversity.”


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Businesses in the resource management, waste and recycling sector are inherently exposed to environmental liability risks. In addition to possible contamination of their own permitted facilities, environmental damage


aff ecting other properties or persons can also result in claims from third parties. Oſt en it is the legal costs of defending alleged losses which results in signifi cant costs and exposure to businesses.


Whilst general liability and property insurances provide


some cover against pollution risks, it is fair to say that the potential liability of most companies operating a permitted site are beyond the realms of even the widest general public liability and property policies, and the cover available in respect of pollution is narrowing as the gap between environmental law and liabilities widen.


Standard public/product liability insurances typically only provide cover for sudden, identifi able, unintentional and unexpected pollution, otherwise known as “sudden and accidental” pollution. A major gap in cover here is that gradual pollution is not covered. Also, there may be no cover for statutory and clean-up costs, although it might be possible to get extensions for these. An important point to note is that for the waste industry this standard cover may be on a “claims made” basis which means only a policy in force at the time of a claim will pay.


ELI polices have developed over time, and the cost has


reduced signifi cantly in recent years. Cover can be tailored to meet individual business requirements with limits readily available up to £20m and policy terms available for up to 10 years. Cover may include:


• Clean-up costs imposed by regulators, including those incurred by the regulator itself


• Remediation of own premises, third party premises, land, water and natural resources


• Liability arising under the Regulations • Prevention costs • Historical contamination • Transportation risks • Business interruption • Legal costs • Site investigation, emergency response costs, restoration costs and compensation


• Contractors’ liability • Contractual liabilities in sale and purchase agreements


• Lenders’ requirements • Change of law


Environmental liability and pollution cover can be very complex. Organisations should know their exposures under both the Regulations and other relevant legislation, have preventative measures in place and, for full protection, speak to their insurance broker about their specifi c insurance needs.


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