UMAL

Environmental Liability
May 2009

Tom Hillier
Senior Underwriter – UK & Ireland

ACE European Group

Content

 Environmental Market Focus

 Operational Pollution Risk
 Traditional Insurance Solutions
 ACE Environmental Solutions
 Considerations

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 Environmental Market Focus (1)

 UK industrial history
 Legacy of contaminated land
 Significant unknown pollution conditions
 Transactional business – key market driver
 Property Development
 M&A / Corporate Investment
 Commercial Lending
 Pension / Investment Funds
 Typical ‘EIL’ Solutions
 Long-term policies
 Cover for legacy liabilities

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 Environmental Market Focus (2)

 Issues Created
 High premium costs
 Complex wordings
 Difficult placement process
 The Result
 Limited access for the client majority
 Slow market growth
 Lack of innovation in products and distribution
 Environmental insurance not on the broker/client radar

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 What’s driving our focus on this?

 Public awareness & media – Reputation

 Financiers
 Corporate Governance
 UK Legislation
 Part IIA of Environmental Protection Act
 Water Resources Act
 European Legislation
 Numerous EU Directives – waste, water, hazardous substances – and
the most important:
 EU Environmental Liability Directive (ELD)

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 Am I exposed to environmental risk?

 Environmental risk is often associated with:

 Contaminated land and our industrial past
 ‘Heavy’ industries like chemicals, metals & waste
 Large-scale disasters
 In reality, few companies have no such risk:
 If you own or operate or buy and sell property
 If you redevelop ‘brownfield’ land
 If you use or produce potentially contaminative materials
 If you create waste (solid, liquid or gaseous)

…then you have an environmental risk

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 Operational Pollution Risk

 EU Environmental Liability Directive (ELD)

 Transposed into English law through new regime -
Environmental Damage (Prevention and Remediation) March
2009 – Wales and Scotland to follow soon
 Prospective only – operational risks
 Reinforces ‘polluter pays principle’
 Damage to land and water
 Damage to natural habitats & protected species (Biodiversity)
 Main implications
 Strict Liability for ‘regulated’ industries
 Imminent threat & preventative measures
 Reporting requirement for operators
 Reporting opportunity for ‘interest groups’
 Complementary & Compensatory Remediation

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 What if I’m not a ‘regulated’ business?

 Focus is on significant environmental damage

 Only ‘regulated trades will be strictly liable, but
 these regulations do not introduce environmental liability – it already
exists!
 Existing environmental legislation:
 is wide-reaching and well established;
 covers impacts to land, water, air and natural resources already;
 is more stringent in many areas than the new regs;
 includes both historical and operational pollution impacts;
 can hold any type of business liable
 can already impose significant clean-up costs

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 So what are the consequences?

 Civil/tort liabilities
 Claims for damages from third parties
 Bodily injury & property damage

Nuisance

….can result in compensation payments & legal costs

 Regulatory action
 Government bodies have enforcement powers
 Human health & Local Authorities
 Land, air and water - Environment Agency

….can lead to significant clean-up costs and associated expenses

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Am I not already insured against pollution?
 ABI Pollution exclusion early 1990s
 Property Insurance
 No cover for historical pollution

 Land is not usually ‘insured property’

 No contaminated soils in debris removal

 Possible ‘buy back’ of land cover:

 Still no cover if gradual

 Still requires physical loss – no DISCOVERY

 Liability Insurance
 No cover for historical pollution

 No cover for gradual pollution

 No cover for damage to own property


Expressly excluded under standard liability forms.

Vast majority of pollution incidents will result in clean-up of the
company’s own site
 No cover for Environmental Liability Directive

 No cover for clean-up costs imposed by regulators

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 Traditional Insurance Solutions

 Bartoline vs. RSA & Heaths

 Background:
 Manufacture/packaging of solvents and adhesives

 Significant fire at UK site

 Fire-fighting foam washed solvents and adhesives into

adjacent watercourse
 EA responded undertaking emergency remediation works

on the river
 Invoice issued to Bartoline, plus notice served for onsite

works – total cost c. £700k.

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 Traditional Insurance Solutions

 The Outcome:

Bartoline claimed under their PL policy
written by RSA and placed by Heaths


RSA disputed claim so were sued for
breach of contract


The court ruled in favour of RSA -
liability to repay expenses incurred by
the Environment Agency and liability
to pay damages in tort are “quite
different animals.”


Appeal was due to be heard in October
2007, but case settled out of court
shortly before.
Precedent set – S&A pollution, but still
not insured

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Can these risks be insured currently?

 Many insurers have attempted to amend public liability policies to

include ‘Bartoline’ cover, but:


Still no cover for clean-up of own premises;

Still no cover for gradual pollution;

Still fails to meet liabilities arising under the new Environmental
Damage Regulations:

flora and fauna exclusion

clean-up coverage falls well short of Complimentary and
Compensatory Remediation requirements

Liability underwriters lack understanding and experience of
environmental risks

 Uncertainty therefore prevails……

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ACE Environmental Solutions

 Specialist Policies – Key Benefits

 Pollution conditions – no dispute between what is S&A or
gradual
 Based on ‘discovery’ of pollution – no physical loss
requirement
 Site-based policies or contractor coverage
 Third-party ‘tort’ liabilities for S&A and gradual pollution
 First-party regulatory clean-up for S&A and gradual pollution
 Can include first-party business interruption – loss of profit,
loss of rent.
 Multi-year policies available
 Policies designed to respond to claims under ELD

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Can these risks be insured currently?

GL or PL
  ELD scope Available cover
coverage

Accidental pollution     
Gradual pollution      
Financial, material
Legal liability losses /    
Bodily injuries
Protected species and
Imposed remediation habitats
   
costs
Water / land  
Including
Primary Natural resources    
Complementary
Compensatory Prevention costs  
Remediation
  Clean up costs on
your own property 
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General Client Considerations

 Existing Property & Casualty pollution coverage is

inadequate
 Client does not need to handle chemicals or waste to have
exposure
 Disclosure and Financial Reporting requirements
expanding
 Contract conditions are starting to address environmental
liabilities
 Awareness of Financiers
 Future regulations are uncertain, but they WILL be more
stringent

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Questions

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