Make sure you are covered for environmental liability

Written by: Matt Cosby | Published:

Matt Cosby, associate director at Miles Smith Insurance Group, explains waste management companies’ particular exposure to environmental damage laws

The Environmental Damage (Prevention and Remediation) Regulations 2009 came into force on 1 March 2009, and there is similar legislation in Wales, Scotland and Northern Ireland. These arise from a European Directive and are based on the ‘polluter pays principle’ rather than burdening the taxpayer. “Environmental damage” has a specific definition in these Regulations, which cater for serious cases of environmental damage; previous legislation still applies for other circumstances.

Under the Regulations, environmental damage refers to:

• adverse effects on the integrity of a site of special scientific interest (SSSI) or on the conservation status of species and their habitats protected by EU legislation outside the SSSIs

• adverse effects on the surface water or groundwater consistent with a deterioration in the water’s status

• contamination of land that results in a significant risk of adverse effects on human health.

For certain activities there is “strict liability” which is important to understand. There is no requirement for fault to be proven and such activities include: those requiring environmental permits, discharges to water or groundwater, using pesticides or other dangerous substances and transporting dangerous goods.

Enforcing authorities have to determine if there has been environmental damage, identify a responsible operator and issue a remediation notice. Such authorities include the Environmental Protections 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.

Environmental liability policies

Under the Regulations, environmental impairment liability insurance is regarded as a failsafe position as, in the first instance, organisations should be proactive in determining if there is an imminent exposure and taking appropriate precautionary measures so damage never occurs.

The Association of British Insurers (ABI) defines environmental liability insurance as that which “covers the cost of restoring damage caused by environmental accidents, such as pollution of land, water, air, and biodiversity damage”.

Businesses in the waste and recycling sector are inherently exposed to environmental liability risks. In addition to possible contamination at companies’ own facilities, environmental damage affecting other properties or persons can result in claims from third parties, local authorities and environmental regulators. This includes damage to air, land, water, protected species and natural habitats. Often it is the legal costs of defending alleged losses which produce the significant costs and exposure to businesses.

Waste and recycling businesses are susceptible to unlawful abandonment of material on-site by other parties for which they may be found liable.

While 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 recycling plant or transfer station 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, identifiable, 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 costs and own 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.)

What you get for your cover

Environmental liability policies have developed over time, and the cost has reduced significantly in recent years as more companies have entered the market. Covers can be tailored to meet individual business requirements with limits readily available up to £20m and policy terms available for up to 10 years. Covers 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 (including loss of use and diminution in value)

• liability arising under the Environmental Liability Directive

• 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 quite complex. Organisations should know their exposures under both the Regulations stated above and other relevant legislation, have preventative measures in place and, for full protection, speak to their insurance broker about their specific insurance needs under legislation and otherwise.

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