Environmental Liability

“Mind the Gap!”Presentation for Belfast Insurance Institute

17 September 2015

Graham HawkinsACII Cert CII (MP) ACILA

Head of Environmental Solutions

Stephen McCune

ACII ACILA

Loss Adjusting Services, Branch

Manager

Introduction

• Brief explanation of the European Environmental Liability

Directive (ELD)

• How this has been interpreted and applied by different

countries across Europe

• Coverage issues where there is cross-border

contamination

• Examples concerning ‘gaps’ in cover for environmental

exposures

• ELD – The Future

Environmental Liability Directive

• Directive 2004/35/CE of the European Parliament and the

Council - 21 April 2004

• Members need to enact local legislation for prevention and

remedying of significant environmental damage

ELD

Transposition into national legislation was required by 30 April 2007

This deadline was met by only 4 Member States (Italy, Latvia,

Lithuania and Hungary)

2008 – 2009: European Court of Justice raised proceedings against

Austria, Finland, France, Greece, Luxemburg, Slovenia and the UK

1 July 2010: transposition completed in all Member States

In UK - Environmental Damage (Prevention and Remediation)

Regulations 2009 (wef 1 March 2009) (England & Wales)

In NI - Environmental Liability (Prevention and Remediation)

Regulations (Northern Ireland) 2009 (guidance from www.doeni.gov.uk)

• Damage which has significant adverse effects on reaching or

maintaining favourable conservation status of species and

natural habitats protected under EC legislation

• Damage that significantly adversely affects the ecological,

chemical and/or quantitative status and/or ecological

potential of waters falling within the scope of the water

framework directive

• Land contamination that creates a significant risk of human

health being adversely affected as a result of direct or indirect

introduction in, on or under land of substances, preparations,

organisms and micro-organisms

ELD – not a level playing field!

-Options (that each Country can choose):

•Include additional species and habitats

•Extension of the definition of “operator”

•Provide a “permit defence” and/or “state of the art defence”

•Optional exemption of spread of sewage sludge - Annex III ?

•Add other activities to Annex III?

•Joint & several liability vs proportional liability?

•Mandatory financial security? – for some not all

This resulted in a patchwork of legal systems across Europe

ELD

• First Europe wide “polluter pays” regulation

• Establishes liability for environmental damage to protected

species and natural habitats, water and land (note:

“environmental damage to” ≠ “pollution of”)

•Establishes 2 liability systems:

•Strict liability for Annex III activities

•Fault-based liability for non-Annex III activities

Strict LiabilityFault-based

Liability

Waste Licence / permit

Discharges to water

Air pollution

Dangerous substances

Water abstractions (WFD)

Transport of waste

Mining waste

Carbon capture and storage

Occupational activities

not in Annex III

Land

damage

Water

damage

Damage to protected species

and natural habitats

ELD

• Operator whose activity causes an imminent threat of environmental

damage must:

•Take all practicable steps to prevent the damage without delay

•If measures fail to eliminate imminent threat, notify competent

authority as soon as possible

• Operator whose activity has caused environmental damage must take

remedial measures to restore the habitat to “baseline” condition

• Remediation measures

• Primary Remediation

• Complimentary Remediation

• Compensatory Remediation

But what is the baseline?

ELD – How is the “baseline” calculated?

ELD – Primary, Complimentary and Compensatory Remediation

• Primary Remediation (PR)

• Direct remediation or clean up of the affected area

• Complimentary Remediation

• In paralell with PR to promote recovery of the area – e.g. planting extra plants

near to affected area so that overall area has the “same” environmental benefit

• Compensatory Remediation

• Requirement to carry out remediation elsewhere or at end of the PR phase if

unable to return area to “baseline”

ELD – the costs• Emergency costs

• Investigation and forensics costs

• Criminal fines or Civil sanctions

• Legal fees

• Clean-up costs

• Primary, complimentary or compensatory

remediation costs

• Compensation to victims for injuries or distress

• Compensation to victims for property damage

• Compensation for disruption caused to

neighbouring activities

• Own business interruption costs

• Public relations costs

ELD• A French study in April 2010 investigated the differences in costs for

environmental remediation/restoration before and after the ELD came into force:

- Spill of 21,000l bleach into a river near a paper processing factory in France (5 April1997)

- Costs in 1997: € 42,700

- Costs in 2010: € 140,000 to € 400,000

- Spill of herbicides, insecticides and fungicides into a river after a fire (6 August 1996)

- Costs in 1996: € 10,000

- Costs in 2010: up to € 4,000,000

• More info: http://www.developpement-durable.gouv.fr/IMG/pdf/ED19c.pdf

ELD – Cross border issues

pollution

incident here

Contamination

discovered

here

National

border

ELD - The future

• 2014: report by the EC on the implementation (or not!) of the

ELD

• 2015: possible legal changes to the ELD

The damage severity threshold?

Pan-European mandatory security?

Optional defences?

Includes offshore activities?

• In the meantime the EC is working on training material for the

different stakeholders to raise awareness

ELD – Insurance

“Pollution” cover under existing Material Damage or

General/Public Liability policies will protect my

client/insured – won’t it!?!

Well let’s see???

Material Damage Policy – The “Gaps”

• Buildings damage – but only within the definition

• NOT the surrounding ground or at depth if this does not

pose a risk or damages the buildings

• Pollution must arise from the action of an insured peril

(fire, escape of oil etc)

• Gradual wear and tear exclusions

• No Business Interruption cover if no damage to the

buildings

Public Liability Policy – The ‘Gaps’

• Offers limited protection

• Many liabilities fall outside the insuring clauses

• Only cover tort/civil law liabilities – not statutory

• Bartoline Limited v RSA and Heath Lambert Ltd (2006)

• Bartoline ‘extensions’

Public Liability - The ‘Gaps’

Gradual pollution

Own site pollution

Prevention of harm

Statutory liabilities

ELD – Environmental Liability Insurance

• Covers costs for work required by the Regulator

• Covers both own land and off site remediation

• Covers gradual and sudden causes

• Covers action to prevent the risk of environmental

damage

• Generally covers Primary, Complimentary and

Compensatory remediation costs (ELD)

• Can extend to cover insured’s business interruption

losses where related to remediation works

• Can provide Public Relations costs

Environmental Liability Insurance –

common exclusions

• Environmental contamination known about prior the

retroactive date

• Maintenance of equipment is not preventative costs

• Known expense – ie -remediation of a brown field site

forms part of a developer’s known costs

• No policy covers any Court Fines, costs or

criminal penalties

Scenario 1

Scenario 1

• Insured Landowner own a silage store

• Walls of store collapse – enters nearby river

• Claims for damage and clean up of:

Own land

Contaminated water of nearby river

Costs to prevent spread of pollution to neighbouring land

• Not covered under Property or PL policy

• Control of Pollution (Silage, Slurry and Agricultural Fuel

Oil) Regulations (Northern Ireland) 2003

Scenario 2

Scenario 2

• External oil tank replaced but not feed lines

• Leak from feed line allowed escape of oil to depth and

polluted aquifer

• Leak due to rusting of feed line – This was deemed a

gradual cause so no cover under PL (even if they may

have had a ‘Bartoline’ extension)

• No damage to own buildings as pollution went to depth

‘Gradual’ pollution

• “…This policy excludes all liability in respect of Pollution or

Contamination other than that caused by a sudden,

identifiable, unintended and unexpected incident which

takes place in its entirety at a specific time and place during

the Period of Insurance…”

• The incident is the area of focus

• Gradual pollution is not excluded where the incident is

sudden, identifiable, etc…

• Beware! Wordings do vary

Scenario 3

ELD – Experience so far........

• Very few ELD cases (and almost none where compensatory and

complementary remediation was applied)

• Competent authorities across Europe tend to use pre-existing

legislation rather than the ELD

• Operators are unfamiliar with the requirements and risks related to

the ELD and thus what they are and are not insured for

Q&A

Graham HawkinsACII Cert CII (MP) ACILA

Head of Environmental Solutions

+44(0)7920 871042

graham.hawkins@cl-uk.com