Environmental liability insurance

The BP disaster in the Gulf of Mexico on the 20th April 2010 highlighted the problems facing all companies over environmental clean-up costs.

Since the early 1990’s public liability insurances have, generally, limited pollution coverage to sudden and unforeseen incidents (i.e. not gradual pollution).

The environmental damage regulations (EDR) became effective in 2009 making businesses that cause environmental damage responsible for the full consequences.

This responsibility extends to:

  • Repairing of environmental damage
  • Compensation where the affected site may never recover and the business may be required to provide further beneficial improvements at the site or elsewhere
  • Cost of providing for interim losses until the affected area fully recovers (for example lost breeding grounds and the like)

In addition legal Liability coverage does not extend to cover the business’s own premises.

Environmental liability insurance is available to mitigate those risks.

Several insurers offer comprehensive policies and the covers available can be summarised:-

Cover

  • Loss arising from gradual, as well as, sudden and accidental pollution conditions
  • Biodiversity damage
  • Defence and assessment costs
  • Mitigation costs to prevent the worsening of a pollution incident
  • Clean-up costs (on-site and off-site) including the repair/rebuilding costs to first party property damaged during clean-up
  • Third party bodily Injury and third party property damage resulting from a pollution condition

Optional Covers

  • First party business interruption losses resulting from a pollution condition
  • Transportation related environmental liabilities
  • Contractor operations-related risks, includes work completed by subcontractors

The case of Bartoline Limited v. RSA (2003) involved contamination of adjacent water courses following a fire. The Environment Agency responded carrying out remedial works and issuing an invoice for Bartoline for those costs and a redemption notice for a clean-up of their own site. Legal arguments took place over whether the insurance was intended to cover these costs. The court agreed that Legal Liability insurance (Public Liability) was not designed to respond in this instance. An appeal was made and the matter was settled out of court with the settlement remaining confidential. Consequently, no precedent was created and the situation still remains unresolved as to whether conventional coverage will deal with this aspect.

This means that you may have an uninsured exposure that can be filled by environmental liability insurance. Costs will vary between risks.

Oil slick on lake