Scroll down

Dishing the dirt on pollution


The Environmental Liability Directive (ELD) came into force across the EU in 2004 establishing the framework for environmental liability based on the principle that the polluter - pays and is required to make good the environmental damage they have caused, whether deliberate, or accidental.  

The Environmental Liability Directive (ELD) came into force across the EU in 2004 establishing the framework for environmental liability based on the principle that the polluter - pays and is required to make good the environmental damage they have caused, whether deliberate, or accidental.  

The Directive increased the potential for regulatory action and widened the scope of potential liabilities if, and when a UK company suffers a pollution event. However, the modest take-up of specialist environmental liability insurance over the last 15 years, suggests that many UK companies remain unaware of the potential liabilities they face.

As with many other types of specialist insurance products the situation is not helped by the confusion that is generated by well-meaning extensions to other types of policy leading clients to believe they already have appropriate coverage. For example, the identifiable unintended and unexpected sudden and unforeseen pollution cover, under a typical Public Liability policy, provides valuable cover but leaves policyholders exposed to the regulatory claims, first party clean-up costs, gradual releases and emergency costs that are the subject of the specialist environmental impairment liability policy. In addition, an environmental impairment liability policy can cover investigation and monitoring costs and habitat restoration costs resulting from impacts to natural habitats.   

Fines and the cost of pollution incidents

Whilst headline-grabbing fines have been imposed for large-scale worldwide pollution incidents, for example The Deepwater Horizon Disaster in 2010, the comparatively modest levels of fines for less newsworthy events may have led those clients who do not operate in obvious pollution-risk industries, to believe they can rely on existing liability coverages. However, whilst fines may appear low and infrequent, in many cases they mask other costs that companies understandably might want to keep quiet about, which can really cause a hit to the bottom-line.

For example:

If a manufacturer suffers vandalism damage to a fuel storage tank causing onsite damage resulting in pollution to a nearby river, they could be fined in the region of £20,000 by the Environment Agency, for causing a pollution incident. The headline fine is unlikely to cause a huge dent in profits, but the Regulator will require a clean-up operation,  the cost of which can be very substantial. The total cost of  the incident therefore might look as follows:

  • Emergency/Containment costs £15,000
  • Tankering costs £28,500
  • Flushing/clearing of drainage £3,000
  • Site Investigation costs £8,000
  • On-site clean up £42,000
  • Fish survey £20,000
  • Environment Agency costs £2,000
  • Restocking of river £62,000

In this claims scenario the clean-up costs would equate to £180,500 on top of the £20,000 fine and if public relations support is engaged to minimise reputational damage the costs could escalate.

Surely this is a risk for oil, chemical and agricultural companies?  

It isn’t just companies operating in industries perceived to be high-risk that need to think about this issue.

An event, highlighted by the International Underwriting Association (IUA), involves a tree which fell onto a village hall’s heating oil tank during a storm, resulting in several thousand litres of oil escaping into the ground, in a ground water protection zone. The total liability, according to the IUA, was £500,000.

In a similar scenario it is easy to see how leakage from a heating oil tank on the roof, or in the basement of a city-centre office block can generate a sizeable loss if tenants had to be moved out to allow significant remedial work to be undertaken. An all-risks Property policy typically would exclude damage caused by pollution, or contamination, while the Public Liability policy would not usually cover gradual pollution, or own-site clean-up.

Environmental impairment liability claims are not restricted to the more obvious industries. Indeed, we recently dealt with an incident that concerned a cleared parcel of land with no buildings, or activity, upon which persons unknown had dumped asbestos waste leaving our client responsible for the clean-up costs.    

The risk of a pollution event may seem remote, but can expose businesses to fines, reputational damage and substantial costs.  Speak to your usual Franklands contact to protect your business.

Source:  International Underwriting Association

 

 

 

 

Quality insurance, expert advice - call us for your FREE no obligation review on

Tel: 01332 545720