Use Of Insurance In Managing Environmental Risks

1
IRM Risk Forum 2008raising the game

• Use Of Insurance In Managing Environmental Risks
• Mark Barnes
• Jardine Lloyd Thompson

2
Agenda

• What are environmental risks
• Legal Statutory background
• Sources of Liability
• Legal cases
• Insurance Market solutions
• Examples
• Conclusion

3
What Are Environmental Risks

• Being liable for pollutions but what is
  pollution ?
• A resource in the wrong place causing harm or
  potential to cause harm
• Nitrates, phosphates, sulphates etc good or bad ?
• Natural pollution volcanoes
• Man-made accidents ( oil spill) deliberate
  (waste dumping)
• Light can affect natural rhythms
• Odours from manufacturing, waste
• Thermal hot water discharges
• Sound traffic, industrial

4
What Are Environmental Risks

• Need 3 elements
• Source contaminating substance or pollutant
• Pathway means for source to reach receptor
• Receptor something harmed by the source
• These can change through time

5
What Are Environmental Risks

• Main sources of pollution
• Landfill leachate
• Chemical metal processing industry
• Gas works
• Power stations
• Petrol service stations
• Source Environment Agency Survey

6
What Are Environmental Risks

• Industry
• Chlorinated hydrocarbons paper, tanning
• Agriculture
• Fertiliser, milk, slurry, pesticides
• Waste Disposal
• Metals ( mercury, cadmium), methane, toxic
  organics
• Old Gas Works
• Phenols, cyanides, tars

7
Legal Statutory Background

• Environmental Protection Act
• Part IIA Local Authority obligations
• Biodiversity damage complementary
  compensatory remediation
• Ability of action groups etc to report threatened
  pollution
• Polluter pays ?
• Nice in theory but is it always possible
• Recent cases will follow

8
How Environmental Liability Is Assumed

• Inherited from mergers acquisitions
• Disposals land/property/companies
• Formal Indemnities Warranties
• Housing stock transfers
• Tenants
• Insolvency practitioner

9
Legal Cases

• National Grid Gas, Bawtry site
• Former gas works near Doncaster
• Coal tar risk to homes and water
• National Grid Gas originally found liable
• Sevenoaks Council v Circular Facilities
• Gas threat to homes from vegetation in pits
• CF not original polluter but had knowledge
• CF introduced receptors in form of homes

10
Environmental Cover Under PL Policy

• Sudden and unforeseen claimant must prove
• Third Party compensation remediation only
• Legal costs
• Costs incurred by Regulatory Body (Bartoline
  case) ?
• No cover for -
• Part IIA actions
• Biodiversity damage
• Historic pollution
• Own site remediation costs other own costs
• USA operations

11
Environmental Insurance Market

• Niche product but well developed market and cover
• ACE, ACE, Chubb and XL others
• Now departed Certa/Allianz, Quanta, Zurich

12
Cover Under Specialist Environmental Policy

• Annual cover (dependent on trade) -
• TP liability from operational historic
  pollution
• Own-site remediation
• Business interruption
• Costs under Part IIA
• Biodiversity damage costs
• Transit risks

13
Cover Under Specialist Environmental Policy

• Specific Covers -
• Remediation Cost Caps
• Liability assumed under Warranties Indemnities
• Policy often transferable
• Up to 10 years policy period
• Can reduce transaction frictions
• Liability Buy-Outs
• Construction Projects
• Secured creditor policies

14
Cover Under Specialist Environmental Policy

• Key Benefits -
• Pollution conditions no dispute between what is
  SA or gradual
• Based on discovery of pollution no insured
  peril requirement
• Third-party tort liabilities and first-party
  regulatory clean-up
• Policies designed to respond to claims under ELD
• Can include own business interruption loss of
  profit, loss of rent.
• Multi-year policies available

15
Example 1

• Manufacturing chemical distribution company
• Own docks pipe acids to storage
• Pipe under TP land indemnity required
• Bespoke insurance policy arranged
• Client able to sign Agreement

16
Example 2

• UK Global manufacturing company over 100 US
  sites
• Very acquisitive, potentially harmful substances
• TP environmental cover limited total USA
  exclusion
• Specialist annual policy incepted
• Significant deductible
• DIC / DIL full USA cover

17
Conclusions

• Sources of liability many and varied
• Legislation progressively tougher
• Cover under standard Liability policy very
  restricted
• Specialist EIL policies affordable
• Annual or bespoke one-off
• Should be considered as part of raising youre
  your risk management game