Environmental risk: Don’t fall between gaps in cover

The consequences for corporates of exposure to environmental liability are relatively well known.  However, according to David Waller of Crawford GTS®, coverage issues remain a concern as some businesses still fail to grasp gaps in cover under traditional wordings, something that has been exacerbated by new legislation.

The implementation of new regulations and the much-increased appetite for enforcement on the part of the regulator has injected new impetus into the environmental risk claims environment. The Environmental Damage Regulations 2009 has imposed further strict and fault-based liabilities, reduced the threshold of risk that the Regulator has to establish before intervention while extending the scope of liabilities well beyond a simple obligation to restore a polluted site back to baseline as far as science allows.  Increasing enforcement of these and other recent UK legislation may be driven by financial pressure from central Government for bodies like the Environment Agency to become self-funding.  Companies may find themselves exposed and should consider what steps to take.

In the event of an environmental accident or disaster, the insured will need to urgently clarify many issues, including causation. The precise source of the pollution may be underground or be unclear. Furthermore, the precise nature of the contaminant and quantity involved will have a significant impact on the risks posed. There may be crucial evidence to be secured that a third party (such as a fuel delivery company or a heating engineer) caused the incident. In some circumstances, such as an oil spill for example, there may be other sources of pollution and causation could be material in respect of determination of legal responsibilities.

Our advice would always be to engage via environmental specialists with the Environment Agency. Take prompt and appropriate emergency action as this may avert a criminal prosecution and can greatly reduce the ultimate financial impact of an incident. Pollution events can strike the best managed companies, but good risk management can reduce potentially large financial exposures. 

In the event of an environmental incident, traditional insurance covers may be insufficient. In particular, even All Risks covers provide only limited cover due to relevant exclusions in respect of pollution damage to own property and such covers do not normally extend to cover damage to “own land”. Furthermore, standard public liability (PL) wordings exclude any cover for liabilities for pollution unless caused by a “sudden, identifiable” incident. The leading case in English Law is often quoted as precedent for the notion that PL covers engage only for liabilities in civil law and not for the now-extensive range of liabilities that can be imposed by a regulator, such as the Environment Agency.

This means that Environmental Impairment Liability cover may be needed to cover the gaps.   In this context, specialist claims adjusters can provide invaluable assistance in controlling the scope and cost of emergency response and remediation.

David Waller - Crawford