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UKELA

May 22nd 2013

ENVIRONMENTAL DAMAGE COMPENSATION

INSURER’S PERSPECTIVE

Pollution Condition

Environmental Damage

Pollution Condition

Environmental Damage

3rd Party:Bodily Injury

Property DamageFinancial losses

3rd Party:Bodily Injury

Property DamageFinancial losses

Legal Defence

Costs

Legal Defence

CostsInsured Exposures

Covered Locations

Covered Operations

Transportation

Insured Exposures

Covered Locations

Covered Operations

Transportation

INDEMNIFICATION

•Financial Compensation for costs or damage incurred

Statutory / Public Law offences / Enforced by Regulatory

Authority (1st Party)

Statutory / Public Law offences / Enforced by Regulatory

Authority (1st Party)

REPARATION

Direct costs arising from, or reimbursement costs to regulator for undertaking action on insured's before for:

On–site, off-site investigation, remediation, removal, clean-up costs

Emergency Costs

Includes: ELD/EDR (Primary / Complimentary / Compensatory)

Environmental Insurance policies

Civil / Tort LiabilityCivil / Tort Liability Administrative LiabilityAdministrative Liability

Serious pollution incidents in the UK:– 620 in 2011

England & Wales suffer on average two serious pollution incidents a day

Half of all serious industrial pollution incidents caused by small businesses*1

Environment Agency continues to call for higher fines for environmental crimes & in 2011 started to use the new civil sanctions regime, outside of courts.

2011 the EA fined 178 companies– Those prosecutions lead to a total of over £3,800,000 in fines only– Average company fine £21,600

*Where the Environment Agency (EA) was able to identify the business responsibleSource: Environment Agency, Spotlight on business 10 years of improving the environment

When it goes wrong

Environmental claims management

Emergency Measures

Emergency Measures

Cleanup Works

Cleanup Works

Investigation of pollution sourcesInvestigation of

pollution sources Monitoring Monitoring

Information to Competent Authority

Information to Competent Authority

Discussionwith Authorities

Discussionwith Authorities

Remediation and reparation measures ordered

Remediation and reparation measures ordered

Loss Adjuster’s missionUndertake Emergency and protection measuresIdentify pollution sources and root causeValidate remediation scenarioValidate Complementary / Compensatory measuresClean-up monitoring and expenses management

Lawyer’s mission

Transactional phase: Consulting / Information

Trial phase:Counsel/ Defence / Subrogation

Environmental damage assessment

Environmental damage assessment

Discussion with Third Parties

Discussion with Third Parties

Emergency costs

Investigation and forensics costs

Criminal fines or Civil sanctions

Legal fees

Clean-up costs

Primary, complementary or compensatory remediation costs

Indemnifications to victims of injuries or distress

Indemnifications to victims of property damage

Indemnification for disruption caused to neighbouring activities

Own-business interruption costs

Public relations costs

Typical Environmental Damages Costs

Primary

Removal of source of damage (e.g., contaminants, physical disturbance)

Remedial actions to recover to baseline

Planning, engineering, implementing

Complementary and Compensatory

Planning, engineering, implementing

Monitoring

Costs of Remediation

Complementarymeasures

Compensatory Measures

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Valuation methods

Equivalency methods (Resources/Resources - REA or Services/Services - HEA)When remediation actions provide the same resources or services as those lost

i.e. Hectares of wetland lost = Hectares of wetland gained

Value Equivalency methodsWhen cannot remediate the same resources or services, but can remediate similar resources (focuses on human services)

i.e. Hectares of wetland lost = kilometres of forest paths

Costs can drastically vary depending on the scenarios and proxys

As part of the claims management, insurers have a seat on the table and are influencing on methods / scenarios that are presented to local authorities

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Scientists / NGOs To advise on methodologies To monitor on-going work To assess effectiveness

Operator / Insurer To comply with regulation To propose and achieve best cost

effective solution

Competent Authority To get back to baseline To validate and to control proposed

solutions

Work Contractors To provide feedback on feasibility To conduct implementation of measures

within contractual agreements

Stakeholders

Environmental DamageComplex issue as it is

Collective and accumulative

Irreversible in many cases

Difficult to determine

Claims settlement issues

Civil/Tort Liabilities: Indemnifying third parties

Monetary award to victim of a loss (bodily injury, property damage)

Can be used how the victim wants (to repair or do something else)

Settlement can shorten the exposure tail

Statutory Liabilities: Restoring the environment

Remediation ‘in nature’ to repair the destroyed environment

Expenses can run for tens of years until return to baseline

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Conclusion Environmental Damage can be compensated in many ways

Costs can vary depending on Jurisdiction How loss is valuated and the methodologies used Whether civil / tort and statutory liabilities are considered

Insurers Have followed regulatory trends instead of resisting against them Are providing ad-hoc proactive products (environmental / EIL insurance) Are paying for claims (but did not suffer lots of ELD-type claims so far…)

Now is a good time to transfer environmental risks to insurance as affordable wide coverage is available for what could be complex, long, and costly proceedings and settlements over environmental damages

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Julien Combeau

Executive Director - FINEX Global Environmental Practice

Direct: +44(0)20 3124 8046, Mobile: +44(0)7908 240 883,

julien.combeau@willis.com