The Environmental Damage Regulations and the Role of Insurance

The Environmental Damage Regulations

Keith DavidsonDirector

ELM Law

20 year wait

• 1989 – Proposal for Directive on Civil Damage

• 1990 – Environmental Protection Act

• 1993 – Green Paper Damage to the Environment

• 1995 – Environment Act introduced Part 2A

• 2000 – Part 2A EPA came into force

• 2004 – Environmental Liability Directive

• 2009 – Environmental Damage Regulations

King of the liability regimes

Environmental Damage (Prevention and Remediation) Regs 2009

The 3 main regimes for dealing with land contamination have to be considered in the following order

1. Environmental Damage Regulations

2. Remediation under planning

3. Remediation under Part 2A

Incidents caused after March 2009

Environmental damage or an imminent threat of environmental damage caused after March 2009

“sufficient likelihood that environmental damage will occur in the near future”

LA or EA can serve a PreventionNotice or Remediation Notice

What is Environmental Damage?

Land - significant risk of adverse effects on human health[Part 2A – significant possibility of significant harm]

Water - lower the status of surface wateror groundwater

SSSI - adverse effect on theintegrity of the site

Species or habitat – significant conversation status effect

Contaminated land – EDR or Part 2A?

NoYes

YesNo

Yes to all

EDR have to finda polluter or person who controlsthe activity

Two–track liability regime

Schedule 2 Activities SSSIs, protected habitatsstrict liability if fault based liabilitynon compliant the operator intended to cause the damage or was negligent

Schedule 2 Activities – strict liability

Permitted installations

Manufacture, use, storage of dangerous substances

Construction and demolition

Waste management operations

Mining

Water abstraction and impoundment

Transport of dangerous or polluting goods

Discharges into surface water or groundwater

More expensive remediation

In addition to primary remediation costs (restore to condition before the damage) the clean up bill can include:

(a) Complementary remediation – if a habitat is destroyed, creating an equivalent habitat offsite

(b) Compensatory remediation – paying interim losses until the habitat is restored

(c) Regulator costs – legal, technical (investigation, assessment and monitoring)Administrative

(d) Easier for cost recovery

New legal duty to report

No general obligation in Part 2A to alert regulators about contamination

Occupiers can deliberately choose not to notify regulators as voluntary disclosure can trigger liability

Fundamental shift in environmental law – in the event of environmental damage or an immediate threat of damage, the operator must immediately

(a) take preventative action (b) notify the regulator; and (c) carry out agreed remedial measures

Example – manufacturing site

Powder coating discharged from spraying activities was discharged via a pipe outside the factory and adjoining land was covered in white powder

Interested party contacted the LA and requested action

Remediation Notice served on the operator who removed the contaminated soil and repaired the pipework

Conclusions – impact of EDR

• More expensive remediation

• More expensive disputes

• More options for regulators

• Greater risks near SSSIs

• Need EDR audits

• Improved reporting procedures

• Review insurance protection

• Legal duty to take immediate action and report to regulators

• NGOs and adjoining landowners can initiate regulatory action

The Role of Insurance

Duncan SpencerDirector

EDIA Limted

Chemie – Pack, 2011

Public Liability Policies

PL Cover• Exclude Pollution• Give Back “Sudden and Accidental” Pollution• Beyond Boundary of Insureds Property• Some Flexibility to Claim Response

However• Investment Income Down• Claims on the Up• Insurers Looking for Reasons NOT to Pay

Sudden vs Gradual

Example of a PL Policy Claim

So What is Not Already Covered?

Gradual Pollution

Wear and Tear

Foreseen Events

Damage to Your Own Land

Damage to Non Owned Property

Damage to Fauna and Flora

Historical Events

Environmental Insurance

Covers “Pollution” and “Environmental Damage”

Protects from 3rd Party Liabilities with some 1st Party Extensions

On and Off Site Clean Up and Restoration

3rd Party Property Damage and Bodily Injury

Business Interruption

Historical and Operational Liabilities

Historical Liabilities

Merger and Acquisition

Risk Transfer for investors

Pension Fund Portfolios

Policy Period

Incident Claim

Operational Liabilities

High Risk Activities

Cover gaps in PL Policies

Cover for New Legislation

Policy Period

Incident Claim

Considerations

Do you rely on insurance to provide financial security?

Have you assessed if your insurance provides the correct protection?

Do your Clients understand this gap?

Does your supply chain understand this gap?

What happens if your supply chain fails because of this?

Summary

Insurance Cover for Pollution

Poorly Understood

PL Potentially Provides NO

Cover

Environmental Insurance Should be Considered as

Part of a Risk Management

Strategy

New Liability?

Contact Details

Duncan Spencerduncan.spencer@ediainsurance.comm: +44 (0) 7825 884 222

Keith DavidsonKeith.Davidson@elmlaw.co.ukm: +44 (0) 7827 353 652