The Environmental Damage Regulations and the Role of Insurance

The Environmental Damage Regulations Keith Davidson Director 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 Prevention Notice 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 water or groundwater SSSI - adverse effect on the integrity of the site Species or habitat – significant conversation status effect

Contaminated land – EDR or Part 2A? No Yes No Yes to all EDR have to find a polluter or person who controls the activity

Two–track liability regime Schedule 2 Activities SSSIs, protected habitats strict liability if fault based liability non compliant the operator intended to cause the damage to cause the damage or was negligent 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 Spencer Director 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 3 rd Party Liabilities with some 1 st Party ExtensionsOn and Off Site Clean Up and Restoration3 rd Party Property Damage and Bodily InjuryBusiness InterruptionHistorical and Operational Liabilities

Historical Liabilities Merger and AcquisitionRisk Transfer for investorsPension 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 Spencer m:+44 (0) Keith Davidson m:+44 (0)