How will the Environmental Liability Directive affect your business?

by Tony Lennon, European Environmental Manager, Chubb Insurance

> find out more about Tony Lennon

Although not often recognised, the Environment Agency has had the ability to deal with the effects of pollution incidents and then to charge their costs back to the polluter. In addition, they also have the power to issue 'anti-pollution works notices' which inter alia give them the power to require companies to undertake works to either stop pollution from occurring or to remedy the effects of pollution should it already have occurred.

These liabilities have never been more starkly identified than in the case of a company called Bartoline who, following a fire at their premises faced liabilities in excess of £700,000 as a result of such Environment Agency action. One of the most serious aspects of this incident is that Bartoline found that their public liability insurance, which they assumed would provide them with the necessary compensation to deal with these financial liabilitie, actually did not provide them with indemnity.

The new directive, when it is finally brought into effect in the UK (towards the end of this year) will have far reaching effects beyond the provisions of the Water Resources Act and the liabilities described above. The Directive introduces three new terms:

• Primary remediation;
• Complementary remediation; and
• Compensatory remediation

two of which are unlikely to be covered by the indemnity provisions of traditional insurance, but which could leave EEF members with significant financial liabilities.

Primary remediation can be considered as 'putting right' environmental damage that has occurred. Depending on the activities of those that caused the damage, the liabilities can be strict and not limited to fault or negligence of the operators. The aim would be to ensure that the environment is reinstated to the standard that it was in prior to the damage occurring (or baselien condition). This can sometimes be covered by a public liability insurance policy, although reinstatement of the flora and fauna is usually excluded.

Complementary remediation is required where it is not possible, or it would not be cost effective, to remediate the original damaged resource to its baseline condition. Improvement of a similar resource is to be undertaken in those circumstances, to the extent that the original resource cannot be fully restored. In other words, if the damaged area can only be remediated to 80% of its original condition, then the equivalent 20% shortfall has to be provided somewhere else.

Compensatory remediation (or compensation for interim loss) is intended to compensate society for the time that the resource has suffered damage and is not available for use or enjoyment. As in the case of complementary remediation, it is delivered by means of remediation (enhancement) equivalent to the loss at another site.

It should be recognised that not all environmental damage is caused by pollution and that it is possible for damage to be caused by general activities rather than pollution arising from the activities of an EEF member.

Environmental insurance can, and does, provide insurance protection for the liabilities that arise from the Environmental Liability Directive and is the only sure way of ensuring that members are adequately protected.