You are on page 1of 76

CEA

I nsur e r s of Eu rope

Navigating the Environmental Liability Directive


A practical guide for insurance underwriters and claims handlers

April 2009
About the CEA
The CEA is the European insurance and reinsurance federation. Through its
33 member bodies, the national insurance associations, the CEA represents all
types of insurance and reinsurance undertakings, eg pan-European companies,
monoliners, mutuals and SMEs. The CEA, which is based in Brussels, represents
undertakings that account for approximately 94% of total European premium
income. Insurance makes a major contribution to Europe’s economic growth
and development. European insurers generate premium income of €1 122bn,
employ one million people and invest more than €7 200bn in the economy.
Environmental liability

Contents

1. Executive summary 5

2. Introduction 7

2.1 Main features of the ELD — context and objectives 7

2.2 Current transposition status 9

3. Transposition by EU member states 10

3.1 More specific comments on member state transposition 10

3.2 Financial security requirements 11

4. Relevant aspects of the ELD and existing insurance products 12

5. Potential options for policy coverage 13

5.1 Existing insurance products — preventing gaps and overlaps 13

5.2 Environmental liability insurance — possible concepts 17

5.3 Summary 30

6. Risk assessment criteria 31

6.1 Introduction 31

6.2 Terms and elements of the risk assessment 31

6.3 Building the conceptual model 31

6.4 Elements of the investigation and development of the conceptual model 33

6.5 Adopting efficient and feasible risk assessment methods 35

6.6 Examples of information sources for risk assessment 37

6.7 Limitations and restrictions on the use of tools 39

6.8 How to decide on risk 40

CEA | 3
7. Adopting efficient claims management criteria 42

7.1 General remarks 42

7.2 Specifics of environmental claims 42

7.3 Cooperation with the competent authority 43

7.4 Claims-handling under the insurance policy 44

7.5 Assessment of environmental damage 45

7.6 Remediation of environmental damage 48

7.7 Monitoring 49

7.8 Procedural aspects 50

8. Implementing efficient data collection tools 51

9. Closing remarks 52

10. Annexes 55

10.1 Overview of ELD transposition (as at 1 April 2009) 56

10.2 Risk-mapping table 62

10.3 Risk assessment — legal and corporate factors 63

10.4 Information to provide on environmental damage 64

10.5 GIS examples 66

10.6 Glossary 67

10.7 CEA Environmental Liability Taskforce members 73


Environmental liability

1. Executive summary
This is the third report the CEA has published in the last three years on the EU’s
Environmental Liability Directive (ELD) and the impact of its transposition into EU
member state law.

The first report (“White Paper on Insurability of Environmental Liability’’, January


20071) aimed to stimulate and deepen discussion ahead of the transposition
deadline for the ELD, while the second report (“Enhancing Sustainable Insurance
Solutions’’, February 20082) focused on the challenges posed by the transposition.
It also highlighted areas that insurers may wish to consider when providing risk
transfer solutions for the resulting liabilities.

This third report, ”Navigating the Environmental Liability Directive’’, provides a


deeper analysis of the findings and conclusions in last year’s report, based on
most recent developments related to:

• the transposition of the ELD


• insurance matters linked to the transposition
• the emergence of insurance solutions in some markets
• risk selection and risk assessment
• the development of new claims management skills
• cooperation with competent authorities

Transposition of the ELD has continued beyond the 30 April 2007 deadline. A few
EU member states are still in the transposition phase or are drafting legislation.
However, most member states have enacted the ELD, with some following the
scope of the ELD very closely and some exceeding it.

In EU member states that enacted law very close to the scope of the ELD, there
is a trend for insurance products to start to emerge. This is a strong indication
that a clear legal framework and a close relationship to the ELD are key to the
development of sustainable insurance solutions.

Risk selection and a sound risk assessment process are important steps in the
appropriate assessment of a risk. Close cooperation between the operator who
wishes to insure his liabilities under the ELD and the insurer is essential if the
insurer is to assess the risk adequately.

The ELD requires new claims management skills, in particular when it comes to
compensatory damage. Good underwriting is not sufficient if insurers cannot
handle claims properly or if insurers are not involved in the claims decision process.
As the competent authority is the body responsible for either accepting the
preventive or remedial actions proposed by the operator or determining its own
preventive or remedial measures, the insurance industry has a significant interest
in being part of that process and developing an effective working relationship
with the relevant authority, particularly for cross-border damage.

1 CEA: “White Paper on Insurability of Environmental Liability”, January 2007


http://www.cea.eu/uploads/DocumentsLibrary/documents/Mail%20-%20CEA%20White%20
Paper%20on%20Insurability%20of%20Environmental%20Liability.pdf
2 CEA: “The Environmental Liability Directive: Enhancing Sustainable Insurance Solutions”, February 2008
http://www.cea.eu/uploads/DocumentsLibrary/documents/1203085136_environmental-liability report.pdf

CEA | 5
Environmental liability

The CEA aims to extend its close cooperation with the European Commission’s
Directorate-General for the Environment and to support the national transposition
authorities, through the national insurance associations, by:

• sharing updates on legal and insurance-related developments in EU


member states, with a special focus on the challenges of cross-border
activities and/or damage
• sharing with interested stakeholders publicly available information on ELD-
related incidents that have been reported and/or losses that have occurred
in EU member states
• supporting the preparation of the report the European Commission is due
to present by 30 April 2010.

6 | CEA
Environmental liability

2. Introduction
This report aims to provide a deeper analysis of the findings and conclusions in
the CEA’s report of February 2008 (“Enhancing Sustainable Insurance Solutions’’
and addresses the most recent developments in the following areas:

• transposition of the EU’s Environmental Liability Directive (ELD)


• insurance matters linked to the transposition
• the emergence of insurance solutions in some markets
• risk selection and risk assessment
• the development of new claims management skills
• cooperation with competent authorities

For completeness, this report (specifically sections 5, 6 and 7) reproduces some


of the material contained in last year’s report.

As legal clarity and certainty are key prerequisites of insurability, the section
below highlights the key issues of the ELD which have a significant impact on
the underwriting process.

2.1 Main features of the ELD — context and objectives


The ELD implements the “polluter pays” principle. Its fundamental aim is to hold
operators financially liable for environmental damage caused by their business
activities. It is expected that this will result in an increased level of prevention
and in more precautionary measures. In addition, the ELD holds operators liable
for taking preventive actions where their activities pose an imminent threat of
environmental damage. It is expected that, as a consequence, there will be a
higher degree of environmental protection throughout Europe.

For liability to be effective, polluters must be clearly identifiable. To this effect,


the ELD provides for two distinct but complementary liability regimes. The first is
strict liability-based and applies to operators who conduct hazardous activities as
set out in Annex III of the ELD. The second regime is fault-based and applies to
all other business activities.

Both of the liability regimes apply to the “imminent threat of damage occurring
by reason of the relevant activities”. Imminent threat of damage means “a
sufficient likelihood that environmental damage will occur in the future”.

The ELD is not retrospective, so any damage caused before 30 April 2007 (the
deadline for implementation of the ELD) is not covered by its provisions.

Public authorities play an important role under the ELD. Enforcement is their
responsibility, including the identification of potentially liable operators, the
instigation of preventive and/or remedial measures, and, where applicable, the
financing of such measures.

Public interest groups, such as NGOs, will be able to require public authorities
to act and, if necessary, to challenge their decisions in the courts. Additionally,
the Directive on public access to environmental information (2003/4/EC), which

CEA | 7
Environmental liability

became binding on 14 February 2005, gives the European public better access to
environmental information, thus enhancing their ability to demand action.

2.1.1 The requirement to prevent


One of the key provisions of the ELD is the requirement for operators to take
preventive action where there is an imminent threat of damage. Furthermore,
where the imminent threat is not dispelled despite the preventive measures
taken, the operator must inform the competent authority as soon as possible.

2.1.2 Optional defences


Under the ELD, EU member states have the option to allow certain defences.

Under the permit defence, the operator may not be liable where he demonstrates
that he was not at fault or negligent and that the environmental damage was
caused by an emission or event expressly authorised by, and fully in accordance
with the conditions of, an authorisation conferred by or given under applicable
national laws and regulations.

In addition, an operator may not be required to bear the cost of preventive


or remedial actions where “he can prove that the environmental damage or
imminent threat of such damage:

(a) was caused by a third party and occurred despite the fact that appropriate
safety measures were in place or

(b) resulted from compliance with a compulsory order or instruction emanating


from a public authority other than an order or instruction consequent
upon an emission or incident caused by the operator’s own activities.”

An operator will, therefore, not be considered liable for an emission or event


expressly authorised by, and fully in accordance with the conditions of, a public
authority order as applied at the date of the emission or event.

Under the state of the art defence, there may be an exemption from liability
where the operator can demonstrate that the activity was not considered likely
to cause environmental damage according to the state of scientific and technical
knowledge at the time.

2.1.3 Remediation of environmental damage


Where operators are liable under the ELD, they may be required to take remedial
measures, meaning “any action or combination of actions, including mitigating
or interim measures to restore, rehabilitate, or replace damaged natural resources
and/or impaired services or to provide an equivalent alternative to those resources
or services as foreseen in Annex II”.

Annex II sets out a common framework to be followed in order to choose the


most appropriate measures to ensure the remedying of environmental damage.
These measures include:

• Primary remediation: any remedial measure that returns the damaged natural
resources and/or impaired services to, or towards, baseline condition.

8 | CEA
Environmental liability

• Complementary remediation: any remedial measure taken in relation to


natural resources and/or services to compensate for the fact that primary
remediation does not result in fully restoring the damaged natural
resources and/or services.
• Compensatory remediation: any action taken to compensate for interim
losses of natural resources and/or services that occur from the date of
damage occurring until primary remediation has achieved its full effect.
Interim losses are defined as “losses that result from the fact that damaged
natural resources and/or services are not able to perform their ecological
functions or provide services to other natural resources or to the public
until the primary and complementary remedial measures have taken
effect. It does not consist of financial compensation to members of the
public”.

2.2 Current transposition status


Most EU member states have enacted the necessary national legislation. However,
at the time of publication, a small number have yet to finalise their legislation.
Some EU member states have followed the scope of the ELD very closely while
others have extended its scope (see Annex 10.1).

In some EU member states, responsibility for relevant legislation is at a regional


level (eg Austria, Belgium, Germany, UK). This is likely to lead to differences within
national legislation, eg by having different definitions of protected habitats or
species at regional level.

The manner in which the ELD has been transposed means that there is no
harmonised liability system. This means that there is a strong possibility that there
will be variations in enforcement. These issues pose quite significant challenges
for the insurance industry for both underwriting and claims. At European level
there is now an absence of one of the most important prerequisites for insurability,
ie legal clarity and certainty.

CEA | 9
Environmental liability

3. Transposition by EU member states


There are now some wide variations in national laws. Some of these are likely
to affect the design of insurance products, whether they be local solutions or
multinational insurance programmes.

With 27 EU member states and a considerable number of issues affecting


insurability, there are now numerous variations to the key features of the ELD.
The table below highlights some examples of the more significant variations that
underwriters should be aware of when drafting insurance products (see Annex
10.1 for more detailed information).

Issue Member state transposition


Liability regime • Strict liability regime extended beyond Annex III: Hungary,
Netherlands, Sweden
Sharing liability in the • Joint and several liability: Germany, Poland, Portugal
case of several polluters • Proportional liability: Cyprus, France, Italy
Type of damage • Broader “land damage” definition: Poland
• Broader species/habitats scope: Austria, Cyprus, Czech Republic,
England, Estonia, France, Hungary, Poland, Spain, Sweden
Defences • State of the art defence applicable: Belgium, Czech Republic,
France, Italy, Romania, Spain
• Permit defence applicable: Belgium, Czech Republic, Italy,
Romania, Spain
Application of ELD to • Later effective date: Romania (June 2007), Sweden (August
damage caused by 2007), Slovakia (September 2007), Denmark (July 2008), England
an emission, event or (March 2009), Ireland (April 2009)
incident that took place
on or after 30 April
2007
Financial security • Immediately effective: Hungary (partially, see 3.2 below), Romania,
Slovenia
• By 2010: Greece, Portugal, Spain
• By 2011: Bulgaria
• By 2012: Slovakia
• By 2013: Czech Republic

3.1 More specific comments on member state transposition


As outlined above, some EU member states have extended the scope of the ELD.
For example:

• Hungary did not transpose the term “operator” as used in the ELD. The
“user of the environment” is liable for any environmental damage. The
“user of the environment” is any user who may cause environmental
damage. This includes the operator, the owner of the land and the people
in charge of business decisions (eg directors, officers).
• Poland has extended the scope of land damage by including changes
to soil quality standards which do not create a significant risk to human
health.
• In the Czech Republic an additional decree on the protection of some
national protected species is expected, and the same is true in France
where an additional list of protected habitat and species will be drawn up
by the Ministry of the Environment.
• Romania has limited the application of the state of the art defence to
cases where the operator demonstrates that it was not possible to cause
environmental damage, instead of was not considered likely.

10 | CEA
Environmental liability

• Spain has implemented the state of the art defence but:

has limited it to remediation costs only (not prevention costs)


the operator has to pay all costs in every case, and is entitled to
recover remediation costs from the public administration.

• Hungary has not transposed the permit defence, except for cases where
the damage is the direct consequence of an administrative court decision
containing an obligation (different to permits or licences).
• Some member states will apply the transposition legislation only for
emissions, events or incidents that took place after enacting of the law (no
retrospective application). This might be seen as a violation of the ELD.

3.2 Financial security requirements


Although not required in the ELD, some EU member states have either introduced
or are proposing to introduce a system of compulsory financial security (see table
above).

There is also no consistency in the requirements for financial security. For


example:

• Hungary will require financial security for IPPC3 and landfill activities.
• Greece will implement something from May 2010 but has yet to decide
what it will require.
• Spain will require the minimum amount of the financial guarantee to
be determined by the competent authority according to the risk level
(between €300 000 and €20m).
• Slovenia has a requirement for bank guarantees or other forms of payment
security after environmental damage has occurred.
• Others, such as the Czech Republic, are looking for the requirements to
become effective at different dates over the next 3 years.

3 EU Integrated Pollution Prevention and Control Directive (2008/1/EC)

CEA | 11
Environmental liability

4. Relevant aspects of the ELD and existing


insurance products
The table below highlights most relevant ELD-related issues and how existing
insurance covers respond.

Liability requirement Existing covers


Relevant environmental damage can be
Insurance products often limit coverage to civil
caused by pollution or any other cause,
liability claims for damage caused by pollution, no
except for damage to soil, where relevant
matter what type of natural resource is damaged
damage is limited to pollution
Duties of the operator include preventive A few insurance policies available do not cover
measures for imminent damage these expenses or do so with sub-limits
Restoration includes primary,
Some policies do not cover complementary and
complementary and compensatory
compensatory remedial measures, others may apply
remedial measures, except for damage to
sub-limits or are vague in this respect
soil
Once the policy is cancelled, further claims may
Liability can arise up to 30 years after not be accepted for damage generated during
the event leading to the environmental the policy period. Some products include a post-
damage that has occurred cancellation period of 1 to 5 years for claims to be
received
Some policies exclude damage caused by non-
accidental events
Most exclude damage caused by gradual pollution
Any kind of damaging event (accidental or
not, wilful or not, legal or illegal) entails Most exclude damage caused by wilful acts with
environmental liability disregard for the consequences or deliberate non-
compliance with environmental law
Most exclude damage due to wilful non-compliance
with maintenance routines
Some policies exclude:
• riots and events organised for socio-political
aims
Other limitations not provided for in the
• asbestos, lead, silica, mould and fungi
ELD
• genetically modified organisms
All insurance policies have financial limits and are
subject to insurance contract law
Most specific environmental policies exclude:
• pollution caused by emissions or events
Defences that are optional to EU member
states expressly authorised (permit defence)
• damage not foreseen due to lack of scientific
evidence (state of the art defence)

12 | CEA
Environmental liability

5. Potential options for policy coverage


In order to improve marketability, the different insurance policies that a
(re)insurer puts on the market should be, as far as possible, complementary and
complete, thus avoiding overlaps and gaps between them. Identifying potential
gaps and overlaps between specific environmental insurance products and other
existing products (eg general third party liability (GTPL), directors & officers (D&O),
property and motor insurance) would therefore help underwriters to design the
most appropriate and complete insurance solutions.

5.1 Existing insurance products — preventing gaps and


overlaps
Insurers may wish to include part or full coverage of the new liability within the
scope of existing products. However, entities that decide to do so should be
aware of the possible dangers of mixing civil liability and administrative liability
within a single contract and other conflicts (such as the policy trigger issues
described in section 5.2.4) when making strategic decisions that could include
redefining the boundaries of coverage. The different legal procedures for civil and
administrative liability, as well as the changed focus from monetary compensation
of bodily injury and property damage to prevention and restoration measures will
have an impact on the way claims are handled.

The aim of this section is to help underwriters to identify the potential overlaps,
gaps or inconsistencies of coverage within the scope of the most common
products in the various European markets, to enable informed decisions to be
made. All insurance solutions that potentially provide coverage for claims from the
competent authority and arising from environmental damage are considered.

5.1.1 General third party liability insurance


In GTPL insurance, the object of the insurance is the insured’s civil liability to
compensate third parties for injury or damage to property suffered by them, and
in some cases for financial losses incurred by them, arising from the business
activity or property ownership of the insured party. Statutory obligations to
prevent or restore damage to natural resources are usually outside the scope of
GTPL coverage.

Strict liability on the operator for damage caused by third parties


Where the damage has been caused by a third party, the operator of an “Annex
III” activity is strictly liable but can recover the costs from the third party. There will
be circumstances where environmental damage arises due to defects in premises
or equipment operated by the insured but where the defect is due to errors in
manufacture or installation by a third party.

The operator’s rights of recovery against the manufacturer or installer may well
be subject to different legal systems, eg civil liability or principles. This could result
in the operator not being able to recover fully the loss for which he is liable.

Where the insured is the manufacturer or installer of a defective product or


equipment installed on third party premises, he may be pursued by the operator

CEA | 13
Environmental liability

in civil law for the recovery of losses incurred as a result of the environmental
damage.

Some legislation might allow claims directed against the manufacturer or importer
of certain products to remediate environmental damage (eg damage caused by
genetically modified organisms (GMOs)).

Liability for damage to insured’s own land


Pollution to land owned or occupied by the insured is one of the main areas of
environmental liability. This must be considered with the fact that GTPL policies
usually exclude damage to property owned or controlled by the insured. This is
relevant both for deciding on the coverage for prevention of imminent damage
and for the remediation of environmental damage. Where the insured operates
on third party land he can be pursued under civil law by the owner (who is liable
under the ELD) for the cost of remediating the environmental damage, but only
to the extent that the civil liability system in the country concerned applies.

Position of the insured in the claims procedure


Claims conditions in GTPL policies usually impose certain duties and responsibilities
on an insured, according to which he has to refrain from acting in a way that
could imply he is liable. In the ELD, there are some mandatory provisions relating
to behaving and informing the competent authority that conflict with GTPL
policies but need to be recognised within a policy that applies to ELD losses to
ensure that the insured is not in breach of his contractual obligations.

Multiplicity of claims from the same event


As stated above, some events can generate environmental damage according to
the ELD and, at the same time, traditional damage to a third party property and/
or bodily injury, eg a fire in a privately owned forest affecting protected species
and material property.

Drafting proper provisions would help to:

• prevent dual insurance that could lead to double recovery


• control possible duplication of exposure in the policy/ies, even though the
two categories of claims are probably subject to different legal procedures
and come at different moments in time or even in different insurance
periods.

5.1.2 Professional indemnity


The ELD is applicable to all occupational activities. Therefore, professional
indemnity policies, which cover claims for negligence against professionals, might
be affected by liability based on the ELD. It is possible to distinguish between
activities with low ELD exposure, such as the work of lawyers and accountants,
and those which pose a higher risk of environmental damage such as architects,
engineers or environmental consultants. Errors in planning, design or supervision
as well as in consultancy might lead to environmental damage which could result
in recourse to claims. Therefore, special attention should be paid to existing
pollution cover in current policies.

14 | CEA
Environmental liability

5.1.3 Liability of competent authorities and state-owned industries


Community insurance policies covering the activities of competent authorities
might also provide coverage in cases where negligent acts of members of
the authority create a danger to the environment (eg administrative orders or
permits) or have a direct impact on the status of the environment (eg decisions
on preventive or remedial measures).

Wrongful decisions may result in claims by the operator against the authority
for financial losses incurred as a consequence. Wrongful decisions may also lead
to claims for damage to a third party’s property, resulting in civil liability claims
against the operator who then subrogates to the authority.

Both are claims to recover compensation paid by the operator arising from the
negligent act of the authority.

Some decisions might be delegated to private entities to act on behalf of


competent authorities. These private entities will undertake the same duties and
assume the same responsibilities as the competent authority. They may wish to
insure their liabilities arising from this work.

The operation of state-owned industries (eg power generation, mining activities,


water supply, managing waterways or waste management) might also have an
adverse impact on the environment. The management of state-owned industries
may wish to take out insurance cover for their liabilities for environmental
damage. A conflict of interest could arise where the remediation orders of one
authority are directed at another authority.

5.1.4 Motor insurance


Motor third party liability insurance (MTPL) may be exposed to claims, particularly
with respect to the transport of dangerous goods or waste specified in Annex
III4. MTPL policies usually cover only damage caused to a third party on a civil
law basis but not all MTPL policies are precise in that respect. In most European
markets there is still uncertainty over whether ELD exposures are covered under
MTPL policies or not. EU member states in which policy wordings contain a clear
provision that claims based on public law are not covered, eg Germany (but a
standard additional cover is readily available), or where court decisions confirm
such an interpretation of the wording, eg the UK, seem to be the exception.

It is unlikely that the transposition of the ELD will result in an increase in claims
frequency, ie accidents with dangerous goods have always happened, but higher
claims payments can be expected in this respect, due to the greater emphasis on
restoration in the ELD.

Policyholders most at risk are enterprises and freight forwarders dealing with the
transportation of dangerous goods or waste, as specified in Annex III. Insurers
may wish to study the impact of the ELD on MTPL insurance to decide to what
extent it may affect the coverage provided and to inform insureds accordingly of
the decision.

4 This is limited to cases which do not fall under the “UNECE Convention on civil liability for damage
caused during carriage of dangerous goods by road, rail and inland navigation vessels”.

CEA | 15
Environmental liability

In any case, coverage designed for this purpose should be in line with GTPL and
environmental impairment liability (EIL) solutions, in order to avoid other gaps/
overlaps. Special attention should be paid to activities that may be borderline
in terms of which policy is the most appropriate, such as loading/unloading
operations. Similar attention should be paid to professional or commercial
activities performed using non-industrial vehicles and even private ones.

The analysis of motor accidents shows a large number of cases where measures
to prevent imminent environmental damage have been necessary (eg by the fire
brigade) due to the release of gasoline and other harmful liquids. Some of these
measures were also necessary to prevent further third party injury or damage to
property.

MTPL underwriters may wish to consider the potential impact of increased


cross-border movements and transports, the potential exposure to different
environmental damage legislation in other EU member states and the
consequences of the ‘‘Green Card” agreement.

5.1.5 Nuclear insurance


It should be remembered that, even though nuclear insurance is not part of the
ELD, nuclear power plants also create non-nuclear risks, such as changes in the
quantity, quality or temperature of water, that are very likely to result in potential
exposures to environmental damage. Coverage designed with this purpose
should be in line with GTPL/EIL solutions in order to avoid other gaps/overlaps.

5.1.6 Property insurance


The ELD includes liability for environmental damage caused by an operator to his
own soil. Property insurance policies can be found that include some coverage
for this kind of damage. They include first party clean-up cost insurance and
decontamination cost clauses, which provide insurance cover for the remedial
measures necessary on a company’s own site after an insured event has occurred,
eg a fire.

The scope of remediation covered is usually broader than the ELD requires,
ie restoring the original condition as opposed to the necessary measures to
eliminate any danger to human health. Even so, in order to avoid potential gaps
— and overlaps, eg GTPL or EIL — the classes of events in which consequential
soil pollution is covered should be clearly determined and compared against all
potential risks that could result in soil pollution.

It should also be understood that own soil pollution can be caused by a third
party. In order to evaluate the risks, possibilities of recovering costs and potential
coverage for these claims, the third party analysis should include surrounding
activities, as well as subcontractors, tenants and clients, eg a service company
works on an oil tank and causes pollution to the soil. Fire authorities can also
create soil pollution as a result of the run-off of water used to extinguish a fire.

Prior to binding the insurance cover, the risk assessment should include a close
examination of these and other risks when the clean-up of first party premises
and property is included in the cover.

16 | CEA
Environmental liability

5.2 Environmental liability insurance — possible concepts


5.2.1 “Stand-alone” versus integration in GTPL products
Insurance markets generally offer coverage for pollution events in two ways:

• EIL insurance: stand-alone environmental impairment liability policy,


specifically providing coverage for natural resources damage
• GTPL insurance: an integrated pollution extension clause or separate
section

Both approaches can be effective in binding a satisfactory level of coverage,


provided that product designers and underwriters are conscious of the implications
highlighted in the introductory remarks.

Stand-alone insurance concept


This approach allows insurance solutions to be developed without the need to
interfere with established pollution/environmental third party liability covers,
provided that the latter are properly drafted to avoid misunderstandings that
could lead to the possibility that both policies could be claimed against in the
event of damage to natural resources.

The advantages of this approach are:

• a clear distinction between civil and public law-based insurance cover,


which should increase transparency in insurance markets.
• facilitation of the development of insurance solutions that can be adapted
quickly and easily in response to emerging trends without hampering the
established client relationship.
• the greater likelihood of the development of innovative, specialist and
flexible solutions as stand-alone insurance products.

However:

• This approach could still result in the duplication of claims in cases where a
concurrence of environmental liability with traditional third party pollution
liability covers exists in the event of a loss. This would be the case if the
same pollution event triggers third party property damage and bodily
injuries as well as environmental damage.
• Insurers have to take into consideration their accumulation potential —
see section 5.2.9 — in order to put in place the proper controls or establish
the proper loss accumulation limitation clauses as appropriate.
• Increased administrative expenditure can be incurred by the insurer having
to issue and manage specific policies on a separate basis.

In any case, in order to properly define their scope of coverage, stand-alone


policies should state clearly:

• whether they cover only claims based on public law (eg ELD) or also third
party pollution/environmental impairment based on civil liability
• whether they cover only liability claims arising from pollution events or

CEA | 17
Environmental liability

from any kind of environmental impairment/damage. Most EIL policies


limit the coverage to pollution events at present.

Integration into existing insurance solutions via endorsement


The integration of ELD coverage into an existing policy allows the insurer to
provide coverage for all potential claims for the same event(s) in one single
policy. The advantages of this approach are:

• insurers will avoid potential accumulation problems if policies state clearly


the maximum amount of cover offered for all liabilities, including such
extensions of cover
• the development costs of such a solution and the administrative expense
incurred by the insurance company in managing the policy are likely to be
much lower than in the case of stand-alone insurance products.

However the lack of statistical details, eg no separate premium allocation to


the ELD coverage, no separate tracking of ELD claims and no differentiation of
liability concepts, may hamper proper risk assessment of claims developments.

In addition, insurers need to be alert to the dangers of mixing different policy


triggers within a single wording.

In any case, endorsements should deal clearly with the features of the ELD,
namely:

• public law regime only; not third party liability


• it may not be possible to provide full cover for the liabilities under the
ELD
• the obligations of the insured and the rights of the insurer in the claims
procedure will be different

Also, it must be made clear whether the coverage is limited only to pollution
events or whether it includes all kinds of environmental impairment/damage.

5.2.2 Insured events


A basic principle of an insured event is that the time of occurrence or its discovery
must be unpredictable, and the occurrence itself must be independent of
the will of the insured. Therefore, the natural scope of insurance coverage is
usually limited to identified, unintended and unexpected incident(s). Where the
incident(s) do not meet these requirements, they can be regarded as occurring
within the normal operations of a given activity, for example:

• Authorised emissions or authorised impacts on the environment (eg


construction work in an environmentally sensitive area, alteration of
groundwater/drawdown). Liability of this kind should be attributed to the
competent authority and thus be irrelevant to the insurance.
• Emissions regularly above authorised limits. When this happens in the
normal course of operations, it represents a management style that shows
a disregard for responsible behaviour towards the environment. Insurance
is not a substitute for poor risk management and is not intended to

18 | CEA
Environmental liability

apply in such circumstances. However, when the cause of pollution is


unexpected and unintended, it may be classified as accidental and suitable
for insurance coverage.

An event causing pollution/environmental impairment can be classified in the


following categories:

• sudden and identifiable in time (eg fire, explosion, collapse, flood) directly
leading to environmental damage (eg land contamination), commonly
known in the insurance market as “sudden and accidental”
• sudden and identifiable in time, identical to the above but gradually
causing environmental damage (eg groundwater contamination)
• sudden but remaining unnoticed, including its consequences, over a
period of time (eg leakage of an underground storage tank), and gradually
causing environmental damage
• unintended and unexpected, remaining unnoticed, including its
consequences, over a period of time (eg seepage), and gradually causing
pollution up to the moment that it or its consequences are finally
discovered. Usually described as “gradual”, although market practice in
EU member states varies.

Events that are sudden and identifiable in time display some positive features
that reduce some of the difficulties of environmental risks:

• The precise timing of the event causing the emission is almost always
known, so the timeline of events leading up to the loss, and thus the
coverage period, can be objectively determined.
• Putting in place measures to limit, control and repair the damage is easier
and the economical consequences are likely to be lower.
• Claims reserving can be done more quickly and reliably.
• The estimation of frequency of loss events, based on existing accident data
from traditional damage, is possible for “sudden and accidental” events.

Where an accidental event causes “gradual” emissions, the conditions for claims
management can become much more complicated. In addition, if the policy
wording lacks clarity, it may be difficult to allocate the emissions to a definite
point in time. This can lead to disputes over coverage and which insurance
contract should bear the claim. As a consequence, it is possible for the damage
to become much more severe due to delays in resolving disputes.

In any case, when designing and underwriting pollution/environmental


impairment insurance it is important to bear in mind the following:

• “Sudden and accidental” is not a legal term.


• Both “sudden” and “accidental” should be properly defined in the policy
to avoid uncertainty.
• As an alternative, the use of time-based or named perils clauses could be
considered to add clarity to the “sudden and accidental” policy wording,
ie to limit the covered emission to a defined period (eg seven days) or to
limit coverage to named events like fire or explosion.

CEA | 19
Environmental liability

• The required loss experience is unlikely to be available in sufficient detail,


which means that adequate risk pricing levels will be very difficult to set
or, at least, subject to considerable uncertainty.
• In accordance with the general principles of insurance, the coverage for
gradual emissions is unlikely to include any liability as a result of authorised
emissions and is likely to be limited to unintended and unexpected
emissions.

Underwriters designing insurance coverage may wish to consider the fact that
the ELD is not limited to the consequences of pollution or emissions of hazardous
substances. The scope of the ELD is much broader and also encompasses non-
emission related environmental effects such as the consequences of:

• construction work, whether in sensitive areas or not


• changes of water flow/quantity/temperature
• changed agriculture use
• deforestation

If the underwriters wish to broaden the traditional scope of insurance, the


above mentioned remarks on the definition of the insured event will apply
analogously.

5.2.3 Covered costs5


Policies generally state which prevention and remediation costs are covered and
which are not. They may also deal separately with investigation and defence
costs.

Costs for preventive measures


These are any measures taken in response to an imminent threat of environmental
damage, with a view to preventing or minimising that damage, including
emergency measures. According to the ELD, the operator is obliged to take the
necessary preventive measures without delay, even without any prior notification
to the insurer.

The underwriter may wish to:

• consider whether or not he intends to cover these costs in these


circumstances
• apply a requirement for simultaneous notification to the insurer
• distinguish measures that the insured should always take, as part of his
normal activity, to prevent accidents by means of using best available
techniques, performing proper maintenance and avoiding improper
procedures.

Remediation of land damage


Since land in most EU member states belongs to private individuals and enterprises,
or is in public ownership, under the existing civil law liability regime these parties
are normally able to demand reimbursement of the cost of cleaning up their own
land and consequential losses in the event of contamination by a third party.
5 Preventive, primary, complementary, compensatory remediation measures

20 | CEA
Environmental liability

In most EU member states, GTPL or stand-alone EIL policies already provide


insurance coverage for damage to land owned by third parties, and individual
(re)insurers have access to statistics and expertise in claims settlement for this
category of risk.

The same applies to measures for the prevention of impending insured damage
to persons and property when an accident has occurred (prevention6 and/or
mitigation7 costs). In practice, it is anticipated that remedial measures will be
similar.

Underwriters may wish to extend the coverage beyond the scope of the ELD and
to cover any costs for cleaning up land contamination to the baseline condition
rather than just to limit the coverage to the cost for measures necessary to
remove any significant risk to human health. This coverage is commonly known
as first party clean-up costs cover.

Primary remediation
This instrument is already known to public authorities as a result of existing
environmental legislation. Despite this, primary remediation of species and
habitats can be very controversial and lead to much uncertainty in terms of cost
efficiency. Exhaustive remediation programmes can be extremely expensive, with
marginal environmental improvement. Therefore, in order to achieve a proper
risk assessment, premium calculation and sound underwriting, technical criteria
should be developed to decide on the methods to be implemented and the
objectives to be achieved in the case of environmental damage.

One of the alternatives to be fully or partially considered for primary remediation


is natural recovery, which can entail important cost savings in recovery cost but
lead to a longer recovery period with an increasing compensatory restoration bill,
as explained below.

Complementary remediation
This is basically a new instrument for the remediation of environmental damage
but it is already known in respect of infrastructure projects (moving of existing
habitats). There are major issues still to be resolved and legal grey areas which
could well result in disputes with the authorities in the event of a loss, eg
regarding:

• the establishment of a relevant threshold


• the assessment of the damage or the appropriate remedial measures
• the determination of the extent of the loss, which also depends on how
well the baseline condition (the state of the natural resources before the
loss event occurred) was documented
• the evaluation of the various loss patterns in monetary terms

6 Expenses for measures prior to occurrence of an insured event to avert or mitigate an otherwise
unavoidable instance of insured damage.
7 Expenses for measures after the occurrence of an insured event undertaken by the insured or
those acting on their behalf in order to avert or minimise insured losses (salvage expenses or loss
mitigation expenses).

CEA | 21
Environmental liability

Compensatory remediation
These measures are not connected with the cost of restoring the baseline
condition or the original environmental benefit, but with compensation of the
loss of availability of the environmental services for the period of time needed to
recover the baseline conditions. There are no guidelines for calculating the levels
of this kind of harm so far. Insurability will be enhanced through the creation of
clear and consistent guidelines that can be applied to all EU member states and
all cases of environmental damage.

As a result, the insurance industry finds a wide field of uncertainty when trying
to estimate reliably the amount of compensatory remediation due, and the
costs thereof, as a basis for premium calculation. The insurance industry awaits
the final outcome of the REMEDE project (Resource Equivalency Methods for
assessing Environmental Damage in the EU, a project funded through the Sixth
Framework Programme of the European Commission). The delivery of the tool
box hopefully will go a long way towards removing much of the uncertainty and
will bring some consistency. However, in the meantime, the uncertainty should
be considered when deciding on binding coverage for this category of restoration
by using the various tools at the underwriter’s disposal.

5.2.4 Temporal scope of cover8


As latent claims are a widespread issue in environmental liability, it is extremely
important to structure the cover trigger so that a particular loss can always be clearly
attributed to a specific point in time and insurance period. The use of present-
event triggers such as “first discovery/manifestation” or “claims made” may be
appropriate. A causation trigger, sometimes referred to as “acts committed”,
which relates to a point or several points in time in the past when the damage had
its origin (ie manifestation of environmental damage today, caused by an emission
in the past) is not appropriate. The example illustrates that there may be years
between the action or omission which caused the damage and its manifestation.
With such a causation trigger in place it might happen that policies that have
been claims-free for many years can become very claims productive from historical
activities and consequently underlying assumptions made in assessing the risk and
in calculating the expected loss turn out to be fundamentally wrong.

Occurrence-based triggers could be appropriate to cover sudden and accidental


environmental damage if a precise definition of “occurrence” is used in order to
ensure that the coverage trigger date is about coincident with the first discovery
date of the loss.

If retroactive coverage is provided, underwriters may wish to consider that a


retroactive date is fixed, taking into account the inception date of transposition
law, in order to avoid covering events that happened before 30 April 2007 to be
in accordance with the ELD. Environmental damage or its cause, of which the
insured was aware prior to the inception of the policy, is unlikely to be covered.

Where the “first discovery/manifestation’” or “claims-made” principles are


applied, insurers need to decide to what degree cover will continue to be provided

8 Causation, occurrence, first discovery/manifestation, claims made

22 | CEA
Environmental liability

after the expiry of the policy for insured losses which occurred during the policy
period but were not known, had not manifested themselves or for which claims
were not made by the expiry date (extended reporting period).

5.2.5 Geographical scope


The geographical scope of coverage is very important and should reflect the
geographical scope of the insured’s activities where the exposure is to be found
(eg main production and storage facilities (fixed installations), non-site-specific
services, business travels). Environmental damage might occur locally at the
place where the incident happened or, to a broader extent, in the home country.
Environmental damage might also occur on a cross-border basis involving
neighbouring countries — either EU members states or others (eg air pollution
or transboundary pollution of watercourses). As a consequence, operators and
their insurers might be exposed to a wide variety of legal systems.

As some EU member states delegate the legislative competence on defined


matters9, the regulations may differ among the federal states. Many operators
have activities in more than one member state or even further afield and may wish
to arrange their insurance on an international basis rather than have a separate
policy in each country. Multinational insurance programmes will respond to the
particular need of international operators.

Underwriters may wish to consider the following situations in elaborating


insurance solutions:

Single territory damage


This is likely to be the most common source of a claim, where the damage is
very localised and dealt with by a single competent authority and where the
application of the relevant law is straightforward.

Cross-territory damage within an EU member state


These are claims where the damage crosses internal borders and may be subject
to differing regimes. This might result in cases where an incident leads to
environmental damage, such as pollution of a river within a member state where
the remedial measures are based on different legislation or standards and where
several competent authorities will be in charge.

Cross-border damage between EU member states


The transposed law applies to the member state territory only. However,
potentially liable operators are not only responsible for damage occurring in
their home country. According to the most recent status on ELD transposition
(see Annex 10.1), EU member states have differently transposed the ELD and,
therefore, legal certainty for all key stakeholders is absent. An extension of the
geographical scope beyond the home territory results in an exposure to foreign
laws and court practices in a field where there may be a lack of legal clarity or
certainty. As a minimum, this will increase the claims handling costs.

9 For example, some federal states in Austria (eg the draft legislation in Niederösterreich, Kärnten,
Wien foresees financial security partially) or the UK (Wales foresees the implementation of financial
security regarding GMOs).

CEA | 23
Environmental liability

Cross-border damage between member states and non-EU countries


An incident in a non-EU country may cause environmental damage within the EU
and trigger prevention and remedial measures according to the ELD (eg pollution
of the river Rhine in Switzerland causing water damage and damage to protected
species and habitats in Germany, France and the Netherlands). To what extent
the foreign operator has to bear the costs for measures according to the ELD will
be part of bilateral or multilateral agreements.

The same will apply for environmental damage in a non-EU country caused by
an operator in an EU member state (eg pollution of Lake Constance in Germany
causing damage to species and habitats protected by law in Switzerland).
The scope of liability for prevention and remedial measures will be part of the
corresponding environmental legislation in the country where the environmental
damage occurs. Whether the EU operator has to bear the costs will be part of
bilateral or multilateral agreements.

Underwriters should therefore be aware that their clients might be exposed —


in addition to the liability according to the ELD — to liability schemes which are
different to the ELD as well as to bilateral and multilateral agreements ruling on
transboundary environmental damage.

Underwriters may wish to consider using a clear definition of the covered losses,
preventive and remedial measures in the insurance policy rather than referring
to local legislation (eg definition of covered prevention, primary, complementary
and compensatory remedial measures). As part of the risk assessment and
loss estimation process, underwriters should take into account the different
environmental liability legislation in neighbouring countries.

Multinational programmes10
Operators with activities in various countries may wish to cover their liabilities
with a comprehensive multinational insurance programme usually composed of
a master policy issued in the country of the head office and local policies issued in
the countries of branches that apply difference in conditions (DIC11) or difference
in limits (DIL12) concepts. The coverage of the master policy is negotiated based
on the needs of the insured and the products offered in the country where the
policy is issued. For example, a master policy issued in Germany is based on the
local wording, which is designed to cover the liability according to Germany’s
environmental damage law. Local policies issued in other territories will reflect
the local standards and liability regimes. The DIC extension to the master policy
will extend the scope of coverage of the local policies to that of the master
policy.

10 Multinational programmes cover the insured’s premises/locations in various countries within a


single insurance programme.
11 Difference in conditions: Extension to a master policy which allows a multinational company to
standardise locally insured policies by providing additional coverage for perils excluded in local
policies as well as for other differences in insurance conditions.
Reverse difference in conditions: Cover purchased by a multinational company which extends
insurance coverage when a local policy offers more extensive cover than the master policy.
12 Difference in limits: Extension to a master policy which provides for the limit of liability under the
master policy to be applicable in all covered countries, as local policies will usually have lower limits.

24 | CEA
Environmental liability

When designing multinational programmes, underwriters are very familiar with


dealing with numerous territories with wide-ranging variations in liability laws.
The fact that EU member states have differently transposed the ELD and that
there are different liability regimes in non-EU countries will need to be taken into
consideration, especially when the ELD coverage in the master policy includes
DIC/DIL coverage.

Below are some questions regarding the design of products that need to be
answered when drafting this kind of programme:

• How is the geographical scope of cover defined in the master policy?


• Which environmental damage and sums insured are covered in the master
and local policies (eg policy language refers to national transposition
legislation which is broader than the ELD)?
• Is it appropriate to transfer a solution developed in a particular market
to respond to a specific legal system to other markets with very different
liability regimes and insurance standards (eg to apply a German or Swedish
environmental damage insurance wording in Romania or the UK)?
• What is the scope of coverage in local policies covering particular country-
specific ELD transposition legislation (eg definition of protected species
and habitats, definition of operator)? This is of particular relevance if an
insurance solution has a reversed difference in conditions provision in
place to avoid going further than the intended scope of the multinational
programme. One should avoid importing country-specific coverage into
the multinational programme.

5.2.6 Losses arising from defective products


Insurers underwriting GTPL policies covering liability for defective products may
wish to consider the potential risk to the manufacturer in cases where the insured
is exposed to environmental liability claims from a defective product. In some
cases, recourse claims for product liability based on civil law can include claims
for compensation from those that are originally found liable according to the laws
transposing the ELD. If, for example, a defective product leads to environmental
damage in a manufacturing plant, the authority may well require the operator of
the plant to carry out remedial measures. The operator may then seek recourse
against the manufacturer of the faulty product or other responsible parties (eg
the importer of the defective product into the EU) for financial losses such as
compensatory remediation arising from the clean-up operation. Such recourse
would be based on civil law.

Direct claims by competent authorities against the manufacturer of the defective


product might be possible, depending on the definition/interpretation of the
term “operator” in the transposition law. From an underwriting perspective,
the financial loss (ie the cost of the environmental damage restoration) would
qualify as a “product liability” claim that, in fact, would entail the same costs
and difficulties as an “environmental claim” for the operator, with the negative
additional aspect that the liable manufacturer of the defective equipment would
usually not be considered a target in the remediation process and therefore could
have no direct control over the restoration project.

CEA | 25
Environmental liability

GTPL underwriters should therefore be well aware that:

• if they assess the risk of one of their clients as a manufacturer or a vendor


of products, disregarding whether he conducts “Annex III” activities or
not, he can be exposed to equivalent liability for environmental damage
caused by his client, in the event of product failure
• if they assess the risk of an operator that could cause environmental
damage due to a failure in products or services rendered or performed by
others, the right of recourse against these others might be more difficult
under civil law. In any event, the order to undertake remedial measures
will be addressed to the operator of the facility.

5.2.7 Non-site-specific occupational activities/services13


Non-site-specific professional activities, such as commercial trade activities,
transport, maintenance or clean-up services and the work of architects conducted
at third party sites can also give rise to claims under the ELD. For example, errors
in planning/supervision by an architect or faulty workmanship by a contractor
could lead to the collapse of a dam during the course of an operation, leading
to damage to natural resources such as watercourses as well as to protected
habitats and species.

General remarks
Non-site-specific professional activities need a special assessment for which
additional factors will be very relevant:

• no knowledge “a priori” about the vulnerability of the natural resources


around the place where the activity is to be run
• no knowledge of the pre-existing conservation status (baseline) of the
natural resources
• no knowledge of the perils of the premises where the insured will be
working
• the distinction between hazardous and non-hazardous activities may not
be sufficient, as different types of work can be carried out on different
sites and facilities in the course of a single period of insurance

It is important to bear in mind that the operator of an ”Annex III” activity can
be held strictly liable for loss or damage, as well as the external contractor who
caused the environmental damage. In this case the plant operator will have the
right of recourse against the party/polluter who originally caused the accident, ie
the external contractor. In the same way that defective products may be covered
by the manufacturer’s product liability policy, this claim under civil law may well be
covered under the external contractor’s GTPL policy. During the risk assessment
process, the additional exposure of the legal risk of change should be taken into
account. When cover is extended to incorporate these new loss categories, it
is important to note that claims under recourse proceedings can be made for
damage sustained by protected species and natural habitats (fault-based liability)
as well as for water and land damage in cases where the plant operator is strictly
liable for an ”Annex III” activity.
�����������������������������������
Coverage for completed operations

26 | CEA
Environmental liability

The underwriting process should encompass the following criteria:

• the insured ensuring that he is deploying personnel with experience in the


planned activities and has adequate (project) expertise for them
• the potential exposure arising out of activities on hazardous sites
• the accumulation potential to already existing coverage for civil law-based
liability, eg recourse of a party who had to initiate remedial measures

Construction industry including professional indemnity for architects and


engineers
In some cases the contractor is liable and the competent authority will seek
remediation directly from the contractor, eg fault-based liability for damage to
protected species and habitats occurred during the performance of the activity.
Contractors may wish to insure the costs to remediate environmental damage.
Most contractors will not perform ”Annex III” activities and therefore may only
be liable for negligent acts regarding damage to protected species and habitats.
On the other hand, activities such as asbestos removal, waste management or
remediation of polluted sites may constitute an “Annex III” activity and establish
a strict liability for all environmental damage.

The owner of the plant or land where the environmental damage has its origin
may be liable and have to initiate remedial measures. In this case the plant
operator or landowner will have the right to claim for compensation against the
party who caused the environmental damage (liability based on civil law). This
recourse claim will include the costs of land or water damage (strict liability for
an “Annex III” activity) which might go beyond the fault-based liability of the
contractor.

There are various occasions where a contractor might become liable, for example,
in cases of environmental damage due to:

• defective construction/completed operation (eg years after completion, a


dam collapses leading to pollution)

• errors in planning or supervision by architects/engineers

• faulty workmanship by a contractor

• accidental events during the performance of contractual activities on third


party sites (eg working on already polluted sites, causing an explosion/fire
at an existing plant or rupturing pipes/tanks leading to pollution)

• destruction of habitats or protected species in the course of an infrastructure


project, whether accidental or not (eg construction of a motorway)

Underwriters should therefore be well aware that:

• In some cases the contractor operating on third party land can be pursued
in civil law by the owner — who is liable for environmental damage (eg
as operator of an “Annex III” activity) — for the cost of preventing and
remediating environmental damage to the extent that the civil liability law

CEA | 27
Environmental liability

in the country concerned applies. In these cases traditional GTPL insurance


might already provide some coverage.
• Wordings should be drafted carefully to prevent dual insurance that could
lead to contribution or double recovery.

5.2.8 Allocation of coverage


When drafting insurance products covering liability for environmental damage,
underwriters may wish to consider the following dangers:

• potential for contribution or double recovery of claims from the same


event or events that cause different types of damage covered under
several insurance policies, for example:

own property damage, first party clean-up (eg decontamination


costs endorsement in a fire insurance policy or first party clean-up
cost insurance)
traditional damage to tangible property of third parties or bodily
injuries (eg GTPL or EIL insurance)
environmental damage (eg GTPL or EIL insurance)

• stacking of limits:
This might be the case for gradually occurring damage which might
trigger several policy periods, or the same policy period several times. An
adequate definition of an insured event and a clearly defined policy trigger
(as outlined above in section 5.2.4) are appropriate safeguards to prevent
the stacking of limits.

5.2.9 Sum insured


At present there is a high degree of uncertainty regarding the impact of the ELD
on loss frequency and in particular on loss severity. There is a lack of experience
among all involved parties regarding the assessment and quantification of the
lost environmental service. There are various methods under discussion to be
used for the assessment of compensatory remediation but none of them have
been used extensively in Europe for the remediation of environmental damage
caused by occupational activities.

The difficulties in estimating the frequency/severity and consequently the


expected losses must be considered when setting the financial limits of the
insurance coverage provided. Due to this uncertainty, in some instances it may be
necessary for large sums of money to be spent on assessing the environmental
damage and determining adequate remediation actions. Legal proceedings might
be necessary to finally rule on the liability of the operator. Such costs might be
substantial and underwriters might wish to consider limiting coverage either by
fixing a sub-limit or including them in the sum insured (eg a cost-inclusive clause)
or limiting them (eg as a percentage of the insurance limit or fixed amount in
addition to the policy limit).

The limit of liability should take into account a number of factors, including
the result of a risk assessment that may identify the potential impact on the
environment. Some activities (eg “Annex III” activities) and/or locations (eg

28 | CEA
Environmental liability

locations close to potential receptors such as watercourses or protected habitats


and species) have a higher potential for environmental damage than others. In
some EU member states the competent authorities have asked for the assessment
of the potential impact on the environment to define the financial guarantees (eg
Spain, where the assessment has to be done by an independent consultant) or is
part of the requirement to control major hazards involving dangerous substances
according to Seveso II14.

In Spain, the competent authority will implement a minimum financial guarantee


within a defined range of €300 000 to €20m, depending on the potential
damage, as assessed by an independent consultant. There are some exceptions
for operators whose activities could potentially generate damage:

• below €300 000, or


• between €300 000 and €2m if, for example, the operators are certified
with an environmental management system (such as EMAS15 or ISO
1400116).

Deductible
An insured should be willing to take a financial interest in their own risk to avoid
any misuse of the insurance protection and to eliminate small, routine losses that
are best dealt with outside insurance mechanisms. It should not happen that an
operator avoids proper environmental behaviour because it is cheaper to buy
insurance coverage than to invest in necessary maintenance measures or safety
installations. The levels of deductibles and market practice vary from market to
market.

Control of accumulation potential


The basic principle of insurance is the spread of risks and insurers need to ensure
that they are not exposed to multiple liabilities under numerous policies arising
out of the same event, as this would have serious financial consequences. It is
possible that an environmental damage event might trigger several insurance
policies (eg liability policies of several operators or various insurance policies of
an individual operator). The potential accumulation of limits resulting from a
covered environmental damage might be controlled by determining the insurance
capacity to be deployed depending on the individual insurer’s portfolio mix and
its risk appetite.

Calculation of expected losses


The ELD sets up a scope of liability which is in most cases new for the insurance
industry and other stakeholders. As already mentioned, basic information enabling
the use of traditional methods of estimating loss frequency and severity are
rarely available. Even though significant environmental accidents have occurred
in Europe in the past, the use of this claims experience is limited due to the fact
that the claimants were compensated based on civil law for traditional damage

14 EU Directive 96/82/EC
15 The EU Eco-Management and Audit Scheme (EMAS) is a management tool for companies and
other organisations to evaluate, report and improve their environmental performance.
16 ISO 14001 specifies the actual requirements for an environmental management system. It applies
to those environmental aspects over which the organisation has control and over which it can be
expected to have an influence.

CEA | 29
Environmental liability

suffered. Underwriters may wish to consider the use of scenario-based risk


assessment procedures and geographical information systems (GIS) as described
in the risk assessment section below (section 6) to identify potential receptors
and estimate potential loss frequency and severity.

5.2.10 Duty of the insured/operator to report environmental incidents/


losses
The duties to initiate preventive and/or remedial measures or to reimburse the
competent authorities in the event of a loss might not be aligned with the
obligations an insured/operator has in insurance policies. Most insurance policies
require the insured to report known incidents or inform insurers of losses prior
to settlement.

Underwriters may wish to consider aligning the duty of the insured in the case
of an insured event with the obligations according to transposition law. Some
of the requirements under transposition laws may be in conflict with obligations
imposed on an insured through conditions (that may be precedent to liability)
contained within a policy wording. This may hinder the handling of any claims
(see also section 7 on claims handling). A possible consequence may be that
the event/claim is not insured. An early notification to the insurer is therefore
necessary to initiate timely and relevant steps in claims handling, enabling the
insurer to have control over a claim.

To avoid the risk of an insured being in breach of policy conditions that may
prejudice the protection he has for environmental damage, underwriters may
wish to consider adapting the claims notification requirement within a policy to
meet the needs of both the insured and insurer. This may need to vary in different
EU member states to match the provisions of the different transposition laws.

5.3 Summary
Underwriters may wish to first consider which product is the most appropriate
to cover liability for environmental damage, then assess different options (eg
extensions of GTPL or EIL covers taking into consideration the geographical
scope of the insured’s activities). Finally, underwriters should identify the possible
impact on other products such as potential overlaps, gaps or inconsistencies of
coverage within existing insurance policies (eg GTPL, EIL, MTPL).

In EU member states in which transposition has followed the scope of the ELD very
closely, insurance solutions have entered the market. There is a strong indication
that a clear legal framework and an in-depth understanding of the scope of the
liability is key to the development of sustainable insurance solutions.

It is the responsibility of individual insurers to decide whether or not to offer


cover and on what basis and terms. This will depend on their individual risk
appetite and desired portfolio mix.

30 | CEA
Environmental liability

6. Risk assessment criteria

6.1 Introduction
The assessment of environmental risk requires a relatively complex evaluation
and investigation process so that appropriate decisions are made, particularly
with regard to risk assessment and management. The purpose of this section is
to assist insurers with the evaluation of the risk of damage and to provide a broad
overview of existing risk assessment concepts and methodologies applicable to
the evaluation of risk of environmental damage17.

6.2 Terms and elements of the risk assessment


Risk assessment is the scientific process of addressing the issues “how hazardous
is the activity” or “how probable is the loss”. Risk assessment may involve a
general or a very comprehensive investigation of all relevant sources, pathways
and receptors concerning an occupational activity.

The preliminary stage of the risk assessment may focus on the development of an
initial conceptual model of the occupational activity and establish whether there
may be potentially unacceptable risks. During this stage the assessor collects
and reviews all available desk-based information and may also carry out field
assessments to assist with the preparation of a conceptual model. The main
stages of the risk assessment may be to:

• establish the context and objectives for the risk assessment


• develop the initial conceptual model for the site (see sections 6.3 and
6.4)
• evaluate/judge the risk
• decide on any potential unacceptable risks and further appropriate action
(see section 6.8).

The risk assessment is an iterative process that may require further investigation
and assessment to revise and update the conceptual model and/or to focus the
assessment as appropriate.

6.3 Building the conceptual model


6.3.1 Definition
A conceptual model may be described as a representation of the site characteristics
in diagrammatic or written form that shows the possible relationships between
source(s) of environmental damage, pathways and receptors. The term is generally
used in relation to contaminated land; however, it may also be applicable to
environmental liability damage as described under the various transposition laws.
In order to encapsulate EU member states’ environmental liability requirements,

17 Recital 7 of the ELD promotes the use of risk assessment procedures for the purposes of assessing
damage to land. While the concepts and methodologies outlined in this report may also apply to
some degree to such a risk assessment approach, this section is not intended to deal specifically
with the assessment of land damage.

CEA | 31
Environmental liability

an amended version of the definition of a conceptual model, as defined in BS18


10175 (2001), may be proposed as:

“A textual and/or schematic hypothesis of the nature and sources of environmental


damage (such as contamination), potential migration pathways and potential
receptors, developed on the basis of information from the preliminary investigation
and refined during subsequent phases of investigation and which is an essential
part of the risk assessment process.”

The model is initially derived from information obtained during the preliminary
desk-based investigation and is used to focus any subsequent investigation(s)
considered necessary. The results of additional field investigation can provide
data to further refine the conceptual model. Therefore the conceptual model
is a working model to be refined and validated throughout all stages of the
investigation process. The elements of the conceptual model as they pertain to
environmental liability laws are outlined below.

6.3.2 Potential “sources” of environmental damage


In summary, the potential “sources” of environmental damage apply to all
occupational activities: private, public, profit or non-profit. As outlined above,
a strict liability regime applies to “Annex III” activities, whereas a fault-based
liability regime applies to other activities. The criterion for the particular liability
regime that shall apply varies between transposition laws (see section 3).

6.3.3 Pathways and receptors


A pathway may be described as a mechanism or route by which environmental
damage to a receptor occurs.

Environmental damage means damage to receptors identified as:

• protected species and natural habitats, which might be defined more


broadly in transposition laws than they are in the ELD
• waters covered by the Water Framework Directive (WFD)19
• land contamination that risks harming human health.

The regime does not apply to cases of personal injury, damage to private property
or economic loss. Further, EU member states have the option of imposing liability
for environmental damage to species or natural habitats that have similar
provisions for nature conservation under national law.

Damage means a “measurable adverse change in a natural resource or measurable


impairment of a natural resource service which may occur directly or indirectly”.

Remedying of environmental damage in relation to water or protected species


or natural habitats is achieved through restoration of the environment to its
baseline condition (see Annex 10.2). Baseline condition can be defined as “the
condition at the time of the damage of the natural resources and services that
would have existed had the environmental damage not occurred, estimated on
the basis of best information available”. To this effect, a measurable adverse
change is estimated relative to baseline condition.
������������������
British Standard
19 EU Directive 2000/60/EC

32 | CEA
Environmental liability

Transposition laws are not the only laws that require measures to be taken to
offset the loss of protected natural habitats and species if damage is likely to be
caused to such natural resources. Such measures are also included in laws which
have transposed the Birds Directive, the Habitats Directive and the Environmental
Impact Assessment Directive20.

6.4 Elements of the investigation and development of the


conceptual model
The circumstances and context of the risk assessment will determine the
criteria for evaluation, the practicality and cost effectiveness of investigation of
a particular operational activity. A focused investigation should be based on a
specifically designed environmental brief that fits the underwriter’s basic model
for hazard analysis. An example of a basic model for hazard analysis is provided
by Busenhart, et al. (2007)21.

As part of the conceptual “source-pathway-receptor” model development, the


elements that may be considered for review are outlined in Sections 6.4.1 and
6.4.2 below. The development of the conceptual model may require a detailed
desk-based investigation concerning the occupational activity, and may, following
further analysis and at the discretion of the underwriter, be revised and updated
with further investigation. The primary objective of this exercise is to compile and
review information from which possible source-pathway-receptor relationships
can be identified. This would include an evaluation of the potential for and/
or imminent threat of adverse environmental impact from current activities to
water, land, protected species or natural habitats.

Some other benefits gained from the development of the conceptual model may
be to:

• evaluate the liability status of the activities, ie whether they may be subject
to a strict or fault-based liability regime under environmental liability
laws22
• document the ownership and operation history of the activity
• evaluate details of any pre-existing site conditions and associated
environmental liabilities.

The investigation may include technical and environmental, and legal and
corporate elements.

20 Council Directive 79/409/EEC of 2 April 1979 on the conservation of wild birds, (OJ L 103 of
25.04.1979, p1-18)
Council Directive 92/43/EEC of 21 May 1992 on the conservation of natural habitats and of wild
fauna and flora, (OJ L 206, 22.7.1992, p7–50)
Council Directive 85/337/EEC of 27 June 1985 on the assessment of the effects of certain public
and private projects on the environment, (OJ L 175, 5.7.1985, p40) as amended by Directive
97/11/EC of 3 March 1997 (OJ L 73, 14.3.97, p5)
21 Busenhart, J., Baumann, P., Schauer, C., Orth, M., & Wilke, B. (2007) “Insuring environmental
damage in the European Union”, Technical Publishing Casualty, Swiss Reinsurance Company,
Swiss Re publications, Order No.1503205_07 (email: publications@swissre.com)
22 It is proposed by Swiss Re that the differentiation between strict liability and fault-based liability
facilitates an initial separation of risks. The main differentiating factor is that non-“Annex III”
activities have a lower risk potential. Busenhart, et al., 2007, Section 5, p36

CEA | 33
Environmental liability

6.4.1 Technical and environmental elements


• the location and geographical extent of operation
• the nature of the activity, ie processes and associated resource requirements
and management, for example types of materials used and stored, handling
of materials, waste generation and handling, transportation, etc.
• specific details of major contaminants used, stored or transported,
including current state of knowledge concerning freight and transport
mechanisms, toxicity effects and attributes
• environmental information concerning the site(s) (of the occupational
activity) and the local setting including, for example:

layout of site(s), including any natural (eg waterways) and man-


made (eg gas, electricity, water, sewage, telecommunications,
railways) features
layout of site setting/local environment(s), including any natural
and man-made feature
local and regional hydrology, geology and hydrogeology
geochemistry and ecology of the site(s) and the local environment

• details concerning current environmental damage mitigation and


prevention measures present on-site, eg storage and spill containment
features
• information concerning any pre-existing conditions and any associated
remediation or monitoring and compliance, and current status (ie if
completed or ongoing)
• identification of potential pathways and receptors as defined under the
environmental liability laws:

human receptors
nearby residences and recreational facilities
nearby industrial, commercial and retail areas
schools, hospitals, institutions and other places of public assembly

ecological/environmental receptors
protected sites and habitats
protected species
water catchment areas and supplies for human consumption
coastal or freshwater habitats

• identification of other potential pathways and receptors


• evaluation of the preliminary source-pathway-receptor model scenario
based on the additional information review
• existing reports or studies concerning potential human and environmental/
ecological receptors

6.4.2 Legal and corporate elements


There are many categories to consider, which were published in full on page 13
of last year’s report, which is reproduced here as Annex 10.3.

34 | CEA
Environmental liability

A summary of the key points is:

• the identity of the operator(s) as defined in the transposition law


• a chronology of the site/facility ownership and operation dates
• management structure of the operator
• licences, permits or other environmental regulatory authorisations
pertaining to the activity
• written environmental policy objectives and accreditation credentials
• work procedures and practices
• procedures for assessment/auditing of the environmental management
system
• procedures for review and update of the environmental management
policy and procedures
• general training procedures
• emergency training procedures
• dates, timeframes and details concerning previous emissions, non-
compliance events, permit excesses, notifications or warnings from the
regulatory authority, fines or court proceedings
• response measures and lessons learned from the above
• additional information gathered through interview and/or liaison with
relevant operations personnel

A number of existing risk assessment methodologies exist, including those


relating to the potential impacts of GMOs on the environment23.

The Risk-mapping table in Annex 10.2 summarises two examples of occupational


activities and outlines the associated activities of concern and potential issues
associated with each activity which may form part of the underwriter’s conceptual
model.

6.5 Adopting efficient and feasible risk assessment methods


6.5.1 Introduction
The following section provides a general guide to the completion of a structured,
consistent, transparent and objective approach to the completion of an
Environmental Risk Assessment (ERA).

This section is intended to provide information for a range of organisations including


large, medium and small businesses/enterprises which operate at fixed locations as
well as non-site-specific or mobile operations such as the transport industry.

������������������������������������������������������������������������������������������������������
William S. Klingmuller “Risk Assessment for Deliberate Releases: the Possible Impact of Genetically
Engineered Micro-organisms on the Environment”, Springer-Verlag GmbH & Co. ISBN 3 540
189300 (1988)
Anne Ingeborg Myhr and Terje Traavik “The precautionary principle applied to deliberate release of
genetically modified organisms (GMOs)”, Microbial Ecology in Health and Disease, 1999, 11:65-74
Lindhurst, R.A., Bourdeau, P. and Tardiff, R.G. (eds) “Methods to assess the effects of chemicals
on ecosystems”, p436, Chichester: Wiley (1995)
UK DEFRA and UK Environment Agency “Guidelines for Environmental Risk Assessment and
Management”, 2 August 2000, last modified 19 September 2002, http://www.defra.gov.uk/
environment/risk/eramguide/
UK DETR “Guidance for Environmental Risk Assessment and Management”
Ferguson et al., “Risk Assessment for contaminated sites in Europe” Vol .1, Scientific Basis, 1998,
LQM Press, Nottingham

CEA | 35
Environmental liability

The risk assessment guide should be useful not only for insurers, but also for
other stakeholders such as risk managers and environmental regulators.

The effort devoted to the ERA should not need to be duplicated by each interested
party. Therefore, the ERA report should compile all relevant risk aspects and be
produced and drafted in a way that can be acceptable to all.

6.5.2 Requirements and content of the ERA


The information used for the preparation of the ERA report may be derived from
numerous sources including for example:

• previous environmental investigations and assessments, including, for


example, intrusive site investigations
• national and international databases of information regarding geology,
hydrogeology, water quality, designated sites and protected species, etc.
• permit/licence compliance reports and audits
• environmental impact assessments
• environmental management system compliance reports and audit reports
• regulatory compliance audits
• other project-specific documents such as work specifications, tender
documents, method statements, site-specific risk assessments

The information compilation, review and evaluation process requires clear


objectives, a consistent and thorough approach and sound professional
judgement.

It is therefore recommended that the ERA be embodied in a report that fulfils the
following requirements:

Recommended content:
• objectives and scope
• methodology used, which is sufficiently recognised, according to national
or international standards24
• description of the assessed activity, including main and complementary
activities and relevant licences, permits or other regulatory orders.
Where the activity is subject to an administrative permit or licence, this
description should be the same as, or make reference to, the description
of the authorised activity
• identification and description of the possible initiating events
• identification, description and prioritisation of the accident scenarios and
perils
• identification and description of the natural resources that would potentially
be damaged in the case of an occurrence of the identified scenario(s)
• measurement of the status of baseline condition of the natural resources
exposed to the risk, with special attention to the known or suspected
historical pollution
• identification of the environmental conditions that may modify the
consequences of the occurrence

24 For example the Spanish UNE 150008:2008 Environmental Risk Analysis and Assessment; ISO
14015:2001 Environmental Assessment of Sites and Organisations (EASO)

36 | CEA
Environmental liability

• allocation of a probability to each identified scenario


• allocation of a probability to each initiating event
• estimation of the consequences linked to each scenario/event
• economic quantification of the potential environmental damage linked
with each scenario. The quantification should include the costs of technical
reports, restoration project, periodical reviews necessary for the fulfilment
of the complete restoration
• estimation of the risk — the result of multiplying the probability of each
event by the estimated economic cost
• identification of specific risk management features that could improve the
insurability or affect the premium of the individual risk

Conditions of admissibility of the report


The report should be prepared by an independent professional with accredited
technical capability, or the operator or a person authorised to act on behalf of
the operator.

In the second case, it is recommended that the report be verified by an independent


person who is suitably qualified.

6.6 Examples of information sources for risk assessment


6.6.1 Major Accident Reporting System (MARS)25
The European Commission’s Major Accident Reporting System (MARS) is based
on the requirements of Seveso II and dedicated to collect, in a consistent way, data
on major industrial accidents involving dangerous substances from EU member
states. The data can be analysed and processed to create sub-sets of accident
data and results. It is operated and maintained by the Major Accidents Hazards
Bureau (MAHB). MARS holds information on over 450 major accident events,
some of which include an element of pollution or environmental damage.

MARS represents a modern information exchange and analysis tool which is


made up of two connected parts: one for each local unit (ie for the competent
authority of each EU member state), and one central part for the European
Commission. The local as well as the central parts of this information network
can serve both as data logging systems and, on different levels of complexity, as
data analysis tools.

6.6.2 European exchange circle on flood mapping (EXCIMAP)26


EXCIMAP is a European exchange circle on flood mapping. The aim of EXCIMAP
is to gather all existing experiences and know-how in Europe and to improve
flood mapping practices. EXCIMAP facilitates exchanges between states, helps
to build a common work base, and improves comprehension and communication
on flood mapping in Europe.

Flood maps provide information relevant to the completion of an ERA.

EXCIMAP established a guide to give an overview of existing good practices in

��������������������������������������������������
http://mahbsrv.jrc.it/Activities-WhatIsMars.html
������������������������������������������������������������������������
http://ec.europa.eu/environment/water/flood_risk/flood_atlas/index.htm

CEA | 37
Environmental liability

flood mapping in Europe, including an atlas of examples from all over Europe.

6.6.3 German tool for classification of flood zones (ZÜRS)


The German insurance association (GDV) has developed a numeric tool for
classifying flood zones27 (see Annex 10.5). This system was first released in 2001
and further improved through the development of ZÜRS Geo, a geographic
information system (GIS)-based online tool.

Access to the ZÜRS Geo database is restricted to GDV members.

The address of the street or the geographic coordinates are sufficient inputs for
all three modules of ZÜRS Geo. The three modules are:

• Basic Module: this serves for use of geo-data across insurance lines,
including use of GIS functionalities without requiring a GIS for the
insurance industry
• Flooding Module: this assesses the risk of flooding and is particularly
relevant to the property sector
• Third Party Liability (TPL) Module: this assesses the environmental risk
related to a location in relation to, for example, protected species and
protected areas

The TPL Module allows both a standard and an expert level of interrogation. The
expert interrogation is intended for individual analysis of a single insured location.
It is possible to select the required data layers and specific issues relevant for the
selection. For each inquiry, the following possibilities exist:

• which potential receptor is nearest to the insured location with an output


in metres and distance ranges
• which potential receptor of each category (eg natural habitats) is nearest
to the insured location with an output in metres and distance ranges for
each individual category

The main information provided by the TPL Module includes:

• Explanation of distance ranges defined on the basis of statistical evaluations,


for example on distances between industrial areas and potential areas of risk:

large radius of potential impact


medium radius of potential impact
low radius of potential impact
very low radius of potential impact (for example limited to the site
of interest)

• aerial photographs and topographical maps


• data on water and protected water
• protected areas under the Habitats Directive
• protected areas under the Birds Directive
• nature reserves, nature parks, national parks, and biosphere reserves

27 ZÜRS Zonierungssystem für Überschwemmung, Hochwasser und Rückstau

38 | CEA
Environmental liability

6.6.4 French tool for classification of natural disasters

In 2000, the French insurance market created MRN28 after huge losses resulted
from storms (eg Lothar and Martin), large floods and subsidence (see Annex
10.5).

A GIS platform29 was designed in 2006 with the following sections:

• a generic section common to all types of risk, including:

monitoring availability and gathering of data, acquisition of numeric


data sets
downstream processes such as analyses, reports, methods and
models

• a risk-specific section dealing with products and services, such as geo-


services and studies, available to insurance associations and companies,
as well as public authorities.

Further developments are under discussion to integrate GIS data on protected


areas, watercourses, groundwater and land use.

6.7 Limitations and restrictions on the use of tools


The database information and maps are owned and operated by various
organisations that operate under the aegis of private industry, local or national
governments, or international institutions.

It is the user’s responsibility to ensure that the data are fit for any intended use
and to comply with all relevant terms and conditions associated with their use.
Users should be familiar with the terms and conditions of usage of each database
resource and understand the limitations associated with the data, for example:

• relevant copyright, licensing and fee requirements associated with the use
of the databases and any maps, reports and information generated from
them
• the grid area covered and level of accuracy of the maps and data. There may
be errors due to differing map scales used to calculate the grid references,
as many maps may have been developed before the widespread use of
GPS
• the status of the database/map development (eg whether it comprises a
complete dataset)
• how frequently the dataset is updated and when it was last updated to
take into account updates in legislation or alterations to site boundaries,
etc.
• for biological data, whether data was collected at a time of day and year

28 MRN (Mission Risques Naturels): an association between the FFSA (Fédération Française des
Sociétés d’Assurances) and GEMA (Groupement des Entreprises Mutuelles d’Assurances)
29 Editors of the MRN database include: Institut Géographique National (IGN), Ministère de
l’Environnement et du Développement Durable (MEEDDAT), local authorities and flood plain
management authorities, Institut Français de l’Environnement (IFEN), Le Réseau National des
Données sur l’Eau (RNDE), Infoterre (BRGM), Spot Image.

CEA | 39
Environmental liability

appropriate to the species. Biological records may be specific to the date


of recording and may not necessarily imply the continuance of the species
at a site
• absence of information in the dataset may not necessarily indicate an
absence of records. For example, in relation to biological datasets, for
a given area or species the area or species may simply be unrecorded.
Similarly, any absence of information in the dataset for an area does not
necessarily imply a low biodiversity value for that area
• the dataset references may be different to legal definitions
• the digital data may contain minor errors that materially affect the data
performance
• whether files available for downloading are free of viruses or similar
contamination or destructive features
• risk of ambiguous identification of location (eg coordinates or postal
address)

6.8 How to decide on risk


This section focuses on the approaches insurers can take when making
underwriting decisions on the level of risk associated with a particular site or
insured.

6.8.1 Current approach


To use the UK as an example, environmental liability is covered either by a public
liability (PL) policy (sudden and accidental cover for claims made for damage
in tort) or an EIL policy (covering loss arising from legal liability for pollution
conditions, whether sudden and accidental or gradual in nature).

As a consequence of the types of coverage being provided, underwriters from the


PL and EIL markets take a differing approach to risk evaluation. The majority of
EIL underwriters have a background in environmental consultancy or engineering
that imparts a level of professional judgement that they use in determining
pricing, terms and conditions. PL underwriters tend to take more of an actuarial
view based on past losses/claims and hazard assessment associated with the
applicants operations. The two approaches are described in more detail below:

• The EIL underwriting approach is based on environmental risk assessment


(source/pathway/receptor) as described above, as opposed to attempting to
quantify the likely impact associated with a particular event. Underwriters
will take the information provided in environmental surveys supplied by the
applicant and review the risks associated with each site on its own merits.
The risk assessment approach means that there are certain key questions
on which underwriters will have to satisfy themselves (eg sensitivity of
surrounding environs, applicant’s risk management procedures and details
of any known claims or circumstances) but an underwriter will also call
on judgement based on their previous experiences in the environmental
consultancy/engineering sectors; they may have worked on, or in the
locality of, the site being reviewed, or be familiar with the applicant’s risk

40 | CEA
Environmental liability

management procedures. All this knowledge will be used when deciding


the likelihood of a claim occurring, where claims are likely to come from
and therefore to what extent the risk is insurable.
• A PL underwriter will review the frequency and severity of past sudden
and accidental events, extrapolating that experience in an effort to predict
the scale of future losses under the policy from which a maximum possible
loss (MPL) can be established. This will be in addition to an assessment of
the applicant’s risk management practices.

6.8.2 Implications of the ELD for underwriting approaches


It is commonly accepted by PL and EIL underwriters that techniques, approaches and
therefore costs associated with the remediation of pollution are well understood
and that consequently it is possible to have an idea of the likely scope and cost
of any potential remediation. Where there is a degree of uncertainty is the costs
of compensation for either the inability to remediate the damaged resource to
baseline through primary remediation alone (complementary remediation) and/or
the loss to the environment between the point of damage and attaining baseline
conditions (interim losses associated with compensatory remediation). So how
will this uncertainty affect the underwriting process?

• EIL
There will be a greater need to understand the sensitivity of the site
environs in terms of the types of species and the uniqueness of the
habitats present but this represents an extension of existing practice
as opposed to something completely new. Other criteria such as the
applicant’s risk management and the ability of ground and groundwater
conditions beneath the site to act as pathways for pollution are already
assessed as part of the underwriting approach.
• PL
As discussed above, PL underwriting is based at least partly on loss
experience to establish the MPL as well as the insured’s risk management
practices. Compensatory and complementary remediation creates issues
for the PL market in that the loss experience to understand the MPL
is not readily available. The PL market is looking to use geographical
information systems and hazard/industry risk assessments as a means to
assist with determining pricing, terms and conditions30, but this approach
has yet to be widely formalised. As the PL market also covers loss outside
of pollution, this brings an extra dimension to the assessment process
that has to be understood.

Both lines of insurance provide cover for costs incurred in the defence or evaluation
of loss. While this may not influence how to decide on a risk directly it is likely to have
a bearing on the terms that an underwriter will apply to a risk. As losses associated
with the more subjective elements of the ELD (compensatory remediation) are less
well understood it follows that determination of that loss may take longer and have
greater expense associated with it. This will be an issue that underwriters will have to
consider as part of their overall view of a risk when setting terms and conditions.

30 Busenhart, et al., 2007

CEA | 41
Environmental liability

7. Adopting efficient claims management criteria


Good underwriting is not sufficient if insurers lack the skills to handle claims.
As mentioned above, the ELD requires insurance companies to acquire new
underwriting skills. In addition, they also need to develop new claims management
expertise.

Insurance is a promise to pay claims in the event that the policyholder suffers
an insured loss. It is at this moment of misfortune that the insured really needs
professional, competent and efficient claims services.

7.1 General remarks


Insurers have a wealth of experience in handling claims. In the area of
environmental liability, this expertise mainly covers “traditional damage”, ie
bodily injury, property damage and some financial losses (such as loss prevention
costs). However, transposition laws introduce new liabilities and remedial
measures of which key stakeholders (including the insurance industry) have very
little experience. As a result, the new skills that insurers need to develop may vary
in different EU member states in view of the variations in transposition.

It may be helpful to develop that expertise by directing all possible cases to a


group of claims specialists to handle. This may also be important where third
party damage claims have an ancillary ELD aspect (eg damage to third party
property which also has an impact on the environment or where different lines
of business are involved).

7.2 Specifics of environmental claims


Environmental liability claims involve some specific elements that require the
insurer to approach claims handling from a different perspective than that used
to deal with GTPL:

• The claimant is the competent authority. Persons affected by the


environmental damage are not entitled to claim directly but may request
action of the competent authority. This possibility is extended to persons
having a “sufficient interest” or alleging the “impairment of a right”.
EU member states may also extend these rights in cases where there is
an imminent threat of damage. Independently, these persons may claim
directly under civil liability, if any such liability exists.
• The competent authority is empowered to give instructions to the
potentially liable party on the preventive and remedial measures to be
taken, or to take such measures itself.
• The potentially liable party has a duty to inform the competent authority
whenever:

an imminent threat of damage is not averted by the preventive


measures taken
environmental damage has actually occurred. Such information has
to be provided without delay and before knowing the significance

42 | CEA
Environmental liability

of the potential damage and thus the extent of potential liability


under the ELD.

• The potentially liable party has to submit potential remedial measures to the
competent authority, which will ultimately decide on the implementation
of measures with its cooperation.
• The damage assessment, the remediation project and its execution require
specialist adjusters and contractors who may not be prepared as this is a
new area.
• The remedial measures implemented will have to be monitored throughout
the remediation period, in order to allow:

the assessment of the effectiveness of the remediation and the


timely implementation of corrective measures
the determination of the date remediation is finished (and thus the
point at which the insurer can close the file)
the identification of possible effects of external conditions for which
the potentially liable party would not be responsible (eg climate
change)

• All these elements should be done in agreement with the competent


authority.
• Since the claimant is the competent authority and the legal procedure is
administrative rather than civil, the insured position is more restrictive.

Claims handlers may therefore wish to consider the points set out below.

7.3 Cooperation with the competent authority


The competent authority is responsible for either accepting the preventive or
remedial action proposed by the responsible operator or determining its own
preventive or remedial measures.

However, insurers may have a significant interest and will wish to be involved
in this decision-making process. If they are expected to pay the costs of the
preventive and remedial actions, insurers will wish to exercise a degree of control
over the claims.

Therefore, an effective working relationship with the competent authorities


should be encouraged to ensure that insurers are able to manage their business
properly and to support the competent authorities in complying with their
responsibilities.

In particular, this working relationship should cover:

• the assessment of the environmental damage: has there been “significant


damage” according to the criteria defined in transposition law?
• identification of the occupational activities that have caused the environmental
damage or imminent threat of such damage. Who is/are the responsible
operator(s) or third party(ies)? What is the liability regime to apply (strict
liability and/or fault-based liability according to transposition law)?

CEA | 43
Environmental liability

• determination of the most effective and cost-efficient measures


to remediate the environmental damage, with special attention to
compensatory remediation
• the development of methodologies to assist in determining and calculating
the level of compensatory remediation required, as there are at present
neither guidelines for nor experience of calculating the equivalency
of this kind of harm. Unlike primary and complementary remediation,
which relates to the actual recovery of the baseline condition prior to the
damage, compensatory remediation has no restorative function. It is not
concerned with the cost of restoring the baseline condition or the original
environmental benefit, but with compensating for the loss of availability
of the environmental services for the period of time needed to recover the
baseline condition
• the fixing of the effectiveness of the remediation

This cooperation is even more important in cases of cross-border damage that


involve more than one competent authority. Such cases include internal cross-
border damage, where a single EU member state has delegated authority to a
regional level, or external cross-border damage, where damage originates in one
state but the environmental impact has spread into neighbouring countries.

7.4 Claims-handling under the insurance policy


The claims management adopted by insurers is also determined by the scope and
limits of the insurance policy:

• scope of insurance coverage vs. liability of the insured operator


• notification requirements placed on the insured in the event of
environmental damage or imminent threat of such damage. Insurers
may need to consider amending their claims notification requirements or
conditions, especially if there are short time limits for taking advantage
of defences or exemptions (eg in the UK, to benefit from both the permit
defence and the state of the art defence an appeal has to be lodged
within 28 days)
• the insured is legally obliged to provide information to the competent
authority and to take preventive and remedial measures. Naturally, insurers
will wish to ensure that they can exercise a degree of control over the
claim, including the level of cooperation by the insured
• how are administrative, legal and enforcement costs handled in the policy?
Are they included in the sum insured, within a sub-limit or in addition to
the sum insured?
• which types of remedial measures are covered in the insurance policy:
primary remediation, complementary remediation and compensatory
remediation? Are any types of remedial measures (eg compensatory
remediation) subject to a sub-limit? Are there any other sub-limits?

44 | CEA
Environmental liability

7.5 Assessment of environmental damage


Where environmental damage has occurred or where there is a threat of such
damage, an assessment of what has happened needs to be carried out and the
responsible operator/third party needs to be identified.

“Environmental damage” is considered to be any damage:

• to protected species and natural habitats that has significant adverse


effects on their conservation status
• to water that significantly adversely affects its status and/or potential
• to land that creates a significant risk to human health

taking into consideration not only the natural resources but also the functions
they perform for the benefit of another natural resource or the public (ie natural
resource services).

In the case of an imminent threat of damage, emergency steps may need to be


considered. The liable operator/insured will initiate measures to prevent damage
to land, water or protected species and habitats.

In the case of environmental damage that has already occurred, the liable
operator/insured will have to supply the competent authorities with sufficient
information to determine whether or not there is environmental damage
under the transposition law. The ELD itself does not include any definition of
“significant”, but explanation may have been introduced in the applicable law(s).
The information will concern the following:

• identification of the agent that originated the damage


• identification of the affected resources and services
• quantification of the damage

In both cases and in parallel, the insured should be obliged to notify the loss to
its insurer promptly. This should promote a close working relationship between
the insured, the insurer and/or the experts, and the competent authorities from
the start.

For these purposes, insurers may well have to recruit specialists in this area, eg
environmental experts and/or loss adjusters.

7.5.1 Gathering underwriting assessment information


The risk assessment information gathered during the underwriting process may
provide useful data for claims management. Such information is likely to cover
such areas as:

• the activities of the insured (eg process, raw materials, products)


• the environmental characteristics of the insured’s sites and in the possibly
affected area (eg protected areas/species, watercourses, geological
aspects)
• the possible measures for preventing or minimising land, water or
protected species and habitats

CEA | 45
Environmental liability

A detailed, risk-specific assessment of the environmental information during the


underwriting process is of considerable value in the event of a future loss. Indeed,
when speaking of remediation, transposition laws may refer to the “baseline
condition”, which is assessed on the best information available.

7.5.2 Identification of applicable laws and competent authorities


Claims management needs to identify the applicable laws (including defences)
and the competent authorities based on the extent of the loss event, eg damage
within the boundaries of one state and/or the consequences of cross-border
damage.

7.5.3 Compiling relevant loss information


All relevant loss information needs to be put together to make an assessment of
the damage and identify the emissions that have occurred and their environmental
impact.

This information is required to answer the following questions:

• Is the damage “significant”?


• Is there a causal link between activity and environmental damage, including
third party responsibility?
• Which activity is responsible for the damage: occupational vs. non-
occupational, dangerous activities listed in the transposition law or not?
• If an activity is not specifically listed in the transposition law, is the damage
caused by fault or negligence?
• What are the baseline conditions of the affected natural resources (eg
water, protected species and natural habitats) and services?
• Is there any other potential damage to insured or third party properties?

7.5.4 Nature of the incident


Types of data and information that might be compiled include:

• detailed description of the incident


• timing and duration of the event
• environmental data such as weather conditions, temperature, currents,
tides
• identification of resources and services potentially exposed or affected

7.5.5 Characterisation of the damaging agent


The following are examples of categories of damaging agents:

• chemical release

quantity of harmful substances spilled


relevant description of the substance: physical and chemical
properties relevant to its danger, toxicity, potential for
bioaccumulation and biodegradability/persistence
capacity to interact with other existing substances

46 | CEA
Environmental liability

• physical impact

type and properties

• biological agent (including external invasive species)

all data necessary to their full characterisation


capacity to persist, to damage existing species or organisms or
interact with them

• fire

combustible material in place (quantity and type)

7.5.6 Characterisation of the affected natural resources and services


The following should be identified:

• the pathways of the damaging agents (including the air), as well as the
potential or actual receptors (eg land, water, protected species and natural
habitats) with special attention to those natural resources more likely to be
damaged and to weaken the ecosystem
• the level or quantity of environmental services (eg ecological, human)
provided by the actually or potentially affected resources

For each resource and service affected, a comparison should be drawn between
“baseline condition” and “damaged condition”.

7.5.7 Quantification of the damage


The damage should be quantified through the evaluation of its extent, severity
and duration:

• the extent of the damage takes into account the affected resources (ie
land, water, protected species or natural habitats) and/or services, and
covers the characteristics of the damaging agent and the receptor(s)
• the severity of the damage should be estimated through the level of
resources and/or services affected, particularly in relation to:

baseline conditions in the case of damage to water and protected


species and natural habitats
the significance of adverse risk to human health in the case of land
damage

The adverse changes will be determined by means of measurable data.

• the duration of the damage is an essential criterion to consider, as it will


give information on the reversibility of the effects on the environment.

7.5.8 Significance of the damage


The significance should be assessed according to:

• the importance of the negative variations in the affected resources and


services provided

CEA | 47
Environmental liability

• the ability of the affected resources and services provided to recover within
a given period, whether naturally or otherwise

Risk to human health will always be considered “significant damage”.

7.5.9 Determination of the baseline condition


The baseline condition is the status of the natural resource if the environmental
damage has not happened, according to the best information available.

The baseline condition is determined using pre-event data from the damaged
site if available or using data from similar unaffected sites.

Specific attention should be paid in the following instances, where the use of
dynamic criteria would be preferable:

• past information shows a clear positive or negative trend. This can be


dealt with by using longer historical periods
• a change in the use of the site had already been approved when the damage
occurred, and this entailed a loss of use of the affected resources

7.6 Remediation of environmental damage


First of all, it is essential to obtain a status report on the measures the polluter/
insured has already initiated to prevent and/or mitigate damage to land, water or
protected species and habitats.

If the competent authority decides that remedial measures should be taken, the
following steps should be envisaged. The insurer should be involved in each of
them.

7.6.1 Identification and choice of remedial measures


The insured shall identify potential remedial measures and agree with the
competent authority the most effective and cost-efficient measures for restoring
the environment.

7.6.2 Remedial measures


The remediation of the environmental damage must define all the necessary
measures.

Primary remedial measures


If a decision is made to conduct primary remediation, a technical project will
determine the objectives to be achieved and the actions to be implemented,
aiming to:

• return natural resources and services to their baseline condition


• bring the contaminated land back to a status that no longer poses any
significant risk to human health

Primary remediation can consist of one or more of the following measures:

• natural recovery
• accelerated recovery to baseline condition by various actions:

48 | CEA
Environmental liability

remove or eliminate the damaging agent


restore the quantity and quality of surface water flow
restore the quantity and quality of soil
remove any invasive species
replace and/or regenerate the affected natural resources and species
(composition and structure) in order to accelerate their recovery
to baseline condition and the recovery of the ecological processes
(food chain for instance)
re-establish the environmental services

If several options are possible, an evaluation of each option needs to be carried


out according to the criteria defined in the transposition law. For damage to
water and/or protected species and natural habitats, if primary remediation is
anticipated to quickly restore natural resources to baseline conditions, there may
be no need to consider complementary or compensatory remediation.

Complementary and compensatory measures


For damage to water and/or protected species and natural habitats, when primary
remediation is not expected to quickly restore baseline conditions, additional
remedial measures (either complementary, compensatory or both) may be needed.

The remediation plan should contain an estimation of the loss of natural resources or
environmental services for the time until primary remediation is achieved (ie interim
loss). Compensatory and complementary remediation will then be initiated.

7.7 Monitoring
Monitoring reports are needed to demonstrate that remedial measures are
effective. Insurers would wish to be able to exercise a degree of control over
each step of the monitoring process.

Monitoring should be conducted prior to, during and following implementation


of remedial actions and pursuant to scientifically designed and approved sampling
and analysis methods. The inherent monitoring costs should be included in the
remediation costs.

7.7.1 The remediation project report


The remediation project report has to be agreed with the competent authority
prior to implementation.

It should include:

• objectives of the remediation project


• actions required to implement the project
• anticipated benefits and the time estimated to achieve them
• anticipated duration of ecological recovery
• maintenance actions required to sustain the project
• cost estimates required for implementation, maintenance, monitoring,
project management
• criteria to be used to assess project progress and interim project success
• statistically based monitoring plans during and following implementation

CEA | 49
Environmental liability

• potential collateral risks to human health, environment and inherent


corrective actions, if any
• communication plan

Person(s) responsible for completing the remediation project report and recipients
of the report need to be decided.

Claims handlers, in close cooperation with underwriters, may wish to consider


whether additional minimum requirements defined by EU member states exist.

7.7.2 Follow-ups to the remediation project plan


Monitoring should be conducted periodically according to a pre-defined schedule
to be determined by the remediation project report. This should mainly cover:

• the estimation of the nature, extent, rate and efficiency of the remedial
measures (ie benefits expected and remediation goals actually achieved)
• appropriate responses in the case of unexpected negative developments
• modifications to the plan and corrective actions, if required

It will be supported by progress reports, with content, goals and frequency to be


defined.

7.7.3 The final remediation report


After implementation, the liable party should present to the competent authority
a report on the completion of the remediation project.

It is important for all parties, including the insurer, that the competent authority
gives the liable party its approval of the final remediation report together with a
certificate of completion.

7.8 Procedural aspects


7.8.1 Agreement on determining the remedial measures
The competent authority should, in each case, aim to reach an agreed solution
for the remediation of the environmental damage.

It is highly advisable that any solution to be taken is assessed and agreed on by


all interested parties (eg liable operator, competent authority, financial security
provider). Agreed solutions are especially advisable in those cases where:

• remedial measures are likely to take a long time to be completed


• several alternatives could be suitable for fulfilling the remediation
requirements
• complementary and/or compensatory remediation is needed

The different parties are likely to be committed to achieving a common agreement


on the most effective and cost-efficient solution.

7.8.2 Procedural position of financial guarantee provider


In cases where environmental liability is covered by insurance or other financial
instruments, the competent authority should consider the financial security
provider(s) as a party to the process and send them all pertinent information.

50 | CEA
Environmental liability

8. Implementing efficient data collection tools


The collection of loss data will be beneficial for all parties as it will build knowledge
and expertise. The experience generated will support future remediation plans
(and therefore the environment) as well as improve insurability and support
future insurance product innovation for environmental liabilities.

The table below sets out the advantages of a transparent and uniform exchange
of information.

Stakeholder Advantages
Responsible A quick release of information on accidents would be useful in
operator demonstrating operators’ transparency and help them to gain the
confidence of other stakeholders.
Other concerned parties gain a better knowledge and understanding from
a long-running exchange of information. For instance, knowing the types
of accidents and their possible further developments could help insurers
to better evaluate the risks and could hence lead to more favourable
insurance conditions.
Insurer Settingup a database of environmental damage in EU member states
would enable a quick exchange of statistical information, subsequently
improving underwriting and claim management skills.
Competent The competent authority has a duty to collect specified information on
authority environmental damage and to report it to the EC. A standard collection of
information would facilitate this task and ensure consistency of data.
Moreover, access to wider information would allow the competent
authority to pursue a more effective environmental policy.
Local community This would provide access to information previously unavailable to them.
Businesses Knowing about accidents involving environmental damage enables
businesses/operators to better evaluate both their own risks and risk
management opportunities (eg financial guarantee, insurance transfer).
European This would create a coherent and uniform database, essential for both
Commission a global and detailed view of the effects of the ELD in all EU member
states.

Annex 10.4 provides a questionnaire that insurers may wish to consider when
assessing the nature or extent of adverse changes and determining the appropriate
steps to be taken.

CEA | 51
Environmental liability

9. Closing remarks
The development of sustainable insurance solutions will be improved if there
is legal clarity and certainty in respect of the underlying legal framework. This
relates in particular to insurance solutions provided in an EU member state that
has enacted law closely following the scope of the ELD.

Furthermore, insurance solutions should meet the criteria of insurability, ie


insurers need to:

• set up potential methods for risk assessment and claims management


• establish the basis for calculating insurance costs

Underwriters and claims handlers may wish to consider the points raised in this
report to improve their underwriting skills in developing appropriate insurance
solutions that respond to the needs of their clients and to their own risk appetite
for exposure to environmental liability, and in so doing to expand their claims
management skills to include the challenges posed by the various transposition
laws.

The CEA aims to extend its close cooperation with the European Commission’s
Directorate-General for the Environment and to support the national transposition
authorities, through the national insurance associations, by:

• sharing updates on legal and insurance-related developments in EU


member states, with a special focus on the challenges of cross-border
activities and/or damage
• sharing with interested stakeholders publicly available information on ELD-
related incidents that have been reported and/or losses that have occurred
in EU member states
• supporting the preparation of the report the European Commission is due
to present by 30 April 2010.

52 | CEA
Environmental liability

10. Annexes

CEA | 55
Environmental liability

10.1 Overview of ELD transposition (as at 1 April 2009)


Criteria Date of transposition and name of If not (Expected) Kind of ELD damage regulated Kind of liability
national law transposed differences for protected
yet, date of between species and
expected regions natural habitats
transposition for non-Annex III
activities**
EU       soil surface ground habitat  
member water water &
state  species
Austria* Bundesgesetz über Umwelthaftung Transposition The 9 Yes Yes Yes No, it It has to be
zur Vermeidung und Sanierung von expected soon Bundesländer has to be regulated by the 9
Umweltschäden are responsible regulated Bundesländer
for the by the 9
regulation of Bundes-
damage to länder
biodiversity
Belgium — Ordonnantie van 13.11.2008 van   Yes Yes Yes Yes Yes Fault-based liability
Brussels het Brussels Hoofdstedelijk Gewest
betreffende milieuaansprakelijkheid
met betrekking tot het voorkomen het
herstellen van milieuschade
Belgium — Decreet van 21.12.2007 van de Vlaamse   Yes Yes Yes Yes Yes Fault-based liability
Flanders Gemeenschap ter aanvulling van het
decreet van 5 April 1995 houdende
algemene bepalingen inzake milieubeleid
met de titel XV Milieuschade, tot
omzetting van de Richtlijn 2004/35/
EC van het Europees Parlement en de
Raad van 21 April 2004 betreffende de
milieuaansprakelijkheid met betrekking
tot het voorkomen en herstellen van
milieuschade
Belgium — Decret complétant le decret du 5   Yes Yes Yes Yes Yes Fault-based liability
Wallonia avril 1995 contenant des dispositions
générales concernant la politique
de l’environnement par un titre XV
Dommages environnementaux,
convertissant la Directive 2004/35/CE
du Parlement européen et du Conseil
du 21 avril 2004 sur la responsabilité
environnementale en ce qui concerne la
prevention et la reparation des dommages
environnementaux
Bulgaria Act on Liability with regard to     Yes Yes Yes Yes Fault-based liability
the Prevention and Remedying of
Environmental Damage, 29 April 2007

Cyprus Law 189(I) of 2007. The environmental   No Yes Yes Yes Yes Fault-based liability
liability with regard to prevention and
remedying of environmental damage law,
31 December 2007

Czech Act on prevention and remedying     Yes Yes Yes Yes Strict liability for
Republic environmental damage, 22 April 2008 all occupational
activities
Denmark Act on the investigation, prevention and   No Yes Yes Yes Yes Fault-based liability
remedying of environmental damage,
1 July 2008

Estonia Act on Environmental Liability,   No Yes Yes Yes Yes Fault-based liability
28 November 2008

Finland* Governmental bill for the mainland passed End of May            


in December 2008 - legal text not yet 2009
available. Law for the Aaland islands was
also approved at the end of March 2009,
thus transposition law is expected to be
available shortly

* EU member states in which transposition is not yet complete


** Kind of liability for protected species and natural habitats caused by any occupational activities not listed in Annex III (fault/no fault)

56 | CEA
Environmental liability

Liability also Proportional or Exceptions of Liability for Retroactive Kinds of Determination of Liability for
for damages joint and several liability other historical liability remedial remedial measures environmental damages
caused by liability than ELD pollution before measures in national law beyond the scope of
defective transposition additional the directive
products date to ELD

               

Yes, GMO Joint and several None No No None No Not according to


products liability transposition law

  Joint and several None No No None Yes


liability

  Joint and several None No No None Yes No


liability

  Joint and several None No No None Yes No


liability

Yes, GMO Joint and several Actions during an No No      


products liability acknowledged
crisis pursuant
the Crisis
Management Act
  Proportional liability, None No No None   Yes, extended to areas
distribution done protected through the
by the competent town planning zones and
authority to nationally protected
habitats and species
  Joint and several None       No  
liability

Yes Proportional liability None No No None   Yes, the law does not
distinguish between
Annex III activities

Yes, GMO   None No No None No No


products

               

CEA | 57
Environmental liability

Criteria Date of transposition and name of If not (Expected) Kind of ELD damage regulated Kind of liability
national law transposed differences for protected
yet, date of between species and
expected regions natural habitats
transposition for non-Annex III
activities**
EU       soil surface ground habitat  
member water water &
state  species
France* Incomplete implementation, only the law, Decree No Yes Yes Yes Yes Fault-based liability
not the decree. Law no.2008-757 of 1 expected end (“en cas de faute
August 2008 ‘’relative à la responsibilité of June 2009 ou de négligence de
environnementale et à diverses dispositions l’exploitant’’)
d’adaptation au droit communautaire dans
la domaine de l’environnement”

Germany 14 November 2007: “Gesetz zur   So far no, Yes Yes Yes Yes Fault-based liability
Umsetzung der Richtlinie des Europäischen but possibility
Parlaments und des Rates über die for the 16
Umwelthaftung zur Vermeidung und Bundesländer
Sanierung von Umweltschäden” of 10 to modify
May 2007 (BGBl 2006, I, page 666) the existing
federal rules
individually
at regional
level (through
implementing
provisions)
Greece* A Draft Presidential Degree was released Tranposition No Yes Yes Yes Yes Strict liability for all
on 14 September 2008 procedure is activities
expected to be
concluded by
June 2009

Hungary Act in force since 30 April 2007     Yes Yes Yes Yes  

Ireland Environmental Liability Bill enacted 1 April No Yes Yes Yes    


2009

Italy 3 April 2006, Leg. Decree no.152/2006     Yes Yes Yes Yes Fault-based liability

Latvia Law on Environmental Liability enacted in              


November 2006

Lithuania Environmental Act, 24 March 2005              

Luxembourg* Environmental legislation adopted in Law not yet            


Parliament in March 2009 published

Malta 11 April 2008, L.N. 121/126 of   No Yes Yes Yes Yes Fault-based liability
2008, Prevention and Remedying of
Environmental Damage
Regulations 2008

* EU member states in which transposition is not yet complete


** Kind of liability for protected species and natural habitats caused by any occupational activities not listed in Annex III (fault/no fault)

58 | CEA
Environmental liability

Liability also Proportional or Exceptions of Liability for Retroactive Kinds of Determination of Liability for
for damages joint and several liability other historical liability remedial remedial measures environmental damages
caused by liability than ELD pollution before measures in national law beyond the scope of
defective transposition additional the directive
products date to ELD

               

Not directly Proportional liability, None No No None No concrete No


distribution done information on how
by the competent to determine the
authority remedial measures in
the law (and will not
be included in the
decree)
Yes, fault- Joint and several None No Yes, law None No Not in the transposition
based liability; liability applies to law itself, but German
strict liability damages Bundesboden-
only for GMO caused from schutzgesetz regulates a
products 30 April 2007 broader public liability for
onward soil contamination than
required by the ELD

Yes Joint and several None No So far, None No Yes, protected species
liability no (Draft and habitats include
Presidential also the ones protected
Degree) and defined by relevant
national laws

  Joint and several None, but note:         Yes, protected species


liability no permit defence and habitats include
and no state of also the ones protected
the art defence and defined by relevant
national laws
Yes Joint and several   No Excludes     Draft Bill provides the
liability damage possibility to extend the
caused by an application to further
event which habitats and species
takes place
before 1 April
2009
No Proportional liability None No No None No Yes, species and natural
habitats protected by
national law
               

               

               

Yes Apportionment of   No Yes, 30 April     Any habitat or species not


liability between the 2007 listed in those Annexes
producer and the which the Authority
user of a product designates for equivalent
purposes as
those laid down in the
Birds Directive and the
Habitats Directive

CEA | 59
Environmental liability

Criteria Date of transposition and name of If not (Expected) Kind of ELD damage regulated Kind of liability
national law transposed differences for protected
yet, date of between species and
expected regions natural habitats
transposition for non-Annex III
activities**
EU       soil surface ground habitat  
member water water &
state  species
Netherlands 24 April 2008, Act amending the     Yes Yes Yes   Strict liability
Environmental Management Act extended to other
(Environmental liability) activities as set
out in a general
administrative
order. For all other
activities fault-based
liability
Poland 30 April 2007, Act on the prevention and   No Yes Yes Yes   Fault-based liability
remedying of environmental damage

Portugal 29 July 2008, Decreto - Lei No 147/2008   No Yes Yes   Fault-based liability
Ministerio do ambiente, do ordenamento
do territorio e do desenvolvimento
regional
Romania Emergency Ordonance No.68/2007 as   No Yes Yes Yes Yes Fault-based liability
approved by law No.19/2008

Slovakia Act 359 of 21 June 2007 on the   No Yes Yes Yes Yes Strict liability for
prevention and remedying of named activities
environmental damage and amendments
to some acts

Slovenia* Environmental Act adopted as of 26 July     Yes Yes Yes Yes Fault-based liability
2008 — partially implemented because
awaiting implementation decree

Spain Law 26/2007 of 23 October /   Regional Yes Yes Yes   Fault-based liability
Environmental Liability Act legislation not only for habitats
possible and species, but
but no big for all categories of
differences damages
expected
(mainly
procedural)

Sweden Environmental Act, entered into force     Yes Yes Yes Yes  
1 August 2007

United England — 1 March 2009, 2009 Wales —            


Kingdom* No.153, ENVIRONMENTAL PROTECTION, similar law
ENGLAND; The Environmental Damage to England
(Prevention and Remediation); Regulations expected
2009 shortly;
Gibraltar — December 2008 Scotland and
Northern
Ireland — May
2009

* EU member states in which transposition is not yet complete


** Kind of liability for protected species and natural habitats caused by any occupational activities not listed in Annex III (fault/no fault)

60 | CEA
Environmental liability

Liability also Proportional or Exceptions of Liability for Retroactive Kinds of Determination of Liability for
for damages joint and several liability other historical liability remedial remedial measures environmental damages
caused by liability than ELD pollution before measures in national law beyond the scope of
defective transposition additional the directive
products date to ELD

               

Yes, GMO   None No Yes, 30 April None No  


products 2007

Yes, GMO Joint and several None No No None Yes Regulation Extended cover. All areas
products liability of the Minister of protected under national
Environment on the Polish law
criteria for evaluation
of the occurrence
of environmental
damage (published
in the Journal of
Law, 14 May 2008)

  Joint and several None No No None    


liability

  Joint and several None No No     No


liability

Yes Liability shall be None No No None No No


apportioned to
multiple operators
according to
their share in the
environmental
damage. If share is
unclear, joint and
several liability
No Joint and several None No No   Government shall lay No
liability down standards

No, but recovery Proportional if share None No Yes, 30 April As per the Yes (decree Yes, (1) protected flora
actions from of contribution 2007 Directive, December 2008) and fauna species
the operator are can be estimated, except de- covered under national
explicitly ruled unless other rule is pollution of and regional law and (2)
out applicable soil, which coastline; fault-based
can require liability for all non-Annex
further III activities
actions if
baseline is
not met
               

  In multi-party There is a specific No, excludes No      


causation cases, exclusion of any damage
liability will be damage caused that took
“joint and several” by an act of place before
but operators are terrorism but not 1 March 2009
permitted to recover for war as well as
all or part of the damage that
costs from any other takes place
person who also afterwards
caused the damage but is
caused by
an incident,
event or
emission that
took place
before 1
March

CEA | 61
Environmental liability

10.2 Risk-mapping table


Occupational Activities/events of Potential ELD-specific Other (non-ELD- Notes
activity concern outcomes/issues specific) outcomes/
issues
Case 1 Damage or deterioration • Impact on groundwater • Impact on private
Landfill operation of liner as defined under the property
Water Framework • Personal injury
Listed activity, Directive (WFD) • Economic loss
Annex III, 2 • Impact on surface water
as defined under the
WFD
• Impact on protected
habitats and species
as defined under the
Birds Directive and the
Habitats Directive and
Natura 2000
Damage to leachate As above As above
control system (LCS)
Damage to gas control As above As above
system Release of greenhouse
gases
Capping material • Ingress of water to As above
damage or deterioration landfill body
• Increased leachate
generation and resulting
pressure on LCS may
result in contaminant
migration into landfill
body or off-site

Acceptance of unsuitable • Contaminant migration As above


waste into landfill body
• Contaminant migration
off-site
Flooding Not applicable
Wind damage Not applicable
Case 2 Soil excavation, handling • Run-off (leachate, • Impact on private • A brownfield site may be
Non-listed and storage suspended solids) property subject to risk assessment
occupational • Re-use/recovery • Personal injury • A greenfield site may
activity on-site of low-level • Economic loss provide a habitat for a
contaminated soil • Ground instability/ protected species
Construction • Existing site habitat and subsidence
stage of a protected species
commercial Site dewatering • Water table effects As above • Potential adverse impact
development (temporary during (water-flow direction on surrounding habitats
construction) and quantity) and species
• Water treatment (if • If groundwater is
contaminated) contaminated, recovery/
• Water/effluent discharge disposal issues may arise
• Water recharge
Waste management • Waste classification As above Compliance with Waste
• Identification of suitable Directive and national
waste recovery/disposal regulations
facilities
• Waste-handling and
transport
• Record management
Construction • Potential for accidental As above
spills
• Surface run-off, eg truck
washing, hydrocarbons
from leaking vehicles,
leaking storage
containers

62 | CEA
Environmental liability

10.3 Risk assessment — legal and corporate factors


• local regulatory environment within the area of operations

• the identity and status of the operator(s) as defined in the Directive

• the corporate and management structure of the operator. This may include the quality of the management of
the risk and the competence and authority of the person/people in charge. The higher the seniority the risk
management function is given within the organisation, the greater influence it will have to instigate actions
and obtain adequate funds.

• a chronology of the site/facility ownership and operation dates at least since 30 April 2007 or the effective
date of the transposition law

• history of risk assessments, understanding of the environmental risks associated with the activities and plans
for actions to minimise the risks identified

• implementation of a formal Environment Management System (EMS) as described in EMAS or ISO 14000
and commitment at all levels to implementing risk improvement measures

• work procedures and practices

• regular audits to monitor performance on a continuous basis and subsequent corrective actions

• the extent to which the EMS has been externally certified or verified to recognised standards

• financial strength of the organisation. Companies need to be financially sound to implement a proper risk
management policy. Companies that are struggling financially are unlikely to invest in new equipment or to
maintain it properly. Experience has shown that in difficult times risk management can be one of the first
things to be dispensed with, as it may be seen as not adding to the profit of the organisation. The most
attractive companies for insurers will be those that are successful and will continue to invest in safe and
modern facilities and equipment.

• employee training: all employees should be given proper training in awareness of all aspects of environmental
protection. Best practice needs to be shared and implemented throughout the organisation. It is also
important for refresher training to be given so that employees can keep their knowledge up to date.

• written procedures, widely communicated in the organisation, including general policy, standards, templates,
etc.

• emergency plan that sets out in detail what to do in the event of an emergency, who has responsibility for
each action and stage and associated training of employees to respond to emergencies

• licences, permits or other environmental regulatory authorisations pertaining to the activity

• compliance with statutory requirements and regulations. If applicable dates, timeframes and details concerning
previous emissions, non-compliance events, notifications or warnings from the regulatory authority, fines or
court proceedings.

• contingency plans

• adequate testing and maintenance of plant equipment to ensure it is in good working order

CEA | 63
Environmental liability

10.4 Information to provide on environmental damage


  Information/Description

Date of the event or date of the discovery of the environmental damage  

Municipality  
Part 1
Responsible operator  
General
Information Activity of the operator (general classification)  

Cause or concurrent causes  

 
Affected Natural Resources  

Water

Soil
Part 2
Protected Species and Natural Habitats
Damage
consequence
Third Party  
description
Bodily injury  
Direct and material property damage  
Business interruption  

AMOUNT AND CATEGORY OF EXPENSE (Euro)


defence, assessment of reach
Complementary remediation

to general 3rd party liability


Compensatory remediation

of damage, adjusters, etc.)


Indemnities and expenses

Generic expenses (legal


Emergency/preventive

Primary remediation
avoid damage
measures to

Part 3
related

Responsible party
Estimated period

Measures (to be) taken


of interim losses

Who paid

Emergency/preventive
E                  
measures

Recovery and cleaning-up of


E1
debris

Installation of asphalt surface


E2 over the fire area to avoid
groundwater contamination

Remediation/clean-up (soil
beneath/below warehouse
E3
=> goal: avoid groundwater
contamination

E4

S Damage to soil                  

Remediation/clean-up of
contaminated soil in the
S1 neighbourhood ordered                  
by public authority due to
danger to human health

S2                    

64 | CEA
Environmental liability

AMOUNT AND CATEGORY OF EXPENSE (Euro)

reach of damage, adjusters,


Compensatory remediation

Indemnities and expenses

Generic expenses (legal


defence, assessment of
Emergency/preventive

Primary remediation

to general 3rd party


Complementary
Part 3

avoid damage
measures to

remediation

Responsible party
liability
related

Estimated period
of interim losses
Measures (to be) taken (cont.)

etc.)

Who paid
W Damage to water                  

W1 Primary remediation                  

Investigation/remediation
W11                  
plan/ecological monitoring

Remediation/clean-up of
W12 rivers, river beds, river banks,                  
embankments and wetlands

Gathering of dead fishes,


restocking of fishes and
W13                  
organisms serving as fish
food

Gathering of dead water


W14                  
animals/birds and restocking

Complementary
W2                  
remediation

W21                    

W22                    

Compensatory
W3                  
remediation

W31                    

W32                    

Damage to protected
P                  
species/habitats

P1 Primary remediation                  

Compensation of public
P11                  
authorities

Direct costs

P12 (eg. investigation /                  


remediation / monitoring
programmes, for restoration
of fish)

P13 Stock / restoration of fish                  

P14 Restoration of sediments                  

Complementary
P2                  
remediation

P21                    

Compensatory
P3                  
remediation

P31                    
GRAND
TOTAL
TOTAL

CEA | 65
Environmental liability

10.5 GIS examples


ZÜRS, Germany

Source: GDV1

MRN, France 1st step


Geocoding addresses at risk

2nd step
Choosing the scope of the analysis (eg radius)

3rd step
Generating maps and synthetic report

Output Output
Analyse de l’environnement à proximité

• Detailed information related to each


environmental zone included within the
chosen radius
• Information related to watercourses
• Number of households
• Number of other types of building (per
type)
• etc.

Source: MRN

1 fig. Liability Module: ZÜRS Geo Online (Version 1.0.0, copyright GDV 2008); Distance classe using the example of Dessau; database: copyright
BKG (Waternetwork); copyright Landesumweltämter der Länder and Bundesamt für Naturschutz (Information about protected areas),
copyright NAVTEQ 2007 (roadnetwork)

66 | CEA
Environmental liability

10.6 Glossary
Accident
A sudden, unforeseen and unintended event not under control of the insured which results in injury or damage.

Accumulation control
Measures to avoid ruinous exposure to a particular loss event by tracking all insured risks which might be subject
to accumulation and ensuring that underwriting capacity is not exceeded.

Beneficiary
The person or legal entity that the owner of an insurance policy names to receive the policy benefit if the event
insured against occurs.

BS
British Standards. Standards and information products that promote and share best practice.

CERCLA
Comprehensive Environmental Response, Compensation and Liability Act. Commonly known as “Superfund”, it
was enacted by the US Congress on 11 December 1980. It created a tax on the chemical and petroleum industries
and provided broad Federal authority to respond directly to releases or threatened releases of hazardous substances
that may endanger public health or the environment.

Claims-made principle
Rule which says that if a claim is made during the period when a liability policy is in effect, the insurer must pay
regardless of when the event causing the claim occurred.

Compensatory remediation*
Any action taken to compensate for interim losses of natural resources and/or services that occur from the date of
damage occurring until primary remediation has achieved its full effect.

Competent authority
An administrative authority, as determined by national legislation, which shall be competent for the filing and
overseeing of claims for environmental damage pursuant to national legislation transposing the ELD. These
authorities should be entitled to recover the cost of preventive or remedial measures from an operator within a
reasonable amount of time.

Complementary remediation*
Any remedial measure taken in relation to natural resources and/or services to compensate for the fact that primary
remediation does not result in fully restoring the damaged natural resources and/or services.

Deductible
Amount of an insured loss specified in a policy that the insured has to bear before the insurer provides cover.

DIC
Difference in conditions. Extension to a master policy that allows a multinational company to standardise locally
insured policies by providing additional coverage for perils excluded in local policies as well as for other differences
in insurance conditions.

DIL
Difference in limits. Extension to a master policy that provides for the limit of liability under the master policy to be
applicable in all covered countries, as local policies will usually have lower limits.

CEA | 67
Environmental liability

EASO
Environmental Assessment of Sites and Organisations. The basic aim of an EASO is to establish the relationship
between the environmental aspects of an enterprise or location, and the environmental issues (risks/opportunities)
and their ensuing business consequences (financial or other) as part of the preparations for a proposed business
transaction.

EIL
Environmental impairment liability policies. Frequently offered under this label is third party coverage for damages
caused to third party claimants by pollution conditions originating from the insured plant, including mitigation
costs. This type of policy, also marketed as a pollution legal liability policy (PLL), is written on a claims-made,
manifestation or discovery basis and it generally excludes NRDs, biodiversity damages and the on-site clean-up
obligations mandated by the competent authority.

ELD
Environmental Liability Directive. Directive 2004/35/EC of the European Parliament and of the Council of 21 April
2004 on environmental liability with regard to the prevention and remedying of environmental damage. The
ELD establishes a framework for environmental liability based on the “polluter pays” principle, with a view to
preventing and remedying environmental damage.

EMS
Environmental Management System. Organisational structure, responsibilities, practice, procedures, processes and
resources for implementing and maintaining environmental management.

Environmental damage
Damage to protected species and natural habitats, land and groundwater or surface water that has significant
adverse effects, namely on the favourable conservation of species and habitats, the ecological status and/or potential
of water, or land contamination which poses a significant risk to human health. Such damage is a measurable
adverse change or measurable impairment of a natural resource which may occur directly or indirectly.

ERA
Environmental Risk Assessment. An examination of the risks that may pose a threat of environmental damage to
ecosystems, animals and people. This examination is generally a scientific activity that involves data assessment for
the purpose of identifying and quantifying these risks.

Exposure
Susceptibility to loss. Exposure is defined by the type of value exposed, as well as the probability, severity and
possible financial extent of a loss.

First discovery/manifestation
Coverage trigger that bases insurance cover on the exact time when an injury, damage or other loss is discovered/
manifested.

First party claim


A claim made by the policyholder for reimbursement by the insurance company.

First party clean-up cost insurance


Insurance covering the expenses of restoring a polluted area owned by the insured.

GMOs
Genetically Modified Organisms. Also known as genetically engineered organisms (GEOs). Organisms whose
genetic material has been altered using genetic engineering techniques.

68 | CEA
Environmental liability

Gradual pollution
Environmental damage that occurs over a period of time, eg seepage, and is not caused by a sudden and accidental
event such as a fire, explosion, flood, etc.

Groundwater
Water beneath the earth’s surface in the spaces between soil particles and rock surfaces, including all water
covered by the Water Framework Directive (WFD) 2000/60/EC or wherever so provided in national legislation.

GTPL
General third party liability. The object of this insurance is the insured’s civil liability to compensate third parties for
injury or damage to property suffered by them, and in some cases for financial losses incurred by them, arising from
the business activity or property ownership of the insured party.

Hazard
A specific situation that increases the probability of the occurrence of loss arising from a peril, or that may influence
the extent of the loss.

Imminent threat*
A sufficient likelihood that environmental damage will occur in the near future.

INERIS (Institut National de l’Environnement Industriel et des Risques)


French national institute for industrial environment and risks. The institute carries out research on risk assessment
and evaluation of the impact of industrial activities on health and the environment.

Insured
Person, persons or entity whose risk of specified loss or losses resulting from a peril is protected by an insurance
policy.

Insurer
The company offering insurance coverage against risk of future loss as is specified in the relevant insurance
policy.

Interim losses*
Losses that result from the fact that damaged natural resources and/or services are not able to perform their ecological
functions or provide services to other natural resources or to the public until the primary and complementary
remedial measures have taken effect. It does not consist of financial compensation to members of the public.

IPPC
Integrated Pollution Prevention and Control. The European Council Directive 96/61/EC of 24 September 1996
concerning integrated pollution prevention and control is about minimising pollution from various industrial
sources throughout the EU. It has been amended four times since it entered into force and was recently codified
as Directive 2008/1/EC.

Local policy
An insurance agreement that covers local activities of an insured in a specific state (eg the local subsidiary of a
multinational parent company).

Master agreement
An insurance contract that covers a multinational parent company for its international activities.

MPL
Maximum probable loss.

CEA | 69
Environmental liability

MTPL
Motor third party liability. Third party liability insurance that applies to civil liability in respect of the use of
vehicles.

Multinational programme
An insurance programme composed of a master policy issued in the country of the head office and local
policies issued in the countries of branches, that applies difference in conditions (DIC) or difference in limits (DIL)
concepts.

NRD
Natural Resource Damage. A damage affecting naturally occurring substances that are considered valuable in their
relatively unmodified natural form.

Occurrence
An event that results in an insured loss. In some lines of business, such as liability, an occurrence is distinguished
from accident in that the loss does not have to be sudden and fortuitous and can result from continuous or
repeated exposure that results in bodily injury or property damage neither expected nor intended by the insured.

Operator*
Any person (natural or legal, private or public) who operates or controls an occupational activity or, where it is
provided in national legislation, to whom decisive economic power over the technical functioning of such an
activity has been delegated.

Pathway
The mechanism or route by which a harmful substance comes into contact with or otherwise affects a receptor,
namely via groundwater, surface water or air. The pathway is the second stage of the source-pathway-receptor
relationship.

Permit defence*
Where environmental damage is caused by an emission or event expressly authorised by, and fully in accordance
with the conditions of, an authorisation conferred by or given under EU member state legislation.

PI
Professional Indemnity. This insurance provides cover for businesses in the event that legal action is taken against
them by third parties claiming to have suffered a loss as a result of advice given to them.

Policy
A contract effecting insurance — a promise of compensation for specific, potential future losses resulting from a
peril — including all clauses, riders and endorsements attached.

Policy triggers
Principles agreed in an insurance policy that determine the scope of indemnity in time (eg first discovery/
manifestation, claims made).

Preventive measures*
Any measures taken in response to an event, act or omission that has created an imminent threat of environmental
damage with a view to preventing or minimising that damage.

Primary remediation*
Any remedial measure that returns the damaged natural resources and/or impaired services to, or towards, baseline
condition.

Product liability insurance


Product liability insurance provides protection against financial loss arising out of the legal liability incurred by a

70 | CEA
Environmental liability

manufacturer merchant or distributor because of bodily injury or property damage resulting from the use of an
insured product.

Property insurance
Property insurance compensates an insured whose property is stolen, damaged or destroyed by a covered peril.

Public liability insurance


UK term for general third party liability insurance.

Public liability regime


A liability law that regulates the relation between governmental bodies and natural or legal persons.

RCRA
Resource Conservation and Recovery Act, 42 U.S.C. §§6901-6992k. This piece of US legislation aims to protect
the public from harm caused by waste disposal, encouraging reuse, reduction and recycling to clean up spilled or
improperly stored wastes.

Receptor
The entity (human, animal, plant, water) that is vulnerable to the adverse effects of the harmful substance. The
receptor is the third and final stage of the source-pathway-receptor relationship.

Red List
Also known as “IUCN Red List”. An inventory of the global conservation status of plant and animal species. There
are nine categories in the IUCN Red List system, among which three are considered to be “threatened categories”
(critically endangered, endangered and vulnerable).

REMEDE project
Resource Equivalency Methods for assessing Environmental Damage in the EU. REMEDE is designed to support
Annex II of the ELD which lists different methodologies that can be used for this common framework. The goal
of the REMEDE project is to develop, test and disseminate methods for determining the scale of the remedial
measures necessary to adequately offset environmental damage.

Remedial measures*
Any action or combination of actions, including mitigating or interim measures, to restore, rehabilitate or replace
damaged natural resources and/or impaired services, or to provide an equivalent alternative to those resources or
services as foreseen in Annex II of the ELD.

SAC
Special Area of Conservation. A SAC is defined in EU Directive 92/43/EEC of 21 May 1992 on the conservation of
natural habitats and of wild fauna and flora, also known as the EC Habitats Directive. SACs complement Special
Protection Areas (see SPA below) and together form a network of protected sites across the EU called Natura
2000.

Seveso II
European Council Directive 96/82/EC of 9 December 1996 on the control of major-accident hazards involving
dangerous substances. This Directive aims to improve the safety of sites containing large quantities of dangerous
substances. It is named after the major industrial accident that occurred on 10 July 1976 in a small chemical
manufacturing plant close to Milan, Italy.

SHAPE-RISK
Sharing Experience on Risk Management (Health, Safety and Environment). A European Commission initiative to
establish the basis for the sustained development of European industry, and to do so by optimising the application
of methods of risk management.

CEA | 71
Environmental liability

SPA
Special Protection Area. A designation under the EU Directive 79/409/EEC of 2 April 1979 on the conservation of
wild birds . Together with Special Areas of Conservation or SACs, the SPAs form a network of protected sites across
the EU called Natura 2000.

Stand-alone products policy


A separate liability insurance policy for the manufacturer or supplier of goods against damage caused by their
products.

State of the art defence*


Where environmental damage is caused by an emission or activity which the operator demonstrates was not
considered likely to cause environmental damage according to the state of scientific and technical knowledge at
the time the emission or activity took place.

Sudden and accidental pollution


Pollution caused by a sudden, identifiable, unintended and unexpected incident that takes place in its entirety at
a specific time and place during the period of insurance. Note that this term refers to the moment that the actual
damage occurs, and thus a gradual release or emission of pollution may still result in environmental damage that
is considered “sudden and accidental”. Attention must be paid to each EU member state’s interpretation of this
term as provided in national legislation.

Surface water
Water on the surface of the earth, such as in lakes, rivers, streams, ponds and springs, including all water covered
by the Water Framework Directive (WFD) 2000/60/EC or wherever so provided in national legislation.

Third party
A party that is not a party to the insurance policy. Parties to the policy are typically the insurer and the insured. Third
parties may include private parties and government entities enforcing regulations.

Third party insurance


Insurance to indemnify the insured and other specified persons against their legal liability towards third parties for
death, injury or property damage.

WFD
Water Framework Directive. Directive 2000/60/EC of the European Parliament and of the Council of 23 October
2000 establishes a framework for Community action in the field of water policy to improve water quality (including
marine waters up to 1.6 kilometre from shore) by 2015.

* Note that these definitions coincide with those of the ELD, and that the national legislation of various EU
member states transposing this directive may differ slightly. Please see Annex 10.1 for details of each member
state’s transposition law.

72 | CEA
Environmental liability

10.7 CEA Environmental Liability Taskforce members

Elisabeth Abrassart Stephen Andrews


Director Vice-president, regional liabilities
Assurpol AIG Europe/UK
Tour Franklin La Défense 2 Cedex
92074 Paris la Défense Cedex, France 92079 Paris, France

Phil Bell Jürg Busenhart


Group casualty director Vice-president, casualty underwriting
RSA Swiss Re
One Plantation Place Mythenquai 50/60
30 Fenchurch Street 8022 Zurich, Switzerland
London, EC3M 3BD, UK

Lisa Casali Anthony Dempster


Senior underwriter Partner
Pool Inquinamento Herbert Smith LLP
Münchener Rück Italia Exchange House, Primrose Street
Munich Re Group London, EC2A 2HS, UK
48 Corso Venezia
20121 Milan, Italy

Giovanni Faglia Nils Hellberg


Pool manager Head, liability and credit insurance
Pool Inquinamento GDV
Münchener Rück Italia Willhelmstraße 43
Munich Re Group 10117 Berlin, Germany
48 Corso Venezia
20121 Milan, Italy

José Luis De Heras Herráiz Anke Klein


Manager Environmental liability expert
Pool Español de Riesgos Medioambientales, AIE GDV
C/. García de Paredes 55 Willhelmstraße 43
28010 Madrid, Spain 10117 Berlin, Germany

Pierre Sonigo Dawn Slevin


Secretary general Managing director
Ferma Environmental Liability Services Ltd
Avenue Louis Gribaumont 1 3 Kelso Terrace, St Mary’s Road
1150 Brussels, Belgium Dundalk, County Louth, Ireland

Bernard Tettamanti
Director, casualty underwriting
Swiss Re
Mythenquai 50/60
8022 Zurich, Switzerland

CEA | 73
© CEA aisbl
Brussels, April 2009
All rights reserved
The material, comments and information contained within this publication are for information purposes only and do not constitute
the opinions and/or position of the CEA.
The entire content of “Navigating the Environmental Liability Directive: A practical guide for insurance underwriters and claims
handlers” is subject to copyright with all rights reserved. This information may be used for private or internal purposes, provided
that any copyright or proprietary notices are quoted. Reproduction in part or use for any public purpose is permitted if the source
reference “Navigating the Environmental Liability Directive: A practical guide for insurance underwriters and claims handlers, CEA,
April 2009” is indicated. Courtesy copies are appreciated. Reproduction, distribution and/or sale of this publication as a whole is
prohibited without prior authorisation of the CEA.
The CEA and the authors of this publication offer no guarantee for the accuracy and completeness of its content. All liability for
the integrity, confidentiality or timeliness of this publication or for any damage or loss claimed from the use of information herein
is expressly excluded. Under no circumstances shall the CEA and authors of this publication be liable, either jointly or severally, for
any damage or loss alleged with respect to this publication.
All those involved in the development of this publication, including but not limited to the CEA, the publication’s authors and persons
consulted, were committed to and have duly observed and complied with all competition and anti-trust laws relevant hereto.
CEA aisbl
Square de Meeûs, 29
B-1000 Brussels
Belgium
Tel: +32 2 547 58 11
Fax: +32 2 547 58 19